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

Total Return Index: Definition, Example, Vs. Price Index

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-total-return-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 Total Return Index? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A total return index is a type of equity index that tracks both the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgain.asp">capital gains</a> as well as any cash <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/distribution.asp">distributions</a>, such as dividends or interest, attributed to the components of the index. A look at an index's <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/totalreturn.asp">total return</a> displays a more accurate representation of the index's performance to shareholders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> By assuming <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> are reinvested, it effectively accounts for those stocks in an index that do not issue dividends and instead reinvest their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings.asp" rel="noopener noreferrer">earnings</a> within the underlying company as <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retainedearnings.asp" rel="noopener noreferrer">retained earnings.</a> A total return index can be contrasted with a price return or nominal index. </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 total return index computes the index value based on capital gains plus cash payments such as dividends and interest.</li><li>A total return index, in contrast to a price index, better reflects the actual returns that an investor holding the index components would receive.</li><li>The total return will tend to exceed the nominal return that only accounts for price increases in the assets held.</li><li>Many popular indices compute total return, such as S&amp;P, which produces the S&amp;P 500 Total Return Index (SPTR). </li></ul></div></div></div> <span class="heading-toc" id="toc-total-return-indexes-explained"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Total Return Indexes Explained </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A total return index may be deemed more accurate than other methods that do not account for the activity associated with dividends or distributions, such as those that focus purely on the annual yield. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> For example, an investment may show an annual yield of 4% along with an increase in share price of 6%. While the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/121015/yield-vs-total-return-how-they-differ-and-how-use-them.asp">yield is only a partial reflection</a> of the growth experienced, the total return includes both yields and the increased value of the shares to show a growth of 10%. If the same index experienced a 4% loss instead of a 6% gain in share price, the total return would show as 0%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-example-the-sp-500"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Example: The S&amp;P 500 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The S&amp;P 500 Total Return Index (SPTR) is one example of a total return index. The SPTR is different from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/040915/does-sp-500-index-include-dividends.asp">standard S&amp;P Index (SPX)</a>, which does not include dividend gains. The total return indexes follow a similar pattern in which many <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> operate, where all resulting cash <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payout.asp">payouts</a> are automatically reinvested back into the fund itself. While most total return indexes refer to equity-based indexes, there are total return indexes for bonds that assume that all <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon.asp">coupon</a> payments and <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/redemption.asp">redemptions</a> are reinvested through buying more bonds in the index. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Other total return indexes include the Dow Jones Industrials Total Return Index (DJITR) and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell2000.asp">Russell 2000 Index</a>. </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-differences-between-price-return-and-total-return-index-funds"></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"> Differences Between Price Return and Total Return Index Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Total returns stand in contrast to price returns, which do not take into account dividends and cash payouts. Including dividends makes a significant difference in the return of the fund, as demonstrated by two of the most prominent. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> For instance, the price return for the SPDR S&amp;P 500 ETF (SPY) since it was introduced in 1993 was 789% as of March 10, 2021. The total return price (dividends reinvested), however, is close to 1,400%. The Dow Jones Industrial Average over the 10 years ended in March 2021 had a price return of 162%, while the total return rose to 228%. </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-understanding-index-funds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> Understanding Index Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Index funds are a reflection of the index they are based on. For example, an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indexfund.asp">index fund</a> associated with the S&amp;P 500 may have one of each of the securities included in the index, or may include securities that are deemed to be a representative sample of the index’s performance as a whole. </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 purpose of an index fund is to mirror the activity, or growth, of the index that functions as its benchmark. In that regard, index funds only require passive management when adjustments need to be made to help the index fund keep pace with its associated index. Due to the lower management requirements, the fees associated with index funds may be lower than those that are more actively managed. Additionally, an index fund may be seen as a lower risk since it provides for an innate level of diversification. </p></div>

## What Is a Total Return Index? A total return index is a type of equity index that tracks both the [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) as well as any cash [distributions](https://www.investopedia.com/terms/d/distribution.asp), such as dividends or interest, attributed to the components of the index. A look at an index's [total return](https://www.investopedia.com/terms/t/totalreturn.asp) displays a more accurate representation of the index's performance to shareholders. By assuming [dividends](https://www.investopedia.com/terms/d/dividend.asp) are reinvested, it effectively accounts for those stocks in an index that do not issue dividends and instead reinvest their [earnings](https://www.investopedia.com/terms/e/earnings.asp) within the underlying company as [retained earnings.](https://www.investopedia.com/terms/r/retainedearnings.asp) A total return index can be contrasted with a price return or nominal index. ### Key Takeaways * A total return index computes the index value based on capital gains plus cash payments such as dividends and interest. * A total return index, in contrast to a price index, better reflects the actual returns that an investor holding the index components would receive. * The total return will tend to exceed the nominal return that only accounts for price increases in the assets held. * Many popular indices compute total return, such as S&P, which produces the S&P 500 Total Return Index (SPTR). ## Total Return Indexes Explained A total return index may be deemed more accurate than other methods that do not account for the activity associated with dividends or distributions, such as those that focus purely on the annual yield. For example, an investment may show an annual yield of 4% along with an increase in share price of 6%. While the [yield is only a partial reflection](https://www.investopedia.com/articles/investing/121015/yield-vs-total-return-how-they-differ-and-how-use-them.asp) of the growth experienced, the total return includes both yields and the increased value of the shares to show a growth of 10%. If the same index experienced a 4% loss instead of a 6% gain in share price, the total return would show as 0%. ## Example: The S&P 500 The S&P 500 Total Return Index (SPTR) is one example of a total return index. The SPTR is different from the [standard S&P Index (SPX)](https://www.investopedia.com/ask/answers/040915/does-sp-500-index-include-dividends.asp), which does not include dividend gains. The total return indexes follow a similar pattern in which many [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) operate, where all resulting cash [payouts](https://www.investopedia.com/terms/p/payout.asp) are automatically reinvested back into the fund itself. While most total return indexes refer to equity-based indexes, there are total return indexes for bonds that assume that all [coupon](https://www.investopedia.com/terms/c/coupon.asp) payments and [redemptions](https://www.investopedia.com/terms/r/redemption.asp) are reinvested through buying more bonds in the index. Other total return indexes include the Dow Jones Industrials Total Return Index (DJITR) and the [Russell 2000 Index](https://www.investopedia.com/terms/r/russell2000.asp). ## Differences Between Price Return and Total Return Index Funds Total returns stand in contrast to price returns, which do not take into account dividends and cash payouts. Including dividends makes a significant difference in the return of the fund, as demonstrated by two of the most prominent. For instance, the price return for the SPDR S&P 500 ETF (SPY) since it was introduced in 1993 was 789% as of March 10, 2021. The total return price (dividends reinvested), however, is close to 1,400%. The Dow Jones Industrial Average over the 10 years ended in March 2021 had a price return of 162%, while the total return rose to 228%. ## Understanding Index Funds Index funds are a reflection of the index they are based on. For example, an [index fund](https://www.investopedia.com/terms/i/indexfund.asp) associated with the S&P 500 may have one of each of the securities included in the index, or may include securities that are deemed to be a representative sample of the index’s performance as a whole. The purpose of an index fund is to mirror the activity, or growth, of the index that functions as its benchmark. In that regard, index funds only require passive management when adjustments need to be made to help the index fund keep pace with its associated index. Due to the lower management requirements, the fees associated with index funds may be lower than those that are more actively managed. Additionally, an index fund may be seen as a lower risk since it provides for an innate level of diversification.

What Is a Total Return Index? A total return index is a type of equity index that tracks both the capital gains as well as any cash distributions, such as dividends or interest, attributed to the components of the index. A look at an index's total return displays a more accurate representation of the index's performance to shareholders. By assuming dividends are reinvested, it effectively accounts for those stocks in an index that do not issue dividends and instead reinvest their earnings within the underlying company as retained earnings. A total return index can be contrasted with a price return or nominal index. Key Takeaways A total return index computes the index value based on capital gains plus cash payments such as dividends and interest.A total return index, in contrast to a price index, better reflects the actual returns that an investor holding the index components would receive.The total return will tend to exceed the nominal return that only accounts for price increases in the assets held.Many popular indices compute total return, such as S&P, which produces the S&P 500 Total Return Index (SPTR). Total Return Indexes Explained A total return index may be deemed more accurate than other methods that do not account for the activity associated with dividends or distributions, such as those that focus purely on the annual yield. For example, an investment may show an annual yield of 4% along with an increase in share price of 6%. While the yield is only a partial reflection of the growth experienced, the total return includes both yields and the increased value of the shares to show a growth of 10%. If the same index experienced a 4% loss instead of a 6% gain in share price, the total return would show as 0%. Example: The S&P 500 The S&P 500 Total Return Index (SPTR) is one example of a total return index. The SPTR is different from the standard S&P Index (SPX), which does not include dividend gains. The total return indexes follow a similar pattern in which many mutual funds operate, where all resulting cash payouts are automatically reinvested back into the fund itself. While most total return indexes refer to equity-based indexes, there are total return indexes for bonds that assume that all coupon payments and redemptions are reinvested through buying more bonds in the index. Other total return indexes include the Dow Jones Industrials Total Return Index (DJITR) and the Russell 2000 Index. Differences Between Price Return and Total Return Index Funds Total returns stand in contrast to price returns, which do not take into account dividends and cash payouts. Including dividends makes a significant difference in the return of the fund, as demonstrated by two of the most prominent. For instance, the price return for the SPDR S&P 500 ETF (SPY) since it was introduced in 1993 was 789% as of March 10, 2021. The total return price (dividends reinvested), however, is close to 1,400%. The Dow Jones Industrial Average over the 10 years ended in March 2021 had a price return of 162%, while the total return rose to 228%. Understanding Index Funds Index funds are a reflection of the index they are based on. For example, an index fund associated with the S&P 500 may have one of each of the securities included in the index, or may include securities that are deemed to be a representative sample of the index’s performance as a whole. The purpose of an index fund is to mirror the activity, or growth, of the index that functions as its benchmark. In that regard, index funds only require passive management when adjustments need to be made to help the index fund keep pace with its associated index. Due to the lower management requirements, the fees associated with index funds may be lower than those that are more actively managed. Additionally, an index fund may be seen as a lower risk since it provides for an innate level of diversification.

https://www.investopedia.com/how-211-can-help-with-your-finances-5205531

Dial 211 for Help With Your Finances

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 financial difficulties arise, help is just a phone call away. Dialing 211 will access financial services and resources in your community. This free service is available to the U.S. population covering all 50 states, the District of Columbia, and Puerto Rico.<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_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>211 is a federally designated number to locate social service referrals and other forms of assistance.</li><li>The 211 program covers all 50 states, the District of Columbia, and Puerto Rico.</li><li>The 211 services help families with children, people with disabilities, older Americans, youth, and anyone needing financial assistance.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-211"></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 211? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The 211 network comprises various agencies working together to help residents find resources and assistance. Callers who dial 211 can be connected with local agencies that can help. The service is designed to assist those who are elderly, disabled, or experiencing a personal crisis and accommodates individuals who are not fluent in English, are new to their community, or have limited reading skills.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Services are located for veterans, individuals struggling with mental illnesses or special needs, people experiencing domestic violence, individuals who have encountered a natural disaster, and ex-offenders who need help after incarceration. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/non-profitorganization.asp">Nonprofit organizations</a> like Goodwill and United Way support the service which responded to 15.3 million requests and made 19 million referrals in 2023.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Individuals do not need to qualify to use 211, and resources are available for all.</p></div></div></div> <span class="heading-toc" id="toc-history"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> History </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> A coalition of United Way organizations and community-based groups recognized the need for a national helpline to connect individuals with community resources and services. In 1997, the Federal Communications Commission (FCC) designated "211" as the national abbreviated dialing code, launched in Atlanta, Georgia.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In 2006, Congress passed the "Calling for 2-1-1 Act," which authorized federal funding for 211 services.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="11"></span> By calling this number, individuals are connected with options for help, including federal, state, and local programs that offer financial assistance. </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-financial-assistance"></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"> Financial Assistance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The 211 network operates by referral for financial assistance that includes:<span class="ql-inline-citation" data-cite="2"></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_19-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li>Making rent or mortgage payments</li> <li>Paying utilities (including electric bills, gas bills, propane bills, and water bills)</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/07/medicare-vs-medicaid.asp">Applying for Medicaid or Medicare assistance</a></li> <li>Getting health insurance</li> <li>Covering childcare expenses</li> <li>Paying for medical care or prescription drugs</li> <li>Purchasing food</li> <li>Getting gas money or bus fare</li> <li>Preventing homelessness</li> <li>Paying burial and cremation expenses</li> <li>Training or transportation assistance to get to work</li> <li>Applying for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssi.asp">Supplemental Security Income (SSI)</a><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-programs-and-resources"></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"> Programs and Resources </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Callers with financial needs may be referred to programs such as: </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><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/low-income-home-energy-assistance-program-liheap-5179918">Low Income Home Energy Assistance Program (LIHEAP)</a>: A federal program that funds local agencies to help with home energy bills, energy crises, weatherization, and minor energy-related home repairs.</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/supplemental-nutrition-assistance-program-snap-5187718">Supplemental Nutrition Assistance Program (SNAP)</a>: Provides those struggling with <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/food-insecurity-impacts-economy-8303222">food insecurity</a> a list of food pantries or food banks in their area.</li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/women-s-infants-and-children-s-program-wic-definition-5186356">Women, Infants, and Children (WIC) program</a>: Provides individuals with supplemental food assistance.</li> <li>Debt counseling: For individuals having trouble paying credit cards or loans. A nonprofit <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-counseling.asp">credit counselor</a> can review the financial situation, including budget, spending habits, and debts, to <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-counseling-services-5179499">help develop a solution for managing it</a>.</li> </ul> <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-other-help-offered-by-211"></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"> Other Help Offered by 211 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The 211 network encompasses a broad range of organizations with access to:<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> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <li>Mental health resources</li><li>Drug and alcohol abuse rehabilitation programs</li><li>Elderly care support</li><li>Child, youth, or family support</li><li>Suicide prevention services</li><li>Work assistance services</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-how-211-works"></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 211 Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Callers begin by dialing 211. The call is routed to a local or regional calling center. A 211 center referral specialist will ask what help is required and then connect the caller with an appropriate agency or organization. Callers may need to complete an application with the local social services department or referral agency. </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"> Getting a referral from 211 doesn’t automatically mean that each qualifies for benefits. Social services programs usually base qualifications on income, household size, or financial assets. </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 can also look for help online. Just <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.211.org/about-us/your-local-211">enter your ZIP code</a> on the 211 website to see which resources may be available near you.</p></div></div></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-what-are-some-limitations-to-using-211"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Some Limitations to Using 211?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Though 211 is available in almost all areas of the United States, coverage varies within each state. Due to limited resources and staff, 211 centers may have limited capacity to assist all callers. During high call volume or emergencies, wait times may be longer. There may also be some limitations based on local availability, eligibility criteria, and other factors that change the types of programs offered in different areas.</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-what-kind-of-financial-assistance-does-211-provide"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Kind of Financial Assistance Does 211 Provide?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While 211 does not offer financial assistance directly, the service can connect you with organizations or agencies that do. Some situations for which 211 may be able to offer referrals include rent and mortgage assistance, utility assistance, food assistance, transportation assistance, and homelessness prevention.</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-my-personal-information-safe-when-using-211"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is My Personal Information Safe When Using 211?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>211 is a confidential service. You don’t have to disclose information about yourself or your family. The 211 call center specialists can still provide referrals even if you make calls anonymously.<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_44-0"></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_45-0"> <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_46-0"> 211 connects callers, at no cost, to critical financial and social services in their community. Where 911 is used for more urgent emergencies, 211 is a resource individuals can use for services, including financial assistance. This resource can guide individuals to programs to help prevent homelessness, aid job training, make mortgage payments, or obtain healthcare coverage. </p></div>

When financial difficulties arise, help is just a phone call away. Dialing 211 will access financial services and resources in your community. This free service is available to the U.S. population covering all 50 states, the District of Columbia, and Puerto Rico. ### Key Takeaways * 211 is a federally designated number to locate social service referrals and other forms of assistance. * The 211 program covers all 50 states, the District of Columbia, and Puerto Rico. * The 211 services help families with children, people with disabilities, older Americans, youth, and anyone needing financial assistance. ## What Is 211? The 211 network comprises various agencies working together to help residents find resources and assistance. Callers who dial 211 can be connected with local agencies that can help. The service is designed to assist those who are elderly, disabled, or experiencing a personal crisis and accommodates individuals who are not fluent in English, are new to their community, or have limited reading skills. Services are located for veterans, individuals struggling with mental illnesses or special needs, people experiencing domestic violence, individuals who have encountered a natural disaster, and ex-offenders who need help after incarceration. [Nonprofit organizations](https://www.investopedia.com/terms/n/non-profitorganization.asp) like Goodwill and United Way support the service which responded to 15.3 million requests and made 19 million referrals in 2023. ### Individuals do not need to qualify to use 211, and resources are available for all. ## History A coalition of United Way organizations and community-based groups recognized the need for a national helpline to connect individuals with community resources and services. In 1997, the Federal Communications Commission (FCC) designated "211" as the national abbreviated dialing code, launched in Atlanta, Georgia. In 2006, Congress passed the "Calling for 2-1-1 Act," which authorized federal funding for 211 services. By calling this number, individuals are connected with options for help, including federal, state, and local programs that offer financial assistance. ## Financial Assistance The 211 network operates by referral for financial assistance that includes: * Making rent or mortgage payments * Paying utilities (including electric bills, gas bills, propane bills, and water bills) * [Applying for Medicaid or Medicare assistance](https://www.investopedia.com/articles/pf/07/medicare-vs-medicaid.asp) * Getting health insurance * Covering childcare expenses * Paying for medical care or prescription drugs * Purchasing food * Getting gas money or bus fare * Preventing homelessness * Paying burial and cremation expenses * Training or transportation assistance to get to work * Applying for [Supplemental Security Income (SSI)](https://www.investopedia.com/terms/s/ssi.asp) ## Programs and Resources Callers with financial needs may be referred to programs such as: * [Low Income Home Energy Assistance Program (LIHEAP)](https://www.investopedia.com/low-income-home-energy-assistance-program-liheap-5179918): A federal program that funds local agencies to help with home energy bills, energy crises, weatherization, and minor energy-related home repairs. * [Supplemental Nutrition Assistance Program (SNAP)](https://www.investopedia.com/supplemental-nutrition-assistance-program-snap-5187718): Provides those struggling with [food insecurity](https://www.investopedia.com/food-insecurity-impacts-economy-8303222) a list of food pantries or food banks in their area. * [Women, Infants, and Children (WIC) program](https://www.investopedia.com/women-s-infants-and-children-s-program-wic-definition-5186356): Provides individuals with supplemental food assistance. * Debt counseling: For individuals having trouble paying credit cards or loans. A nonprofit [credit counselor](https://www.investopedia.com/terms/c/credit-counseling.asp) can review the financial situation, including budget, spending habits, and debts, to [help develop a solution for managing it](https://www.investopedia.com/best-credit-counseling-services-5179499). ## Other Help Offered by 211 The 211 network encompasses a broad range of organizations with access to: * Mental health resources * Drug and alcohol abuse rehabilitation programs * Elderly care support * Child, youth, or family support * Suicide prevention services * Work assistance services ## How 211 Works Callers begin by dialing 211. The call is routed to a local or regional calling center. A 211 center referral specialist will ask what help is required and then connect the caller with an appropriate agency or organization. Callers may need to complete an application with the local social services department or referral agency. Getting a referral from 211 doesn’t automatically mean that each qualifies for benefits. Social services programs usually base qualifications on income, household size, or financial assets. ### You can also look for help online. Just [enter your ZIP code](https://www.211.org/about-us/your-local-211) on the 211 website to see which resources may be available near you. ## What Are Some Limitations to Using 211? Though 211 is available in almost all areas of the United States, coverage varies within each state. Due to limited resources and staff, 211 centers may have limited capacity to assist all callers. During high call volume or emergencies, wait times may be longer. There may also be some limitations based on local availability, eligibility criteria, and other factors that change the types of programs offered in different areas. ## What Kind of Financial Assistance Does 211 Provide? While 211 does not offer financial assistance directly, the service can connect you with organizations or agencies that do. Some situations for which 211 may be able to offer referrals include rent and mortgage assistance, utility assistance, food assistance, transportation assistance, and homelessness prevention. ## Is My Personal Information Safe When Using 211? 211 is a confidential service. You don’t have to disclose information about yourself or your family. The 211 call center specialists can still provide referrals even if you make calls anonymously. ## The Bottom Line 211 connects callers, at no cost, to critical financial and social services in their community. Where 911 is used for more urgent emergencies, 211 is a resource individuals can use for services, including financial assistance. This resource can guide individuals to programs to help prevent homelessness, aid job training, make mortgage payments, or obtain healthcare coverage.

When financial difficulties arise, help is just a phone call away. Dialing 211 will access financial services and resources in your community. This free service is available to the U.S. population covering all 50 states, the District of Columbia, and Puerto Rico. Key Takeaways 211 is a federally designated number to locate social service referrals and other forms of assistance.The 211 program covers all 50 states, the District of Columbia, and Puerto Rico.The 211 services help families with children, people with disabilities, older Americans, youth, and anyone needing financial assistance. What Is 211? The 211 network comprises various agencies working together to help residents find resources and assistance. Callers who dial 211 can be connected with local agencies that can help. The service is designed to assist those who are elderly, disabled, or experiencing a personal crisis and accommodates individuals who are not fluent in English, are new to their community, or have limited reading skills. Services are located for veterans, individuals struggling with mental illnesses or special needs, people experiencing domestic violence, individuals who have encountered a natural disaster, and ex-offenders who need help after incarceration. Nonprofit organizations like Goodwill and United Way support the service which responded to 15.3 million requests and made 19 million referrals in 2023. Individuals do not need to qualify to use 211, and resources are available for all. History A coalition of United Way organizations and community-based groups recognized the need for a national helpline to connect individuals with community resources and services. In 1997, the Federal Communications Commission (FCC) designated "211" as the national abbreviated dialing code, launched in Atlanta, Georgia. In 2006, Congress passed the "Calling for 2-1-1 Act," which authorized federal funding for 211 services. By calling this number, individuals are connected with options for help, including federal, state, and local programs that offer financial assistance. Financial Assistance The 211 network operates by referral for financial assistance that includes: Making rent or mortgage payments Paying utilities (including electric bills, gas bills, propane bills, and water bills) Applying for Medicaid or Medicare assistance Getting health insurance Covering childcare expenses Paying for medical care or prescription drugs Purchasing food Getting gas money or bus fare Preventing homelessness Paying burial and cremation expenses Training or transportation assistance to get to work Applying for Supplemental Security Income (SSI) Programs and Resources Callers with financial needs may be referred to programs such as: Low Income Home Energy Assistance Program (LIHEAP): A federal program that funds local agencies to help with home energy bills, energy crises, weatherization, and minor energy-related home repairs. Supplemental Nutrition Assistance Program (SNAP): Provides those struggling with food insecurity a list of food pantries or food banks in their area. Women, Infants, and Children (WIC) program: Provides individuals with supplemental food assistance. Debt counseling: For individuals having trouble paying credit cards or loans. A nonprofit credit counselor can review the financial situation, including budget, spending habits, and debts, to help develop a solution for managing it. Other Help Offered by 211 The 211 network encompasses a broad range of organizations with access to: Mental health resourcesDrug and alcohol abuse rehabilitation programsElderly care supportChild, youth, or family supportSuicide prevention servicesWork assistance services How 211 Works Callers begin by dialing 211. The call is routed to a local or regional calling center. A 211 center referral specialist will ask what help is required and then connect the caller with an appropriate agency or organization. Callers may need to complete an application with the local social services department or referral agency. Getting a referral from 211 doesn’t automatically mean that each qualifies for benefits. Social services programs usually base qualifications on income, household size, or financial assets. You can also look for help online. Just enter your ZIP code on the 211 website to see which resources may be available near you. What Are Some Limitations to Using 211? Though 211 is available in almost all areas of the United States, coverage varies within each state. Due to limited resources and staff, 211 centers may have limited capacity to assist all callers. During high call volume or emergencies, wait times may be longer. There may also be some limitations based on local availability, eligibility criteria, and other factors that change the types of programs offered in different areas. What Kind of Financial Assistance Does 211 Provide? While 211 does not offer financial assistance directly, the service can connect you with organizations or agencies that do. Some situations for which 211 may be able to offer referrals include rent and mortgage assistance, utility assistance, food assistance, transportation assistance, and homelessness prevention. Is My Personal Information Safe When Using 211? 211 is a confidential service. You don’t have to disclose information about yourself or your family. The 211 call center specialists can still provide referrals even if you make calls anonymously. The Bottom Line 211 connects callers, at no cost, to critical financial and social services in their community. Where 911 is used for more urgent emergencies, 211 is a resource individuals can use for services, including financial assistance. This resource can guide individuals to programs to help prevent homelessness, aid job training, make mortgage payments, or obtain healthcare coverage.

https://www.investopedia.com/articles/basics/06/invest1000.asp

How To Start Investing in Stocks in 2024

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> To trade stocks, you need to set clear investment goals, determine how much you can invest, decide how much risk you can tolerate, pick an account at a broker that matches your trading style, fund your stock account, and start trading. </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"> Investing in stocks is a powerful way to grow your wealth over time. This beginner’s guide takes you through the essential steps to invest in stocks. Whether you have thousands set aside or can invest a more modest $25 a week, let's get you started. </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 stocks and letting your money work for you is one way to grow your wealth.</li><li>Investing involves a chance of losses. However, there are ways to lower your risk, though you can't eliminate it altogether.</li><li>New investors have never had so many resources for expert advice.</li><li>Following these eight essential steps, you’ll learn how to set clear investment goals, choose the right stocks, and understand the basics of stock investing.</li></ul></div></div></div> <span class="heading-toc" id="toc-8-step-guide-to-investing-in-stocks"></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"> 8-Step Guide to Investing in Stocks </span> </h2> <span class="heading-toc" id="toc-step-1-set-clear-investment-goals"></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"> Step 1: Set Clear Investment Goals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Begin by specifying your financial objectives. Clear goals will guide your investment decisions and help you stay focused. Consider both short-term and long-term goals, as they will affect your investment strategy. </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"> You might have short-term goals like saving for a home or a vacation or have long-term objectives like securing a comfortable retirement or funding a child’s education. Your objectives depend on your life stage and ambitions. Younger investors tend to focus more on growth and long-term wealth accumulation, while those closer to retirement typically prefer generating income and capital preservation. The more precise you are, the better. </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"> Tips for Setting Investment Goals: </span> </h3> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <li><strong>Be precise about your objectives</strong>: Instead of vague goals like “save for retirement,” aim for specific targets like “accumulate $500,000 in my retirement fund by age 50.”</li><li><strong>Determine your investment horizon</strong>: Assess how long you have to achieve each goal. Longer time horizons often allow for more aggressive investment strategies, while shorter ones may require more conservative approaches. The longer you give yourself, the less conservative you'll need to be early on.</li><li><strong>Evaluate your finances</strong>: Be realistic about how much you can put toward your investment goals, considering your savings, regular income, and any other financial resources. </li><li><strong>Rank your goals</strong>: Most of us balance several goals at once, and we have to prioritize saving for a home down payment, paying for a wedding next year, or preparing for retirement based on urgency and importance. For example, saving for a down payment on a house might take precedence over planning a vacation.</li><li><strong>Adapt as life changes</strong>: The phrase financial planning is best taken as a verb, not a noun. It's an ongoing process that should evolve with your needs and aspirations. You might fall in love or out of it, have many children or none of them, or realize your life’s work means moving cross country. Regularly review and adjust your goals as your life circumstances change.</li> </ol> <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 first step in any venture is the biggest, but by setting clear and precise investment goals, you'll lay a strong foundation for building your investments. This clarity will help you navigate the stock market with confidence and purpose. </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-step-2-determine-how-much-you-can-afford-to-invest"></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"> Step 2: Determine How Much You Can Afford To Invest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Pinpointing how much you can afford to put in stocks requires a clear-eyed assessment of your finances. This step helps ensure that you are investing responsibly without endangering your financial stability.<br/> </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"> Tips for Determining Your Investment Amount: </span> </h3> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li><strong>Review your income sources</strong>: Begin by listing all your sources of income. Check if your employer offers investment options with tax benefits or <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> to amplify your investments.</li> <li><strong>Establish an emergency fund</strong>: Ensure you have a solid financial foundation before investing. Solid does not mean perfect. This fund should cover a few months' worth of major expenses, such as mortgage or rent payments and other essential bills.</li> <li><strong>Pay off high-interest debts</strong>: Financial planners typically recommend paying down high-interest debts, such as credit card balances. The returns from investing in stocks are unlikely to outweigh the costs of high interest accumulating on these debts. Thus, scrutinize each of your debts similarly, weighing the interest payments against potential investment returns. Likely, your debts will have to come first.</li> <li><strong>Create a budget</strong>: Based on your financial assessment, decide how much money you can comfortably invest in stocks. You also want to know if you're starting with a lump sum or smaller amounts put in over time. Your budget should ensure that you are not dipping into funds you need for expenses.</li> </ol> <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"> Don't worry if your funds are less than you would wish. You wouldn't berate yourself for not being ready for a race on your first day of training; so, too, with investing. This is a marathon, not a sprint, and the journey is still ahead. </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>Two crucial points</strong>: </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>Only invest money you can afford to lose.</li><li>Never put yourself in a financially vulnerable position for the sake of investing.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Taking these seriously is what separates investing from gambling.<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-step-3-determine-your-tolerance-for-risk"></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"> Step 3: Determine Your Tolerance for Risk </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Understanding your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/07/risk_tolerance.asp">risk tolerance</a> is a cornerstone of investing. It helps you align your comfort level with the inherent uncertainties of the stock market and financial goals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-subheading__text"> Tips for Assessing Your Risk Tolerance </span> </h3> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <li><strong>Self-assessment</strong>: Reflect on your comfort level with the ups and downs of the stock market. Are you willing to accept higher risks for potentially greater returns, or do you prefer stability even if that means potentially less in the end?</li> <li><strong>Consider your time horizon</strong>: Your risk tolerance often depends on your investment timeline. Longer horizons allow for more risk since you have time to recover from potential losses. Shorter timelines typically require more conservative investments.</li> <li><strong>Gauge your financial cushion</strong>: Assess your finances, including your savings, emergency fund, and other investments. A solid financial cushion can help you take on more risk.</li> <li><strong>Align investments with risk levels</strong>: Choose stocks and other investments that align with your risk tolerance. Examples:</li> <li class="ql-indent-1">Lower risk: Dividend stocks and bonds.</li> <li class="ql-indent-1">Moderate risk: Midcap and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/large-cap.asp">large-capitalization stocks</a>, index funds, and exchange-traded funds.</li> <li class="ql-indent-1">High risk: Small-cap stocks, growth stocks, and sector-specific investments.</li> <li><strong>Adjust over time</strong>: Your risk tolerance may change as your finances and goals evolve. Regularly reassess your risk tolerance and adjust your investment strategy accordingly.</li> </ol> <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"> By accurately determining your risk tolerance, you can build a portfolio that reflects your financial goals and personal comfort level, helping you navigate the stock market with more peace of mind.<br/> </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-step-4-determine-your-investing-style"></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"> Step 4: Determine Your Investing Style </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Your investing style is crucial in how you approach stock investments. Whether you prefer a hands-on approach or a more passive strategy, understanding your style helps you choose the right investment methods and tools. </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"> Everyone has a different relationship with money. Some prefer an active role, meticulously pouring over every last cell on their portfolio's spreadsheets, while others opt for a set-it-and-forget-it approach. They trust their investments will grow over time if they just leave them alone. </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"> Your style might evolve, but you'll need to start somewhere, even if your choice isn't set in stone. </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"> Tips for Identifying Your Investing Style: </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Begin with a self-reflection on whether you enjoy researching and analyzing stocks or prefer a more detached approach. Here are your main choices:<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"> 1. <strong>DYI investing</strong>: If you grasp how stocks work and have the confidence to head out with minimal guidance into the market, managing the trades yourself is one option. Even DIY, there are more and less active approaches: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> <li class="ql-indent-1"><strong>Active</strong>: You use your brokerage account to access various investments, including stocks, bonds, and other assets, and trade as you wish. You'll set your goals and choose when to buy and sell.</li><li class="ql-indent-1"><strong>Passive</strong>: You use your brokerage account to buy shares in index ETFs and mutual funds. You still control which funds you purchase, but fund managers do the trading for you.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> 2.<strong> Professional guidance</strong>: For those who prefer a more personal approach and want more, an experienced broker or <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> is often invaluable. These financial professionals tailor their advice to your life experiences and goals, help you decide among the most promising stock choices, monitor your portfolio, and collaborate with you when things need changing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <span class="heading-toc" id="toc-step-5-choose-an-investment-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-heading__text"> Step 5. Choose an Investment Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> You've figured out your goals, the risk you can tolerate, and how active an investor you want to be. Now, it's time to choose the type of account you'll use. Each has its own features, benefits, and drawbacks. In addition, the type of account you choose can greatly impact your tax situation, investment options, and overall strategy. You'll need to compare different brokers to find the investment account right for you. </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"> Tips for Choosing Your Investment Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> 1. <strong>Understand the different account types</strong>: In the table below, we've listed the differences between regular brokerage accounts, retirement accounts, and managed accounts. You'll want to choose one that'll work for you. We also list special accounts for education and health savings. </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"> 2. <strong>Consider the tax implications</strong>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> <li class="ql-indent-1"><strong>Taxable accounts</strong>: These are the most common if you're trading online. Brokerage accounts don’t offer tax benefits, but there are no restrictions on contributions or withdrawals.</li><li class="ql-indent-1"><strong>Tax-deferred accounts</strong>: Contributions to traditional IRAs and 401(k)s cut taxable income, and taxes are deferred until you withdraw the money.</li><li class="ql-indent-1"><strong>Tax-free accounts</strong>: Roth IRAs and Roth 401(k)s are funded with after-tax dollars, but qualified withdrawals in retirement are tax-free.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_66-0"> <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 Type</b></th> <th><b>Description</b></th> <th><b>Tax Implications</b></th> <th><b>Key Features</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Brokerage Accounts</b></td> <td>Standard accounts for buying and selling a wide range of investments; can be individual or joint (shared). The basic type is a <a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashaccount.asp" rel="noopener noreferrer">cash account:</a> you buy securities using only the money in your account. There are also <a class="null" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marginaccount.asp" rel="noopener noreferrer">margin accounts</a> for experienced investors who borrow to buy additional stock.</td> <td>No tax advantages; capital gains and dividends are taxable.</td> <td>Full control over investments, flexible funding, and withdrawal options.</td> </tr> <tr> <td><b>Managed Accounts</b></td> <td>Accounts managed by professional advisors on your behalf.</td> <td>No tax advantages; capital gains and dividends are taxable.</td> <td>Professional management, personalized investment strategies, typically higher fees.</td> </tr> <tr> <td><b>Dividend Reinvestment Plan (DRIP) Accounts</b></td> <td>Accounts that automatically reinvest dividends into additional shares of the stock.</td> <td>Dividends are taxable when received.</td> <td>Automatic reinvestment, compounding growth, usually no transaction fees.</td> </tr> <tr> <td><b>Retirement Accounts</b></td> <td>Accounts for long-term retirement savings with tax advantages.</td> <td>Depends on the account type; generally tax-deferred or tax-free growth.</td> <td>Contribution limits, potential employer matching, penalties for early withdrawal.</td> </tr> <tr> <td>- <b>401(k), 403(b), 457 Plans</b></td> <td>Employer-sponsored retirement accounts. Take advantage of any matching funds if offered.</td> <td>Contributions reduce taxable income; tax-deferred growth.</td> <td>Potential employer matching (401[k] and 403[b]); no early withdrawal penalties for 457 plans; contribution limits.</td> </tr> <tr> <td>- <b>Traditional IRAs</b></td> <td>Individual retirement accounts with tax-deductible contributions.</td> <td>Contributions reduce taxable income; tax-deferred growth.</td> <td>Annual contribution limits; penalties for early withdrawal before age 59.5.</td> </tr> <tr> <td>- <b>Roth IRAs</b></td> <td>Individual retirement accounts are funded with after-tax dollars.</td> <td>Tax-free growth; tax-free withdrawals in retirement.</td> <td>Annual contribution limits; no required minimum distributions; penalties for early withdrawal of earnings.</td> </tr> <tr> <td>- <b>Roth 401(k) Plans</b></td> <td>Employer-sponsored retirement accounts with after-tax contributions.</td> <td>Tax-free growth; tax-free withdrawals in retirement.</td> <td>Potential employer matching; contribution limits; penalties for early withdrawal before age 59.5.</td> </tr> <tr> <td><b>Education Savings Accounts (529 Plans)</b><span data-cite="14"></span></td> <td>Accounts to save for education expenses.</td> <td>Contributions are not federally tax-deductible; tax-free growth.</td> <td>Used for education expenses; states tax benefits in some cases; no federal contribution limits.</td> </tr> <tr> <td><b>Health Savings Accounts (HSAs)</b><span data-cite="13"></span></td> <td>Accounts for medical expenses with triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified expenses.</td> <td>Contributions reduce taxable income; tax-free growth and withdrawals.</td> <td>High-deductible health plan required; contribution limits; funds roll over year to year.</td> </tr> </tbody> </table> </div></figure> <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"> 3. <strong>Evaluate your investment goals</strong>: Match your investment account type with your goals. For long-term retirement savings, consider tax-advantaged accounts. For short-term goals or flexible investing, a standard brokerage account might be better. </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"> 4. <strong>Scrutinize account fees, commissions, and minimums</strong>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> <li class="ql-indent-1"><strong>Trading commissions</strong>: These are fees brokers charge when you buy or sell securities. Many brokers now offer commission-free trades for particular investments, such as stocks and ETFs.</li><li class="ql-indent-1"><strong>Account maintenance fees</strong>: Some brokerage accounts may charge annual or monthly maintenance fees, which depend on the account type and balance.</li><li class="ql-indent-1"><strong>Inactivity fees</strong>: Brokers may charge fees if your account has little or no trading activity over a certain period.</li><li class="ql-indent-1"><strong>Subscription-based models</strong>: As Generation Zers and Millennials take up a larger share of the investment space, financial advisors, planners, and brokers are adjusting. Instead of paying per transaction or for specific services, you pay a flat monthly or annual fee. Your subscription may include commission-free trades, access to research tools, and other premium support.<span class="ql-inline-citation" data-cite="7"></span></li><li class="ql-indent-1"><strong>Account minimums: </strong>Momentous changes in recent years have resulted from immense competition among brokerages. Many online brokers have eliminated account minimums, making it easier for more investors to get started.<span class="ql-inline-citation" data-cite="8"></span> If you have just a few dollars to invest, you can open a brokerage account and begin trading stocks.<br/></li> </ul> <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"> 5. <strong>Check for added features</strong>: Some accounts offer additional features such as automatic contributions, access to financial advisors, educational resources, and more. Select an account that provides the features that fit your preferences. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> <li class="ql-indent-1"><strong>Research and analysis</strong>: Choose a broker with robust research tools, market analysis, and educational resources to help you make informed decisions.</li><li class="ql-indent-1"><strong>User-friendly trading platform</strong>: It shouldn't be glitchy or too difficult for you to use. It's best if it has real-time quotes, sophisticated charting tools, and mobile access.</li><li class="ql-indent-1"><strong>Customer service</strong>: Look for brokers that offer several customer support options, including phone, email, live chat, and in-person support if needed.</li><li class="ql-indent-1"><strong>Reputation and security</strong>: Avoid any platform that is not regulated by authorities like the U.S. Securities and Exchange Commission. Also, check that the broker employs strong security measures, such as encryption and two-factor authentication, to protect your personal and financial information.</li> </ul> <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"> 6. <strong>Pick your broker</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/do-i-need-broker-to-buy-stocks-5213282">Brokers</a> are full-service, discount, or robo-advisory. A good broker will offer the tools, resources, and support you need to make informed investment decisions and manage your portfolio effectively. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> <li class="ql-indent-1"><strong>Full-service brokers</strong>: These pack an array of financial services into one offering, including financial advice for retirement, healthcare, and educational products. They might craft financial plans to help you save for college, prepare for retirement, navigate estate transitions, and tackle other major life events. This personalized service explains their typically higher fees—usually a percentage of your transaction values and assets under management. Some firms bill a yearly membership fee. To access these services, you'll typically need to invest at least $25,000, and they have traditionally catered to high-net-worth individuals.</li> <li class="ql-indent-1"><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountbroker.asp"><strong>Discount brokers</strong></a>: These have much lower, if any, thresholds for access but have a typically more streamlined service that allows you to place individual trades (often for low or no commissions per trade). Most have educational materials on their sites and mobile apps. However, they may have other requirements and fees. Be sure to check on both and review our <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-brokers-for-beginners-4587873">Best Online Brokers for Beginners of 2024</a>.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li class="ql-indent-1"><strong>Robo-advisors</strong>: For an automated solution, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp">robo-advisors</a> save money and take little effort on your part. If you select one, you won't be alone. According to Charles Schwab, 58% of Americans say they will use some sort of robo-advisor by 2025.<span class="ql-inline-citation" data-cite="3"></span> They tend to offer fewer trading options and lack the personal approach to financial planning that's often best for long-term investing. Want to know more? See our <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-robo-advisor-companies-6825633">Best Robo-Advisors of 2024</a>.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <div class="comp mntl-sc-block mntl-sc-block-digiohembed" id="mntl-sc-block_82-0"> <div class="mntl-sc-block-digiohembed__container" data-guid="lightbox-inline-form-95e69010-f66a-48c7-a340-78bb443838a9" data-title="Quiz: What's Your Investing Strategy?" id="lightbox-inline-form-95e69010-f66a-48c7-a340-78bb443838a9"> </div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <span class="heading-toc" id="toc-step-6-fund-your-stock-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_84-0"> <span class="mntl-sc-block-heading__text"> Step 6: Fund Your Stock Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> By this step, you've picked a broker that aligns with your investment goals and preferences or is simply the most convenient. You've also decided whether you're opening a cash account, which requires you to pay for investments in full, or a margin account, which lets you borrow when purchasing securities. </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"> Once you've chosen a brokerage and account type, you'll open your account. This involves providing your personal information: Social Security number, address, employment details, and financial data. This shouldn't take you more than 15 minutes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> Now you'll have to fund it. Here are tips for doing so: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_91-0"> <span class="mntl-sc-block-subheading__text"> Tips for Funding Your Stock Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> 1. <strong>Choose how you'll fund it</strong>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> <li class="ql-indent-1"><strong>Bank transfer</strong>: The most common method is to transfer funds directly from your bank account. This can be done via electronic funds transfer or wire transfer.</li> <li class="ql-indent-1"><strong>Check deposit</strong>: Some brokers allow you to mail a check to fund your account. This method can take longer but is viable if you prefer not to use electronic transfers.</li> <li class="ql-indent-1"><strong>Transfer from another brokerage</strong>: If you have an existing brokerage account, you can transfer assets directly to your new account. This process, known as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/acat.asp">ACATS transfer</a>, is usually straightforward but may take a few days to complete.</li> </ul> <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"> 2. <strong>Set up automatic contributions</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dollarcostaveraging.asp">Dollar-cost averaging</a> involves investing a fixed amount of money at regular intervals over time, no matter what the market does. This cuts your risk of making bad decisions based on short-term market news. Most brokers let you customize the frequency and amount of your automatic contributions, making it easier to stay within your budget and keep on track with your investment goals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_98-0"> 3. <strong>Start investing</strong>: Once you've verified the funds are in your account (don't worry: the brokerage won't let you trade otherwise), it's time to start choosing the stocks that best fit your investment goals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_100-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_101-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you plan to trade frequently, check out our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-brokers-for-low-costs-4587874">list of brokers</a> for cost-conscious traders.</p></div></div></div> <span class="heading-toc" id="toc-step-7-pick-your-stocks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_102-0"> <span class="mntl-sc-block-heading__text"> Step 7: Pick Your Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_103-0"> Even experienced investors grapple with choosing the best stocks. Beginners should look for stability, a strong track record, and the potential for steady growth. Resist the temptation to gamble on risky stocks, hoping for a quick windfall. Long-term investing is mostly slow and steady, not fast and rash. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_104-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_105-0"> Here are the types of stocks more likely to be solid bets when starting off: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_106-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_107-0"> <li><strong>Blue chips</strong>: These are shares of large, well-established, and financially sound companies with a history of reliable performance. Examples include companies listed in the Dow Jones Industrial Average or the S&amp;P 500. They are typically industry leaders and offer stability during market fluctuations.</li> <li><strong>Dividend stocks</strong>: Companies that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/082015/3-biggest-misconceptions-dividend-stocks.asp">regularly pay dividends</a> can be a good choice for beginners. Dividends give you a regular income, which can be reinvested to buy even more stock. <em>See <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-buy-dividend-stocks-7503745">How to Buy Dividend Stocks</a></em> to learn more.</li> <li><strong>Growth stocks</strong>: The greater the chances for outsized growth in a stock, the riskier investing in it will be. Beginners interested in growth stocks should target industries with long-term potential, such as technology or healthcare.</li> <li><strong>Defensive stocks</strong>: These are in industries that tend to do well even during economic downturns, such as utilities, healthcare, and consumer goods. They will give you a buffer against market volatility as you start.</li> <li><strong>ETFs</strong>: Traded like stocks, these track market indexes like the S&amp;P 500, and offer instant diversification, reducing the risk associated with individual stocks. As you gain experience, you can look at funds for sectors that pique your interest, themes that meet your investment goals, or funds pooling <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp">environmental, social, and governance</a> stocks.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_108-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_109-0"> It's prudent to begin with a conservative approach, focusing on stocks or funds that offer stability and a good track record. This will give you confidence and returns to trade with as you advance in your investing knowledge.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_110-0"></div> <span class="heading-toc" id="toc-step-8-learn-monitor-review"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_111-0"> <span class="mntl-sc-block-heading__text"> Step 8. Learn, Monitor, Review </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_112-0"> Successful investors discover tips and strategies each passing day. As the stock market changes, staying up to date, going back to Step 1, reviewing your goals, etc., will be key. Here are tips on learning about, monitoring, and reviewing your accounts with an eye toward your goals and risk tolerance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_113-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_114-0"> <span class="mntl-sc-block-subheading__text"> Tips for Learning and Monitoring Your Stocks </span> </h3> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_115-0"> <li><strong>Read widely and regularly</strong>: Read reputable financial news sites. Keep informed about the global economy, industry trends, and the companies you are invested in. Avoid sites and books promising easy returns or tricks, not tips, likely to redound to their benefit when you buy their courses or apps. Books on investment strategies, stock market fundamentals, and diversification are essential.</li> <li><strong>Use stock simulators</strong>: These are platforms that enable you to practice trading stocks risk-free using virtual money. They are excellent for applying investment theories and testing strategies without risk. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/simulator/"><em>Investopedia</em>'s simulator</a> is entirely free to use.</li> <li><strong>Learn about diversification</strong>: Having taken your beginning steps here, you'll next want to spread your investments across diverse asset classes to cut down on risk and improve your potential for returns. When you're ready, we can help you learn <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/diversify-your-portfolio-beyond-stocks/">how to diversify your portfolio beyond stocks</a>.</li> </ol> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_116-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_117-0"> You now need to monitor your stocks and other investments. Regular reviewing and staying informed will help you adjust when necessary to keep on track with your financial goals.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_118-0"></div> <span class="heading-toc" id="toc-best-stocks-for-beginners"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_119-0"> <span class="mntl-sc-block-heading__text"> Best Stocks for Beginners </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_120-0"> Picking the right stocks can overwhelm those starting to navigate the investing world—you're starting with a blank slate, and the options are endless. Here are ideas that aren't only the best for beginners but are many times the choice of the experts managing their own portfolios: </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"> <strong>Index funds</strong>: These are not technically stocks but funds that trade shares like them. They are passively managed funds that track the performance of a particular market index, like the S&amp;P 500, a collection of 500 major publicly traded American companies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_123-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_124-0"> These might not come with the excitement of picking a stock and seeing it take off, but index funds take what would be impractical or too expensive for a beginner and let you invest in a whole pool of them. And they do well: According to the S&amp;P Indices Versus Active score cards, a widely respected benchmark, about 90% of actively managed funds didn't match the returns of the S&amp;P 500 over 10 and 15-year periods.<span class="ql-inline-citation" data-cite="15"></span> This is simple but winning information: the most effortless route might be the most profitable. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_125-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_126-0"> <strong>Blue chip stocks</strong>: Classic investing advice has been to buy shares of well-established, stable companies with a history of consistent growth and dividend payments. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bluechip.asp#:~:text=A%20blue%20chip%20stock%20is%20a%20company%20that%20typically%20has,success%20in%20the%20business%20world.&amp;text=A%20blue%2Dchip%20index%20seeks,provide%20investors%20with%20consistent%20returns.">blue chips</a>—named for the traditional color of the highest-value poker chips—have strong brand recognition, a solid market position, and a track record of weathering economic downturns. Investing in them can provide you with stability and the potential for steady, long-term returns. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_127-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_128-0"> Examples include Apple (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL">AAPL</a>), known for its ubiquitous technology products and loyal customer base; JP Morgan &amp; Chase Co (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM">JPM</a>), the banking giant; Johnson &amp; Johnson (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JNJ">JNJ</a>), a healthcare giant that also owns manufacturers of many consumer goods; and Coca-Cola (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KO">KO</a>), the soft drink maker that has distributed dividends each year since 1893. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_129-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_130-0"> <strong>Dividend aristocrats</strong>: Coca-Cola is not just a blue-chip stock but also belongs to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend-aristocrat.asp">select group</a> that has distributed and increased their dividends for at least 25 consecutive years. By investing in dividend aristocrats, beginners can benefit from the potential for rising income and the chance to reinvest the dividends for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compoundinterest.asp">compound growth</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_131-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_132-0"> Examples include ExxonMobil (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=XOM">XOM</a>), one of the world's largest oil and gas companies with a history of solid cash generation; Procter &amp; Gamble Co. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PG">PG</a>), the consumer products multinational; and Walmart (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT">WMT</a>), the retail behemoth. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_133-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_134-0"> <strong>Low-volatility stocks</strong>: These companies' shares have historically had fewer price swings, providing more solidity to portfolios and, not for nothing, calm for investor heart rates. They often belong to "defensive sectors" (recession-proof parts of the economy) such as utilities, consumer staples, and healthcare. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_135-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_136-0"> Examples include companies we've mentioned already (Johnson &amp; Johnson, Coca-Cola, Procter &amp; Gamble, etc.), as well as Berkshire Hathaway (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.B">BRK.B</a>), Brystol-Myers Squibb Company (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BMY">BMY</a>), Duke Energy (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DUK">DUK</a>), and the Hershey Company (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HSY">HSY</a>), whose stability even during financial storms shows that the love of chocolate doesn't go away when the economy hits some bumps. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_137-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_138-0"> <strong>Quality factor ETFs</strong>: These invest in companies with solid balance sheets, consistent growth in earnings, and other measures of good financial health. Quality factor ETFs take a rules-based approach to selecting stocks with low debt levels, stable earnings, and high returns. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_139-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_140-0"> Example funds include the iShares MSCI USA Quality Factor ETF, which holds large- and midcap U.S. stocks with solid quality characteristics, and the Invesco S&amp;P 500 Quality ETF, which focuses on high-quality stocks within 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 index</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_141-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_142-0"> The potential drawback for each of these investments is that you might not see the outsized growth that riskier stocks could provide. In addition, past performance does not determine future results. If you have limited funds, this could be unappealing: more modest returns won't seem to add much when you don't have much to begin with. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_143-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_144-0"> However, reinvested dividends and compound growth add up. Investing is not gambling, and the reason to invest rather than go to a casino is that prudent, patient, and disciplined investing is how most investors get ahead.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_145-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_146-0"><span class="heading-toc" id="toc-how-much-money-do-i-need-to-start-investing-in-stocks"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Money Do I Need To Start Investing in Stocks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The amount needed depends on the brokerage firm and the investments you're interested in. Some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-open-an-online-brokerage-account-7973796">online brokerages</a> have no minimum deposit requirements, allowing you to start investing with a small amount of money. However, the price of individual stocks and the minimum investment for certain mutual funds or ETFs might require you to start with more of an initial investment. That said, there are many brokerages and investment options now for those starting with less to invest than there were a decade or two ago.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_147-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_148-0"><span class="heading-toc" id="toc-are-stock-funds-good-for-beginner-investors"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Stock Funds Good for Beginner Investors?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Stock funds, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/092915/trading-mutual-funds-beginners.asp">mutual funds</a> and ETFs that invest in a diversified portfolio of stocks, are a good option for beginner investors. They offer diversification, which helps spread risk across different stocks, and are managed by professional fund managers. In addition, stock funds allow beginners to invest in a broad range of stocks with a single investment, making it easier to get started without having to pick individual stocks. While you watch your mutual fund or ETF investment over time, you will also gain experience about the ebb and flow of the stocks these funds hold, good knowledge that will help you when investing later.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_149-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_150-0"><span class="heading-toc" id="toc-what-are-the-risks-of-investing"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Risks of Investing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investing is a commitment of resources now toward a future financial goal. There are many levels of risk, with certain asset classes and investment products inherently much riskier than others. It is always possible that the value of your investment will not increase over time. For this reason, a key consideration for investors is how to manage their risk to achieve their financial goals, whether short- or long-term.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_151-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_152-0"><span class="heading-toc" id="toc-do-i-have-to-live-in-the-us-to-open-a-brokerage-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do I Have To Live in the U.S. To Open a Brokerage Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>To open a brokerage account, you don't have to live in the U.S. Many U.S. brokerage firms accept international clients. However, the application process and requirements will differ, including the need for additional documentation, such as proof of identity and residence. There are also some investments and services regulations curtailed for those who aren't U.S. citizens, but the experience is very similar. Most major online brokerages in the U.S. accept international clients.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_153-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_154-0"><span class="heading-toc" id="toc-how-do-commissions-and-fees-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Commissions and Fees Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most brokers charge customers a commission for every trade. Due to commission costs, investors generally find it prudent to limit the total number of trades they make to avoid spending extra money on fees. Certain other types of investments, such as exchange-traded funds, may carry additional fees to cover fund management costs.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_155-0"></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_156-0"> <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_157-0"> Beginners can start investing in stocks with a relatively small amount of money. You'll have to do your homework to determine your investment goals, risk tolerance, and the costs of investing in stocks and mutual funds. You'll also need to research brokers and their fees to find the one that best fits your investment style and goals. Once you do, you’ll be well-positioned to take advantage of the potential stocks have to reward you financially in the coming years.<br/> </p></div>

To trade stocks, you need to set clear investment goals, determine how much you can invest, decide how much risk you can tolerate, pick an account at a broker that matches your trading style, fund your stock account, and start trading. Investing in stocks is a powerful way to grow your wealth over time. This beginner’s guide takes you through the essential steps to invest in stocks. Whether you have thousands set aside or can invest a more modest $25 a week, let's get you started. ### Key Takeaways * Investing in stocks and letting your money work for you is one way to grow your wealth. * Investing involves a chance of losses. However, there are ways to lower your risk, though you can't eliminate it altogether. * New investors have never had so many resources for expert advice. * Following these eight essential steps, you’ll learn how to set clear investment goals, choose the right stocks, and understand the basics of stock investing. ## 8-Step Guide to Investing in Stocks ## Step 1: Set Clear Investment Goals Begin by specifying your financial objectives. Clear goals will guide your investment decisions and help you stay focused. Consider both short-term and long-term goals, as they will affect your investment strategy. You might have short-term goals like saving for a home or a vacation or have long-term objectives like securing a comfortable retirement or funding a child’s education. Your objectives depend on your life stage and ambitions. Younger investors tend to focus more on growth and long-term wealth accumulation, while those closer to retirement typically prefer generating income and capital preservation. The more precise you are, the better. ### Tips for Setting Investment Goals: 1. **Be precise about your objectives**: Instead of vague goals like “save for retirement,” aim for specific targets like “accumulate $500,000 in my retirement fund by age 50.” 2. **Determine your investment horizon**: Assess how long you have to achieve each goal. Longer time horizons often allow for more aggressive investment strategies, while shorter ones may require more conservative approaches. The longer you give yourself, the less conservative you'll need to be early on. 3. **Evaluate your finances**: Be realistic about how much you can put toward your investment goals, considering your savings, regular income, and any other financial resources. 4. **Rank your goals**: Most of us balance several goals at once, and we have to prioritize saving for a home down payment, paying for a wedding next year, or preparing for retirement based on urgency and importance. For example, saving for a down payment on a house might take precedence over planning a vacation. 5. **Adapt as life changes**: The phrase financial planning is best taken as a verb, not a noun. It's an ongoing process that should evolve with your needs and aspirations. You might fall in love or out of it, have many children or none of them, or realize your life’s work means moving cross country. Regularly review and adjust your goals as your life circumstances change. The first step in any venture is the biggest, but by setting clear and precise investment goals, you'll lay a strong foundation for building your investments. This clarity will help you navigate the stock market with confidence and purpose. ## Step 2: Determine How Much You Can Afford To Invest Pinpointing how much you can afford to put in stocks requires a clear-eyed assessment of your finances. This step helps ensure that you are investing responsibly without endangering your financial stability. ### Tips for Determining Your Investment Amount: 1. **Review your income sources**: Begin by listing all your sources of income. Check if your employer offers investment options with tax benefits or [matching funds](https://www.investopedia.com/terms/m/matchingcontribution.asp) to amplify your investments. 2. **Establish an emergency fund**: Ensure you have a solid financial foundation before investing. Solid does not mean perfect. This fund should cover a few months' worth of major expenses, such as mortgage or rent payments and other essential bills. 3. **Pay off high-interest debts**: Financial planners typically recommend paying down high-interest debts, such as credit card balances. The returns from investing in stocks are unlikely to outweigh the costs of high interest accumulating on these debts. Thus, scrutinize each of your debts similarly, weighing the interest payments against potential investment returns. Likely, your debts will have to come first. 4. **Create a budget**: Based on your financial assessment, decide how much money you can comfortably invest in stocks. You also want to know if you're starting with a lump sum or smaller amounts put in over time. Your budget should ensure that you are not dipping into funds you need for expenses. Don't worry if your funds are less than you would wish. You wouldn't berate yourself for not being ready for a race on your first day of training; so, too, with investing. This is a marathon, not a sprint, and the journey is still ahead. **Two crucial points**: * Only invest money you can afford to lose. * Never put yourself in a financially vulnerable position for the sake of investing. Taking these seriously is what separates investing from gambling. ## Step 3: Determine Your Tolerance for Risk Understanding your [risk tolerance](https://www.investopedia.com/articles/pf/07/risk_tolerance.asp) is a cornerstone of investing. It helps you align your comfort level with the inherent uncertainties of the stock market and financial goals. ### Tips for Assessing Your Risk Tolerance 1. **Self-assessment**: Reflect on your comfort level with the ups and downs of the stock market. Are you willing to accept higher risks for potentially greater returns, or do you prefer stability even if that means potentially less in the end? 2. **Consider your time horizon**: Your risk tolerance often depends on your investment timeline. Longer horizons allow for more risk since you have time to recover from potential losses. Shorter timelines typically require more conservative investments. 3. **Gauge your financial cushion**: Assess your finances, including your savings, emergency fund, and other investments. A solid financial cushion can help you take on more risk. 4. **Align investments with risk levels**: Choose stocks and other investments that align with your risk tolerance. Examples: 5. Lower risk: Dividend stocks and bonds. 6. Moderate risk: Midcap and [large-capitalization stocks](https://www.investopedia.com/terms/l/large-cap.asp), index funds, and exchange-traded funds. 7. High risk: Small-cap stocks, growth stocks, and sector-specific investments. 8. **Adjust over time**: Your risk tolerance may change as your finances and goals evolve. Regularly reassess your risk tolerance and adjust your investment strategy accordingly. By accurately determining your risk tolerance, you can build a portfolio that reflects your financial goals and personal comfort level, helping you navigate the stock market with more peace of mind. ## Step 4: Determine Your Investing Style Your investing style is crucial in how you approach stock investments. Whether you prefer a hands-on approach or a more passive strategy, understanding your style helps you choose the right investment methods and tools. Everyone has a different relationship with money. Some prefer an active role, meticulously pouring over every last cell on their portfolio's spreadsheets, while others opt for a set-it-and-forget-it approach. They trust their investments will grow over time if they just leave them alone. Your style might evolve, but you'll need to start somewhere, even if your choice isn't set in stone. ### Tips for Identifying Your Investing Style: Begin with a self-reflection on whether you enjoy researching and analyzing stocks or prefer a more detached approach. Here are your main choices: 1. **DYI investing**: If you grasp how stocks work and have the confidence to head out with minimal guidance into the market, managing the trades yourself is one option. Even DIY, there are more and less active approaches: * **Active**: You use your brokerage account to access various investments, including stocks, bonds, and other assets, and trade as you wish. You'll set your goals and choose when to buy and sell. * **Passive**: You use your brokerage account to buy shares in index ETFs and mutual funds. You still control which funds you purchase, but fund managers do the trading for you. 2. **Professional guidance**: For those who prefer a more personal approach and want more, an experienced broker or [financial advisor](https://www.investopedia.com/inv-100-top-financial-advisors-7556227) is often invaluable. These financial professionals tailor their advice to your life experiences and goals, help you decide among the most promising stock choices, monitor your portfolio, and collaborate with you when things need changing. ## Step 5. Choose an Investment Account You've figured out your goals, the risk you can tolerate, and how active an investor you want to be. Now, it's time to choose the type of account you'll use. Each has its own features, benefits, and drawbacks. In addition, the type of account you choose can greatly impact your tax situation, investment options, and overall strategy. You'll need to compare different brokers to find the investment account right for you. ### Tips for Choosing Your Investment Account 1. **Understand the different account types**: In the table below, we've listed the differences between regular brokerage accounts, retirement accounts, and managed accounts. You'll want to choose one that'll work for you. We also list special accounts for education and health savings. 2. **Consider the tax implications**: * **Taxable accounts**: These are the most common if you're trading online. Brokerage accounts don’t offer tax benefits, but there are no restrictions on contributions or withdrawals. * **Tax-deferred accounts**: Contributions to traditional IRAs and 401(k)s cut taxable income, and taxes are deferred until you withdraw the money. * **Tax-free accounts**: Roth IRAs and Roth 401(k)s are funded with after-tax dollars, but qualified withdrawals in retirement are tax-free. | **Account Type** | **Description** | **Tax Implications** | **Key Features** | | --- | --- | --- | --- | | **Brokerage Accounts** | Standard accounts for buying and selling a wide range of investments; can be individual or joint (shared). The basic type is a [cash account:](https://www.investopedia.com/terms/c/cashaccount.asp) you buy securities using only the money in your account. There are also [margin accounts](https://www.investopedia.com/terms/m/marginaccount.asp) for experienced investors who borrow to buy additional stock. | No tax advantages; capital gains and dividends are taxable. | Full control over investments, flexible funding, and withdrawal options. | | **Managed Accounts** | Accounts managed by professional advisors on your behalf. | No tax advantages; capital gains and dividends are taxable. | Professional management, personalized investment strategies, typically higher fees. | | **Dividend Reinvestment Plan (DRIP) Accounts** | Accounts that automatically reinvest dividends into additional shares of the stock. | Dividends are taxable when received. | Automatic reinvestment, compounding growth, usually no transaction fees. | | **Retirement Accounts** | Accounts for long-term retirement savings with tax advantages. | Depends on the account type; generally tax-deferred or tax-free growth. | Contribution limits, potential employer matching, penalties for early withdrawal. | | - **401(k), 403(b), 457 Plans** | Employer-sponsored retirement accounts. Take advantage of any matching funds if offered. | Contributions reduce taxable income; tax-deferred growth. | Potential employer matching (401[k] and 403[b]); no early withdrawal penalties for 457 plans; contribution limits. | | - **Traditional IRAs** | Individual retirement accounts with tax-deductible contributions. | Contributions reduce taxable income; tax-deferred growth. | Annual contribution limits; penalties for early withdrawal before age 59.5. | | - **Roth IRAs** | Individual retirement accounts are funded with after-tax dollars. | Tax-free growth; tax-free withdrawals in retirement. | Annual contribution limits; no required minimum distributions; penalties for early withdrawal of earnings. | | - **Roth 401(k) Plans** | Employer-sponsored retirement accounts with after-tax contributions. | Tax-free growth; tax-free withdrawals in retirement. | Potential employer matching; contribution limits; penalties for early withdrawal before age 59.5. | | **Education Savings Accounts (529 Plans)** | Accounts to save for education expenses. | Contributions are not federally tax-deductible; tax-free growth. | Used for education expenses; states tax benefits in some cases; no federal contribution limits. | | **Health Savings Accounts (HSAs)** | Accounts for medical expenses with triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified expenses. | Contributions reduce taxable income; tax-free growth and withdrawals. | High-deductible health plan required; contribution limits; funds roll over year to year. | 3. **Evaluate your investment goals**: Match your investment account type with your goals. For long-term retirement savings, consider tax-advantaged accounts. For short-term goals or flexible investing, a standard brokerage account might be better. 4. **Scrutinize account fees, commissions, and minimums**: * **Trading commissions**: These are fees brokers charge when you buy or sell securities. Many brokers now offer commission-free trades for particular investments, such as stocks and ETFs. * **Account maintenance fees**: Some brokerage accounts may charge annual or monthly maintenance fees, which depend on the account type and balance. * **Inactivity fees**: Brokers may charge fees if your account has little or no trading activity over a certain period. * **Subscription-based models**: As Generation Zers and Millennials take up a larger share of the investment space, financial advisors, planners, and brokers are adjusting. Instead of paying per transaction or for specific services, you pay a flat monthly or annual fee. Your subscription may include commission-free trades, access to research tools, and other premium support. * **Account minimums:** Momentous changes in recent years have resulted from immense competition among brokerages. Many online brokers have eliminated account minimums, making it easier for more investors to get started. If you have just a few dollars to invest, you can open a brokerage account and begin trading stocks. 5. **Check for added features**: Some accounts offer additional features such as automatic contributions, access to financial advisors, educational resources, and more. Select an account that provides the features that fit your preferences. * **Research and analysis**: Choose a broker with robust research tools, market analysis, and educational resources to help you make informed decisions. * **User-friendly trading platform**: It shouldn't be glitchy or too difficult for you to use. It's best if it has real-time quotes, sophisticated charting tools, and mobile access. * **Customer service**: Look for brokers that offer several customer support options, including phone, email, live chat, and in-person support if needed. * **Reputation and security**: Avoid any platform that is not regulated by authorities like the U.S. Securities and Exchange Commission. Also, check that the broker employs strong security measures, such as encryption and two-factor authentication, to protect your personal and financial information. 6. **Pick your broker**: [Brokers](https://www.investopedia.com/do-i-need-broker-to-buy-stocks-5213282) are full-service, discount, or robo-advisory. A good broker will offer the tools, resources, and support you need to make informed investment decisions and manage your portfolio effectively. * **Full-service brokers**: These pack an array of financial services into one offering, including financial advice for retirement, healthcare, and educational products. They might craft financial plans to help you save for college, prepare for retirement, navigate estate transitions, and tackle other major life events. This personalized service explains their typically higher fees—usually a percentage of your transaction values and assets under management. Some firms bill a yearly membership fee. To access these services, you'll typically need to invest at least $25,000, and they have traditionally catered to high-net-worth individuals. * [**Discount brokers**](https://www.investopedia.com/terms/d/discountbroker.asp): These have much lower, if any, thresholds for access but have a typically more streamlined service that allows you to place individual trades (often for low or no commissions per trade). Most have educational materials on their sites and mobile apps. However, they may have other requirements and fees. Be sure to check on both and review our [Best Online Brokers for Beginners of 2024](https://www.investopedia.com/best-brokers-for-beginners-4587873). * **Robo-advisors**: For an automated solution, [robo-advisors](https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp) save money and take little effort on your part. If you select one, you won't be alone. According to Charles Schwab, 58% of Americans say they will use some sort of robo-advisor by 2025. They tend to offer fewer trading options and lack the personal approach to financial planning that's often best for long-term investing. Want to know more? See our [Best Robo-Advisors of 2024](https://www.investopedia.com/best-robo-advisor-companies-6825633). ## Step 6: Fund Your Stock Account By this step, you've picked a broker that aligns with your investment goals and preferences or is simply the most convenient. You've also decided whether you're opening a cash account, which requires you to pay for investments in full, or a margin account, which lets you borrow when purchasing securities. Once you've chosen a brokerage and account type, you'll open your account. This involves providing your personal information: Social Security number, address, employment details, and financial data. This shouldn't take you more than 15 minutes. Now you'll have to fund it. Here are tips for doing so: ### Tips for Funding Your Stock Account 1. **Choose how you'll fund it**: * **Bank transfer**: The most common method is to transfer funds directly from your bank account. This can be done via electronic funds transfer or wire transfer. * **Check deposit**: Some brokers allow you to mail a check to fund your account. This method can take longer but is viable if you prefer not to use electronic transfers. * **Transfer from another brokerage**: If you have an existing brokerage account, you can transfer assets directly to your new account. This process, known as an [ACATS transfer](https://www.investopedia.com/terms/a/acat.asp), is usually straightforward but may take a few days to complete. 2. **Set up automatic contributions**: [Dollar-cost averaging](https://www.investopedia.com/terms/d/dollarcostaveraging.asp) involves investing a fixed amount of money at regular intervals over time, no matter what the market does. This cuts your risk of making bad decisions based on short-term market news. Most brokers let you customize the frequency and amount of your automatic contributions, making it easier to stay within your budget and keep on track with your investment goals. 3. **Start investing**: Once you've verified the funds are in your account (don't worry: the brokerage won't let you trade otherwise), it's time to start choosing the stocks that best fit your investment goals. ### If you plan to trade frequently, check out our [list of brokers](https://www.investopedia.com/best-brokers-for-low-costs-4587874) for cost-conscious traders. ## Step 7: Pick Your Stocks Even experienced investors grapple with choosing the best stocks. Beginners should look for stability, a strong track record, and the potential for steady growth. Resist the temptation to gamble on risky stocks, hoping for a quick windfall. Long-term investing is mostly slow and steady, not fast and rash. Here are the types of stocks more likely to be solid bets when starting off: * **Blue chips**: These are shares of large, well-established, and financially sound companies with a history of reliable performance. Examples include companies listed in the Dow Jones Industrial Average or the S&P 500. They are typically industry leaders and offer stability during market fluctuations. * **Dividend stocks**: Companies that [regularly pay dividends](https://www.investopedia.com/articles/investing/082015/3-biggest-misconceptions-dividend-stocks.asp) can be a good choice for beginners. Dividends give you a regular income, which can be reinvested to buy even more stock. *See [How to Buy Dividend Stocks](https://www.investopedia.com/how-to-buy-dividend-stocks-7503745)* to learn more. * **Growth stocks**: The greater the chances for outsized growth in a stock, the riskier investing in it will be. Beginners interested in growth stocks should target industries with long-term potential, such as technology or healthcare. * **Defensive stocks**: These are in industries that tend to do well even during economic downturns, such as utilities, healthcare, and consumer goods. They will give you a buffer against market volatility as you start. * **ETFs**: Traded like stocks, these track market indexes like the S&P 500, and offer instant diversification, reducing the risk associated with individual stocks. As you gain experience, you can look at funds for sectors that pique your interest, themes that meet your investment goals, or funds pooling [environmental, social, and governance](https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp) stocks. It's prudent to begin with a conservative approach, focusing on stocks or funds that offer stability and a good track record. This will give you confidence and returns to trade with as you advance in your investing knowledge. ## Step 8. Learn, Monitor, Review Successful investors discover tips and strategies each passing day. As the stock market changes, staying up to date, going back to Step 1, reviewing your goals, etc., will be key. Here are tips on learning about, monitoring, and reviewing your accounts with an eye toward your goals and risk tolerance. ### Tips for Learning and Monitoring Your Stocks 1. **Read widely and regularly**: Read reputable financial news sites. Keep informed about the global economy, industry trends, and the companies you are invested in. Avoid sites and books promising easy returns or tricks, not tips, likely to redound to their benefit when you buy their courses or apps. Books on investment strategies, stock market fundamentals, and diversification are essential. 2. **Use stock simulators**: These are platforms that enable you to practice trading stocks risk-free using virtual money. They are excellent for applying investment theories and testing strategies without risk. [*Investopedia*'s simulator](https://www.investopedia.com/simulator/) is entirely free to use. 3. **Learn about diversification**: Having taken your beginning steps here, you'll next want to spread your investments across diverse asset classes to cut down on risk and improve your potential for returns. When you're ready, we can help you learn [how to diversify your portfolio beyond stocks](https://www.investopedia.com/investing/diversify-your-portfolio-beyond-stocks/). You now need to monitor your stocks and other investments. Regular reviewing and staying informed will help you adjust when necessary to keep on track with your financial goals. ## Best Stocks for Beginners Picking the right stocks can overwhelm those starting to navigate the investing world—you're starting with a blank slate, and the options are endless. Here are ideas that aren't only the best for beginners but are many times the choice of the experts managing their own portfolios: **Index funds**: These are not technically stocks but funds that trade shares like them. They are passively managed funds that track the performance of a particular market index, like the S&P 500, a collection of 500 major publicly traded American companies. These might not come with the excitement of picking a stock and seeing it take off, but index funds take what would be impractical or too expensive for a beginner and let you invest in a whole pool of them. And they do well: According to the S&P Indices Versus Active score cards, a widely respected benchmark, about 90% of actively managed funds didn't match the returns of the S&P 500 over 10 and 15-year periods. This is simple but winning information: the most effortless route might be the most profitable. **Blue chip stocks**: Classic investing advice has been to buy shares of well-established, stable companies with a history of consistent growth and dividend payments. The [blue chips](https://www.investopedia.com/terms/b/bluechip.asp#:~:text=A%20blue%20chip%20stock%20is%20a%20company%20that%20typically%20has,success%20in%20the%20business%20world.&text=A%20blue%2Dchip%20index%20seeks,provide%20investors%20with%20consistent%20returns.)—named for the traditional color of the highest-value poker chips—have strong brand recognition, a solid market position, and a track record of weathering economic downturns. Investing in them can provide you with stability and the potential for steady, long-term returns. Examples include Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)), known for its ubiquitous technology products and loyal customer base; JP Morgan & Chase Co ([JPM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM)), the banking giant; Johnson & Johnson ([JNJ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JNJ)), a healthcare giant that also owns manufacturers of many consumer goods; and Coca-Cola ([KO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KO)), the soft drink maker that has distributed dividends each year since 1893. **Dividend aristocrats**: Coca-Cola is not just a blue-chip stock but also belongs to a [select group](https://www.investopedia.com/terms/d/dividend-aristocrat.asp) that has distributed and increased their dividends for at least 25 consecutive years. By investing in dividend aristocrats, beginners can benefit from the potential for rising income and the chance to reinvest the dividends for [compound growth](https://www.investopedia.com/terms/c/compoundinterest.asp). Examples include ExxonMobil ([XOM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XOM)), one of the world's largest oil and gas companies with a history of solid cash generation; Procter & Gamble Co. ([PG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PG)), the consumer products multinational; and Walmart ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT)), the retail behemoth. **Low-volatility stocks**: These companies' shares have historically had fewer price swings, providing more solidity to portfolios and, not for nothing, calm for investor heart rates. They often belong to "defensive sectors" (recession-proof parts of the economy) such as utilities, consumer staples, and healthcare. Examples include companies we've mentioned already (Johnson & Johnson, Coca-Cola, Procter & Gamble, etc.), as well as Berkshire Hathaway ([BRK.B](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.B)), Brystol-Myers Squibb Company ([BMY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BMY)), Duke Energy ([DUK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DUK)), and the Hershey Company ([HSY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HSY)), whose stability even during financial storms shows that the love of chocolate doesn't go away when the economy hits some bumps. **Quality factor ETFs**: These invest in companies with solid balance sheets, consistent growth in earnings, and other measures of good financial health. Quality factor ETFs take a rules-based approach to selecting stocks with low debt levels, stable earnings, and high returns. Example funds include the iShares MSCI USA Quality Factor ETF, which holds large- and midcap U.S. stocks with solid quality characteristics, and the Invesco S&P 500 Quality ETF, which focuses on high-quality stocks within the [S&P 500 index](https://www.investopedia.com/ask/answers/how-can-i-buy-sp-500-fund/). The potential drawback for each of these investments is that you might not see the outsized growth that riskier stocks could provide. In addition, past performance does not determine future results. If you have limited funds, this could be unappealing: more modest returns won't seem to add much when you don't have much to begin with. However, reinvested dividends and compound growth add up. Investing is not gambling, and the reason to invest rather than go to a casino is that prudent, patient, and disciplined investing is how most investors get ahead. ## How Much Money Do I Need To Start Investing in Stocks? The amount needed depends on the brokerage firm and the investments you're interested in. Some [online brokerages](https://www.investopedia.com/how-to-open-an-online-brokerage-account-7973796) have no minimum deposit requirements, allowing you to start investing with a small amount of money. However, the price of individual stocks and the minimum investment for certain mutual funds or ETFs might require you to start with more of an initial investment. That said, there are many brokerages and investment options now for those starting with less to invest than there were a decade or two ago. ## Are Stock Funds Good for Beginner Investors? Stock funds, including [mutual funds](https://www.investopedia.com/articles/investing/092915/trading-mutual-funds-beginners.asp) and ETFs that invest in a diversified portfolio of stocks, are a good option for beginner investors. They offer diversification, which helps spread risk across different stocks, and are managed by professional fund managers. In addition, stock funds allow beginners to invest in a broad range of stocks with a single investment, making it easier to get started without having to pick individual stocks. While you watch your mutual fund or ETF investment over time, you will also gain experience about the ebb and flow of the stocks these funds hold, good knowledge that will help you when investing later. ## What Are the Risks of Investing? Investing is a commitment of resources now toward a future financial goal. There are many levels of risk, with certain asset classes and investment products inherently much riskier than others. It is always possible that the value of your investment will not increase over time. For this reason, a key consideration for investors is how to manage their risk to achieve their financial goals, whether short- or long-term. ## Do I Have To Live in the U.S. To Open a Brokerage Account? To open a brokerage account, you don't have to live in the U.S. Many U.S. brokerage firms accept international clients. However, the application process and requirements will differ, including the need for additional documentation, such as proof of identity and residence. There are also some investments and services regulations curtailed for those who aren't U.S. citizens, but the experience is very similar. Most major online brokerages in the U.S. accept international clients. ## How Do Commissions and Fees Work? Most brokers charge customers a commission for every trade. Due to commission costs, investors generally find it prudent to limit the total number of trades they make to avoid spending extra money on fees. Certain other types of investments, such as exchange-traded funds, may carry additional fees to cover fund management costs. ## The Bottom Line Beginners can start investing in stocks with a relatively small amount of money. You'll have to do your homework to determine your investment goals, risk tolerance, and the costs of investing in stocks and mutual funds. You'll also need to research brokers and their fees to find the one that best fits your investment style and goals. Once you do, you’ll be well-positioned to take advantage of the potential stocks have to reward you financially in the coming years.

To trade stocks, you need to set clear investment goals, determine how much you can invest, decide how much risk you can tolerate, pick an account at a broker that matches your trading style, fund your stock account, and start trading. Investing in stocks is a powerful way to grow your wealth over time. This beginner’s guide takes you through the essential steps to invest in stocks. Whether you have thousands set aside or can invest a more modest $25 a week, let's get you started. Key Takeaways Investing in stocks and letting your money work for you is one way to grow your wealth.Investing involves a chance of losses. However, there are ways to lower your risk, though you can't eliminate it altogether.New investors have never had so many resources for expert advice.Following these eight essential steps, you’ll learn how to set clear investment goals, choose the right stocks, and understand the basics of stock investing. 8-Step Guide to Investing in Stocks Step 1: Set Clear Investment Goals Begin by specifying your financial objectives. Clear goals will guide your investment decisions and help you stay focused. Consider both short-term and long-term goals, as they will affect your investment strategy. You might have short-term goals like saving for a home or a vacation or have long-term objectives like securing a comfortable retirement or funding a child’s education. Your objectives depend on your life stage and ambitions. Younger investors tend to focus more on growth and long-term wealth accumulation, while those closer to retirement typically prefer generating income and capital preservation. The more precise you are, the better. Tips for Setting Investment Goals: Be precise about your objectives: Instead of vague goals like “save for retirement,” aim for specific targets like “accumulate $500,000 in my retirement fund by age 50.”Determine your investment horizon: Assess how long you have to achieve each goal. Longer time horizons often allow for more aggressive investment strategies, while shorter ones may require more conservative approaches. The longer you give yourself, the less conservative you'll need to be early on.Evaluate your finances: Be realistic about how much you can put toward your investment goals, considering your savings, regular income, and any other financial resources. Rank your goals: Most of us balance several goals at once, and we have to prioritize saving for a home down payment, paying for a wedding next year, or preparing for retirement based on urgency and importance. For example, saving for a down payment on a house might take precedence over planning a vacation.Adapt as life changes: The phrase financial planning is best taken as a verb, not a noun. It's an ongoing process that should evolve with your needs and aspirations. You might fall in love or out of it, have many children or none of them, or realize your life’s work means moving cross country. Regularly review and adjust your goals as your life circumstances change. The first step in any venture is the biggest, but by setting clear and precise investment goals, you'll lay a strong foundation for building your investments. This clarity will help you navigate the stock market with confidence and purpose. Step 2: Determine How Much You Can Afford To Invest Pinpointing how much you can afford to put in stocks requires a clear-eyed assessment of your finances. This step helps ensure that you are investing responsibly without endangering your financial stability. Tips for Determining Your Investment Amount: Review your income sources: Begin by listing all your sources of income. Check if your employer offers investment options with tax benefits or matching funds to amplify your investments. Establish an emergency fund: Ensure you have a solid financial foundation before investing. Solid does not mean perfect. This fund should cover a few months' worth of major expenses, such as mortgage or rent payments and other essential bills. Pay off high-interest debts: Financial planners typically recommend paying down high-interest debts, such as credit card balances. The returns from investing in stocks are unlikely to outweigh the costs of high interest accumulating on these debts. Thus, scrutinize each of your debts similarly, weighing the interest payments against potential investment returns. Likely, your debts will have to come first. Create a budget: Based on your financial assessment, decide how much money you can comfortably invest in stocks. You also want to know if you're starting with a lump sum or smaller amounts put in over time. Your budget should ensure that you are not dipping into funds you need for expenses. Don't worry if your funds are less than you would wish. You wouldn't berate yourself for not being ready for a race on your first day of training; so, too, with investing. This is a marathon, not a sprint, and the journey is still ahead. Two crucial points: Only invest money you can afford to lose.Never put yourself in a financially vulnerable position for the sake of investing. Taking these seriously is what separates investing from gambling. Step 3: Determine Your Tolerance for Risk Understanding your risk tolerance is a cornerstone of investing. It helps you align your comfort level with the inherent uncertainties of the stock market and financial goals. Tips for Assessing Your Risk Tolerance Self-assessment: Reflect on your comfort level with the ups and downs of the stock market. Are you willing to accept higher risks for potentially greater returns, or do you prefer stability even if that means potentially less in the end? Consider your time horizon: Your risk tolerance often depends on your investment timeline. Longer horizons allow for more risk since you have time to recover from potential losses. Shorter timelines typically require more conservative investments. Gauge your financial cushion: Assess your finances, including your savings, emergency fund, and other investments. A solid financial cushion can help you take on more risk. Align investments with risk levels: Choose stocks and other investments that align with your risk tolerance. Examples: Lower risk: Dividend stocks and bonds. Moderate risk: Midcap and large-capitalization stocks, index funds, and exchange-traded funds. High risk: Small-cap stocks, growth stocks, and sector-specific investments. Adjust over time: Your risk tolerance may change as your finances and goals evolve. Regularly reassess your risk tolerance and adjust your investment strategy accordingly. By accurately determining your risk tolerance, you can build a portfolio that reflects your financial goals and personal comfort level, helping you navigate the stock market with more peace of mind. Step 4: Determine Your Investing Style Your investing style is crucial in how you approach stock investments. Whether you prefer a hands-on approach or a more passive strategy, understanding your style helps you choose the right investment methods and tools. Everyone has a different relationship with money. Some prefer an active role, meticulously pouring over every last cell on their portfolio's spreadsheets, while others opt for a set-it-and-forget-it approach. They trust their investments will grow over time if they just leave them alone. Your style might evolve, but you'll need to start somewhere, even if your choice isn't set in stone. Tips for Identifying Your Investing Style: Begin with a self-reflection on whether you enjoy researching and analyzing stocks or prefer a more detached approach. Here are your main choices: 1. DYI investing: If you grasp how stocks work and have the confidence to head out with minimal guidance into the market, managing the trades yourself is one option. Even DIY, there are more and less active approaches: Active: You use your brokerage account to access various investments, including stocks, bonds, and other assets, and trade as you wish. You'll set your goals and choose when to buy and sell.Passive: You use your brokerage account to buy shares in index ETFs and mutual funds. You still control which funds you purchase, but fund managers do the trading for you. 2. Professional guidance: For those who prefer a more personal approach and want more, an experienced broker or financial advisor is often invaluable. These financial professionals tailor their advice to your life experiences and goals, help you decide among the most promising stock choices, monitor your portfolio, and collaborate with you when things need changing. Step 5. Choose an Investment Account You've figured out your goals, the risk you can tolerate, and how active an investor you want to be. Now, it's time to choose the type of account you'll use. Each has its own features, benefits, and drawbacks. In addition, the type of account you choose can greatly impact your tax situation, investment options, and overall strategy. You'll need to compare different brokers to find the investment account right for you. Tips for Choosing Your Investment Account 1. Understand the different account types: In the table below, we've listed the differences between regular brokerage accounts, retirement accounts, and managed accounts. You'll want to choose one that'll work for you. We also list special accounts for education and health savings. 2. Consider the tax implications: Taxable accounts: These are the most common if you're trading online. Brokerage accounts don’t offer tax benefits, but there are no restrictions on contributions or withdrawals.Tax-deferred accounts: Contributions to traditional IRAs and 401(k)s cut taxable income, and taxes are deferred until you withdraw the money.Tax-free accounts: Roth IRAs and Roth 401(k)s are funded with after-tax dollars, but qualified withdrawals in retirement are tax-free. Account Type Description Tax Implications Key Features Brokerage Accounts Standard accounts for buying and selling a wide range of investments; can be individual or joint (shared). The basic type is a cash account: you buy securities using only the money in your account. There are also margin accounts for experienced investors who borrow to buy additional stock. No tax advantages; capital gains and dividends are taxable. Full control over investments, flexible funding, and withdrawal options. Managed Accounts Accounts managed by professional advisors on your behalf. No tax advantages; capital gains and dividends are taxable. Professional management, personalized investment strategies, typically higher fees. Dividend Reinvestment Plan (DRIP) Accounts Accounts that automatically reinvest dividends into additional shares of the stock. Dividends are taxable when received. Automatic reinvestment, compounding growth, usually no transaction fees. Retirement Accounts Accounts for long-term retirement savings with tax advantages. Depends on the account type; generally tax-deferred or tax-free growth. Contribution limits, potential employer matching, penalties for early withdrawal. - 401(k), 403(b), 457 Plans Employer-sponsored retirement accounts. Take advantage of any matching funds if offered. Contributions reduce taxable income; tax-deferred growth. Potential employer matching (401[k] and 403[b]); no early withdrawal penalties for 457 plans; contribution limits. - Traditional IRAs Individual retirement accounts with tax-deductible contributions. Contributions reduce taxable income; tax-deferred growth. Annual contribution limits; penalties for early withdrawal before age 59.5. - Roth IRAs Individual retirement accounts are funded with after-tax dollars. Tax-free growth; tax-free withdrawals in retirement. Annual contribution limits; no required minimum distributions; penalties for early withdrawal of earnings. - Roth 401(k) Plans Employer-sponsored retirement accounts with after-tax contributions. Tax-free growth; tax-free withdrawals in retirement. Potential employer matching; contribution limits; penalties for early withdrawal before age 59.5. Education Savings Accounts (529 Plans) Accounts to save for education expenses. Contributions are not federally tax-deductible; tax-free growth. Used for education expenses; states tax benefits in some cases; no federal contribution limits. Health Savings Accounts (HSAs) Accounts for medical expenses with triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified expenses. Contributions reduce taxable income; tax-free growth and withdrawals. High-deductible health plan required; contribution limits; funds roll over year to year. 3. Evaluate your investment goals: Match your investment account type with your goals. For long-term retirement savings, consider tax-advantaged accounts. For short-term goals or flexible investing, a standard brokerage account might be better. 4. Scrutinize account fees, commissions, and minimums: Trading commissions: These are fees brokers charge when you buy or sell securities. Many brokers now offer commission-free trades for particular investments, such as stocks and ETFs.Account maintenance fees: Some brokerage accounts may charge annual or monthly maintenance fees, which depend on the account type and balance.Inactivity fees: Brokers may charge fees if your account has little or no trading activity over a certain period.Subscription-based models: As Generation Zers and Millennials take up a larger share of the investment space, financial advisors, planners, and brokers are adjusting. Instead of paying per transaction or for specific services, you pay a flat monthly or annual fee. Your subscription may include commission-free trades, access to research tools, and other premium support.Account minimums: Momentous changes in recent years have resulted from immense competition among brokerages. Many online brokers have eliminated account minimums, making it easier for more investors to get started. If you have just a few dollars to invest, you can open a brokerage account and begin trading stocks. 5. Check for added features: Some accounts offer additional features such as automatic contributions, access to financial advisors, educational resources, and more. Select an account that provides the features that fit your preferences. Research and analysis: Choose a broker with robust research tools, market analysis, and educational resources to help you make informed decisions.User-friendly trading platform: It shouldn't be glitchy or too difficult for you to use. It's best if it has real-time quotes, sophisticated charting tools, and mobile access.Customer service: Look for brokers that offer several customer support options, including phone, email, live chat, and in-person support if needed.Reputation and security: Avoid any platform that is not regulated by authorities like the U.S. Securities and Exchange Commission. Also, check that the broker employs strong security measures, such as encryption and two-factor authentication, to protect your personal and financial information. 6. Pick your broker: Brokers are full-service, discount, or robo-advisory. A good broker will offer the tools, resources, and support you need to make informed investment decisions and manage your portfolio effectively. Full-service brokers: These pack an array of financial services into one offering, including financial advice for retirement, healthcare, and educational products. They might craft financial plans to help you save for college, prepare for retirement, navigate estate transitions, and tackle other major life events. This personalized service explains their typically higher fees—usually a percentage of your transaction values and assets under management. Some firms bill a yearly membership fee. To access these services, you'll typically need to invest at least $25,000, and they have traditionally catered to high-net-worth individuals. Discount brokers: These have much lower, if any, thresholds for access but have a typically more streamlined service that allows you to place individual trades (often for low or no commissions per trade). Most have educational materials on their sites and mobile apps. However, they may have other requirements and fees. Be sure to check on both and review our Best Online Brokers for Beginners of 2024. Robo-advisors: For an automated solution, robo-advisors save money and take little effort on your part. If you select one, you won't be alone. According to Charles Schwab, 58% of Americans say they will use some sort of robo-advisor by 2025. They tend to offer fewer trading options and lack the personal approach to financial planning that's often best for long-term investing. Want to know more? See our Best Robo-Advisors of 2024. Step 6: Fund Your Stock Account By this step, you've picked a broker that aligns with your investment goals and preferences or is simply the most convenient. You've also decided whether you're opening a cash account, which requires you to pay for investments in full, or a margin account, which lets you borrow when purchasing securities. Once you've chosen a brokerage and account type, you'll open your account. This involves providing your personal information: Social Security number, address, employment details, and financial data. This shouldn't take you more than 15 minutes. Now you'll have to fund it. Here are tips for doing so: Tips for Funding Your Stock Account 1. Choose how you'll fund it: Bank transfer: The most common method is to transfer funds directly from your bank account. This can be done via electronic funds transfer or wire transfer. Check deposit: Some brokers allow you to mail a check to fund your account. This method can take longer but is viable if you prefer not to use electronic transfers. Transfer from another brokerage: If you have an existing brokerage account, you can transfer assets directly to your new account. This process, known as an ACATS transfer, is usually straightforward but may take a few days to complete. 2. Set up automatic contributions: Dollar-cost averaging involves investing a fixed amount of money at regular intervals over time, no matter what the market does. This cuts your risk of making bad decisions based on short-term market news. Most brokers let you customize the frequency and amount of your automatic contributions, making it easier to stay within your budget and keep on track with your investment goals. 3. Start investing: Once you've verified the funds are in your account (don't worry: the brokerage won't let you trade otherwise), it's time to start choosing the stocks that best fit your investment goals. If you plan to trade frequently, check out our list of brokers for cost-conscious traders. Step 7: Pick Your Stocks Even experienced investors grapple with choosing the best stocks. Beginners should look for stability, a strong track record, and the potential for steady growth. Resist the temptation to gamble on risky stocks, hoping for a quick windfall. Long-term investing is mostly slow and steady, not fast and rash. Here are the types of stocks more likely to be solid bets when starting off: Blue chips: These are shares of large, well-established, and financially sound companies with a history of reliable performance. Examples include companies listed in the Dow Jones Industrial Average or the S&P 500. They are typically industry leaders and offer stability during market fluctuations. Dividend stocks: Companies that regularly pay dividends can be a good choice for beginners. Dividends give you a regular income, which can be reinvested to buy even more stock. See How to Buy Dividend Stocks to learn more. Growth stocks: The greater the chances for outsized growth in a stock, the riskier investing in it will be. Beginners interested in growth stocks should target industries with long-term potential, such as technology or healthcare. Defensive stocks: These are in industries that tend to do well even during economic downturns, such as utilities, healthcare, and consumer goods. They will give you a buffer against market volatility as you start. ETFs: Traded like stocks, these track market indexes like the S&P 500, and offer instant diversification, reducing the risk associated with individual stocks. As you gain experience, you can look at funds for sectors that pique your interest, themes that meet your investment goals, or funds pooling environmental, social, and governance stocks. It's prudent to begin with a conservative approach, focusing on stocks or funds that offer stability and a good track record. This will give you confidence and returns to trade with as you advance in your investing knowledge. Step 8. Learn, Monitor, Review Successful investors discover tips and strategies each passing day. As the stock market changes, staying up to date, going back to Step 1, reviewing your goals, etc., will be key. Here are tips on learning about, monitoring, and reviewing your accounts with an eye toward your goals and risk tolerance. Tips for Learning and Monitoring Your Stocks Read widely and regularly: Read reputable financial news sites. Keep informed about the global economy, industry trends, and the companies you are invested in. Avoid sites and books promising easy returns or tricks, not tips, likely to redound to their benefit when you buy their courses or apps. Books on investment strategies, stock market fundamentals, and diversification are essential. Use stock simulators: These are platforms that enable you to practice trading stocks risk-free using virtual money. They are excellent for applying investment theories and testing strategies without risk. Investopedia's simulator is entirely free to use. Learn about diversification: Having taken your beginning steps here, you'll next want to spread your investments across diverse asset classes to cut down on risk and improve your potential for returns. When you're ready, we can help you learn how to diversify your portfolio beyond stocks. You now need to monitor your stocks and other investments. Regular reviewing and staying informed will help you adjust when necessary to keep on track with your financial goals. Best Stocks for Beginners Picking the right stocks can overwhelm those starting to navigate the investing world—you're starting with a blank slate, and the options are endless. Here are ideas that aren't only the best for beginners but are many times the choice of the experts managing their own portfolios: Index funds: These are not technically stocks but funds that trade shares like them. They are passively managed funds that track the performance of a particular market index, like the S&P 500, a collection of 500 major publicly traded American companies. These might not come with the excitement of picking a stock and seeing it take off, but index funds take what would be impractical or too expensive for a beginner and let you invest in a whole pool of them. And they do well: According to the S&P Indices Versus Active score cards, a widely respected benchmark, about 90% of actively managed funds didn't match the returns of the S&P 500 over 10 and 15-year periods. This is simple but winning information: the most effortless route might be the most profitable. Blue chip stocks: Classic investing advice has been to buy shares of well-established, stable companies with a history of consistent growth and dividend payments. The blue chips—named for the traditional color of the highest-value poker chips—have strong brand recognition, a solid market position, and a track record of weathering economic downturns. Investing in them can provide you with stability and the potential for steady, long-term returns. Examples include Apple (AAPL), known for its ubiquitous technology products and loyal customer base; JP Morgan & Chase Co (JPM), the banking giant; Johnson & Johnson (JNJ), a healthcare giant that also owns manufacturers of many consumer goods; and Coca-Cola (KO), the soft drink maker that has distributed dividends each year since 1893. Dividend aristocrats: Coca-Cola is not just a blue-chip stock but also belongs to a select group that has distributed and increased their dividends for at least 25 consecutive years. By investing in dividend aristocrats, beginners can benefit from the potential for rising income and the chance to reinvest the dividends for compound growth. Examples include ExxonMobil (XOM), one of the world's largest oil and gas companies with a history of solid cash generation; Procter & Gamble Co. (PG), the consumer products multinational; and Walmart (WMT), the retail behemoth. Low-volatility stocks: These companies' shares have historically had fewer price swings, providing more solidity to portfolios and, not for nothing, calm for investor heart rates. They often belong to "defensive sectors" (recession-proof parts of the economy) such as utilities, consumer staples, and healthcare. Examples include companies we've mentioned already (Johnson & Johnson, Coca-Cola, Procter & Gamble, etc.), as well as Berkshire Hathaway (BRK.B), Brystol-Myers Squibb Company (BMY), Duke Energy (DUK), and the Hershey Company (HSY), whose stability even during financial storms shows that the love of chocolate doesn't go away when the economy hits some bumps. Quality factor ETFs: These invest in companies with solid balance sheets, consistent growth in earnings, and other measures of good financial health. Quality factor ETFs take a rules-based approach to selecting stocks with low debt levels, stable earnings, and high returns. Example funds include the iShares MSCI USA Quality Factor ETF, which holds large- and midcap U.S. stocks with solid quality characteristics, and the Invesco S&P 500 Quality ETF, which focuses on high-quality stocks within the S&P 500 index. The potential drawback for each of these investments is that you might not see the outsized growth that riskier stocks could provide. In addition, past performance does not determine future results. If you have limited funds, this could be unappealing: more modest returns won't seem to add much when you don't have much to begin with. However, reinvested dividends and compound growth add up. Investing is not gambling, and the reason to invest rather than go to a casino is that prudent, patient, and disciplined investing is how most investors get ahead. How Much Money Do I Need To Start Investing in Stocks? The amount needed depends on the brokerage firm and the investments you're interested in. Some online brokerages have no minimum deposit requirements, allowing you to start investing with a small amount of money. However, the price of individual stocks and the minimum investment for certain mutual funds or ETFs might require you to start with more of an initial investment. That said, there are many brokerages and investment options now for those starting with less to invest than there were a decade or two ago. Are Stock Funds Good for Beginner Investors? Stock funds, including mutual funds and ETFs that invest in a diversified portfolio of stocks, are a good option for beginner investors. They offer diversification, which helps spread risk across different stocks, and are managed by professional fund managers. In addition, stock funds allow beginners to invest in a broad range of stocks with a single investment, making it easier to get started without having to pick individual stocks. While you watch your mutual fund or ETF investment over time, you will also gain experience about the ebb and flow of the stocks these funds hold, good knowledge that will help you when investing later. What Are the Risks of Investing? Investing is a commitment of resources now toward a future financial goal. There are many levels of risk, with certain asset classes and investment products inherently much riskier than others. It is always possible that the value of your investment will not increase over time. For this reason, a key consideration for investors is how to manage their risk to achieve their financial goals, whether short- or long-term. Do I Have To Live in the U.S. To Open a Brokerage Account? To open a brokerage account, you don't have to live in the U.S. Many U.S. brokerage firms accept international clients. However, the application process and requirements will differ, including the need for additional documentation, such as proof of identity and residence. There are also some investments and services regulations curtailed for those who aren't U.S. citizens, but the experience is very similar. Most major online brokerages in the U.S. accept international clients. How Do Commissions and Fees Work? Most brokers charge customers a commission for every trade. Due to commission costs, investors generally find it prudent to limit the total number of trades they make to avoid spending extra money on fees. Certain other types of investments, such as exchange-traded funds, may carry additional fees to cover fund management costs. The Bottom Line Beginners can start investing in stocks with a relatively small amount of money. You'll have to do your homework to determine your investment goals, risk tolerance, and the costs of investing in stocks and mutual funds. You'll also need to research brokers and their fees to find the one that best fits your investment style and goals. Once you do, you’ll be well-positioned to take advantage of the potential stocks have to reward you financially in the coming years.

https://www.investopedia.com/top-cds-today-march-18-2024-nation-leading-rate-drops-to-5-55-8610786

Top CDs Today, March 18, 2024: Nation-Leading Rate Drops to 5.55%

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 top overall rate on a nationally available CD dropped today from 5.75% to 5.55% APY. That's available for 6 months 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://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Newtek Bank</a>.</li> <li>The best 1-year rate also declined, though the new leading APY is just a few basis points lower at 5.40% APY. That rate is available from multiple institutions.</li> <li>If you're able to stretch to a jumbo deposit, you can earn more for longer, with <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.hughesfcu.org/products/detail/certificate-accounts&amp;lender=Hughes%20Federal%20Credit%20Uniontype=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Hughes Federal Credit Union's</a> 17-month offer of 5.65% APY.</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 generally been inching lower for the past few months. But they'll likely start falling faster once the Fed appears ready to make a rate cut.</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_5-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <span class="heading-toc" id="toc-overall-rate-leader-falls"></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"> Overall Rate Leader Falls </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The top yield across all CD terms on a nationally available certificate fell to 5.55% APY today. That rate is available from Newtek Bank 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 prior leader had been paying 5.75% APY since late January. </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 leading rate on a 1-year certificate also declined today, though the drop was a minor 3 basis points. The new <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">leading 1-year rate is 5.40%</a>, and it's available from two banks and four credit unions. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_12-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/CEyw6/2/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Best CD rates by term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_14-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 90px;"></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>Friday's Top National Rate</b></td> <td><b>Today's Top National Rate</b></td> <td><b>Day's Change </b>(percentage points)</td> <td><b>Top Rate Provider</b></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-month-cd-rates-5272288" rel="noopener noreferrer">3 months</a></td> <td>5.42% 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" rel="noopener noreferrer">6 months</a></td> <td>5.75% APY</td> <td>5.55% APY</td> <td>- 0.20</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Newtek Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650" rel="noopener noreferrer">1 year</a></td> <td>5.43% APY</td> <td>5.40% APY</td> <td>- 0.03</td> <td>6 institutions</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>5.35% APY</td> <td>5.35% 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://forteracu.com/banking/personal/savings/certificates/fixed-rate-share-certificate&amp;lender=Fortera%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Fortera Credit Union</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&amp;lender=XCEL%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">2 years</a></td> <td>5.20% APY</td> <td>5.20% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938" rel="noopener noreferrer">3 years</a></td> <td>5.00% APY</td> <td>5.00% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&amp;lender=DollarSavingsDirect&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="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>4.60% APY</td> <td>4.60% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-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="noopener noreferrer 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.pelicanstatecu.com/rates&amp;lender=Pelican%20State%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Pelican State Credit Union</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_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. Today that count is down to just 8. </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"> But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great opportunity. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_20-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/DKfF7/2/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Ranges of Top 15 CD Rates by Term"></iframe></div> <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"> Also keep in mind that snagging the <em>highest</em> APY isn't the only way to win with today's CDs. Since CD rates could fall much further in 2024 and 2025, locking in a rate soon that's guaranteed far into the future can also be a smart move.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-todays-top-bank-credit-union-and-jumbo-cd-rates"></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"> Today's Top Bank, Credit Union, and Jumbo CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Today's best jumbo CD rate remains 5.65% APY on a 17-month term, available from Hughes Federal Credit Union. All other jumbo leading rates held steady today as well. </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"> As always, 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 every term but two 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_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> All other term leaders meanwhile held firm. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_31-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 91px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Term</b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-cd-rates-4801462" rel="noopener noreferrer">Today's Top National Bank Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214" rel="noopener noreferrer">Today's Top National Credit Union Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766" rel="noopener noreferrer">Today's Top National Jumbo Rate</a></b></td> </tr> <tr> <td>3 months</td> <td>5.42% 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>5.51% APY</td> </tr> <tr> <td>1 year</td> <td>5.40% APY</td> <td>5.40% APY</td> <td>5.51% APY*</td> </tr> <tr> <td>18 months</td> <td>5.08% APY</td> <td>5.35% APY</td> <td>5.65% APY*</td> </tr> <tr> <td>2 years</td> <td>4.91% APY</td> <td>5.20% APY*</td> <td>5.06% 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>4.60% APY*</td> <td>4.52% APY</td> </tr> <tr> <td>5 years</td> <td>4.55% APY</td> <td>4.70% APY*</td> <td>4.42% 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_32-0"></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_33-0"> <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_34-0"> The Federal Reserve announced at its Jan. 31 meeting that it is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-interest-rate-decision-january-2024-8553695">maintaining rates at their current level</a>, the fourth meeting in a row it's done so.<span class="ql-inline-citation" data-cite="32"></span> To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising 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> to its highest level in 22 years. </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"> This in turn created 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 continued rising to a peak this fall, reaching their highest levels in two decades. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_38-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/MHRQf/2/" 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_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> But inflation has been cooling, putting the Fed in a holding pattern since July. The central bank also signaled after its January meeting that it was most likely finished with its rate-hike campaign.<span class="ql-inline-citation" data-cite="32"></span> This means we've entered a new phase, where the Fed committee is focused on deciding the right timing to pull the trigger on a first rate cut. </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"> Financial markets are currently forecasting more than one rate cut in 2024, according to the CME Group's FedWatch Tool, with a slight majority of traders believing the first cut will arrive by June.<span class="ql-inline-citation" data-cite="39"></span> But what markets predict and what the Fed ultimately does may or may not align. </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"> Indeed, Fed Chair <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/jerome-powell-5210572">Jerome Powell's</a> recent testimony to Congress indicated the rate-setting committee still thinks it's likely they will cut their benchmark rate this year. But his remarks also <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-chair-powell-sticks-to-script-in-first-congress-appearance-this-week-8605176">conveyed caution</a> that predictions at this time are merely best guesses. </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"> "The economic outlook is uncertain, and ongoing progress toward our 2% objective for inflation is not assured," Powell said in his prepared comments. "Reducing policy restraint too soon or too much could result in a reversal of progress we have seen." </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"> Indeed, inflation is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-you-need-to-know-ahead-of-the-feds-interest-rate-policy-meeting-wednesday-8609928">proving more stubborn</a> than the Fed and most economists have been anticipating. Inflation data released last week showed February's reading was <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/february-2024-cpi-8607820">higher than expected</a> and slightly above January's reading, which itself came in ahead of expectations last month.<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_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> The Fed's next rate-setting meeting will conclude Wednesday, and the central bank will almost certainly announce another rate hold. But this announcement will also come with the release of a new "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dot-plot-4581755">dot plot</a>" chart, which indicates how many rate cuts—if any—each Fed member expects we'll see by the end of 2024. </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"> If the dot plot shows that central bankers still expect to make multiple rate cuts this year, CD rates would probably continue drifting gradually lower. But if instead next week's report shows that 2024 rate cuts are far less certain, then CD rates may plateau until it seems a Fed rate decrease is more forthcoming.<br/> </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 mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_55-0"><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_57-0"><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_59-0"><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_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_61-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_62-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_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 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_63-0"> <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_64-0"> 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_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>.<br/> </p></div>

### Key Takeaways * The top overall rate on a nationally available CD dropped today from 5.75% to 5.55% APY. That's available for 6 months from [Newtek Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ). * The best 1-year rate also declined, though the new leading APY is just a few basis points lower at 5.40% APY. That rate is available from multiple institutions. * If you're able to stretch to a jumbo deposit, you can earn more for longer, with [Hughes Federal Credit Union's](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.hughesfcu.org/products/detail/certificate-accounts&lender=Hughes%20Federal%20Credit%20Uniontype=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) 17-month offer of 5.65% APY. * The [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) have generally been inching lower for the past few months. But they'll likely start falling faster once the Fed appears ready to make a rate cut. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. ## Overall Rate Leader Falls The top yield across all CD terms on a nationally available certificate fell to 5.55% APY today. That rate is available from Newtek Bank for a [6-month term](https://www.investopedia.com/best-6-month-cd-rates-4783267). The prior leader had been paying 5.75% APY since late January. The leading rate on a 1-year certificate also declined today, though the drop was a minor 3 basis points. The new [leading 1-year rate is 5.40%](https://www.investopedia.com/best-1-year-cd-rates-4796650), and it's available from two banks and four credit unions. | **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) | 5.75% APY | 5.55% APY | - 0.20 | [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) | 5.43% APY | 5.40% APY | - 0.03 | 6 institutions | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.35% APY | 5.35% APY | No change | [Fortera Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://forteracu.com/banking/personal/savings/certificates/fixed-rate-share-certificate&lender=Fortera%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [2 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.20% APY | 5.20% 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) | 4.60% APY | 4.60% 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 | [Pelican State Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.pelicanstatecu.com/rates&lender=Pelican%20State%20Credit%20Union&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. It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. Today that count is down to just 8. But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great opportunity. Also keep in mind that snagging the *highest* APY isn't the only way to win with today's CDs. Since CD rates could fall much further in 2024 and 2025, locking in a rate soon that's guaranteed far into the future can also be a smart move. ## Today's Top Bank, Credit Union, and Jumbo CD Rates Today's best jumbo CD rate remains 5.65% APY on a 17-month term, available from Hughes Federal Credit Union. All other jumbo leading rates held steady today as well. As always, 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 every term but two below, so it's always wise to shop both certificate types before making a final decision. All other term leaders meanwhile held firm. | **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\* | 5.51% APY | | 1 year | 5.40% APY | 5.40% APY | 5.51% APY\* | | 18 months | 5.08% APY | 5.35% APY | 5.65% APY\* | | 2 years | 4.91% APY | 5.20% APY\* | 5.06% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.55% APY | 4.60% APY\* | 4.52% APY | | 5 years | 4.55% APY | 4.70% APY\* | 4.42% 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? The Federal Reserve announced at its Jan. 31 meeting that it is [maintaining rates at their current level](https://www.investopedia.com/fed-interest-rate-decision-january-2024-8553695), the fourth meeting in a row it's done so. To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) to its highest level in 22 years. This in turn created 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 continued rising to a peak this fall, reaching their highest levels in two decades. But inflation has been cooling, putting the Fed in a holding pattern since July. The central bank also signaled after its January meeting that it was most likely finished with its rate-hike campaign. This means we've entered a new phase, where the Fed committee is focused on deciding the right timing to pull the trigger on a first rate cut. Financial markets are currently forecasting more than one rate cut in 2024, according to the CME Group's FedWatch Tool, with a slight majority of traders believing the first cut will arrive by June. But what markets predict and what the Fed ultimately does may or may not align. Indeed, Fed Chair [Jerome Powell's](https://www.investopedia.com/jerome-powell-5210572) recent testimony to Congress indicated the rate-setting committee still thinks it's likely they will cut their benchmark rate this year. But his remarks also [conveyed caution](https://www.investopedia.com/fed-chair-powell-sticks-to-script-in-first-congress-appearance-this-week-8605176) that predictions at this time are merely best guesses. "The economic outlook is uncertain, and ongoing progress toward our 2% objective for inflation is not assured," Powell said in his prepared comments. "Reducing policy restraint too soon or too much could result in a reversal of progress we have seen." Indeed, inflation is [proving more stubborn](https://www.investopedia.com/what-you-need-to-know-ahead-of-the-feds-interest-rate-policy-meeting-wednesday-8609928) than the Fed and most economists have been anticipating. Inflation data released last week showed February's reading was [higher than expected](https://www.investopedia.com/february-2024-cpi-8607820) and slightly above January's reading, which itself came in ahead of expectations last month. The Fed's next rate-setting meeting will conclude Wednesday, and the central bank will almost certainly announce another rate hold. But this announcement will also come with the release of a new "[dot plot](https://www.investopedia.com/dot-plot-4581755)" chart, which indicates how many rate cuts—if any—each Fed member expects we'll see by the end of 2024. If the dot plot shows that central bankers still expect to make multiple rate cuts this year, CD rates would probably continue drifting gradually lower. But if instead next week's report shows that 2024 rate cuts are far less certain, then CD rates may plateau until it seems a Fed rate decrease is more forthcoming. [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 top overall rate on a nationally available CD dropped today from 5.75% to 5.55% APY. That's available for 6 months from Newtek Bank. The best 1-year rate also declined, though the new leading APY is just a few basis points lower at 5.40% APY. That rate is available from multiple institutions. If you're able to stretch to a jumbo deposit, you can earn more for longer, with Hughes Federal Credit Union's 17-month offer of 5.65% APY. The best CD rates have generally been inching lower for the past few months. But they'll likely start falling faster once the Fed appears ready to make a rate cut. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. Overall Rate Leader Falls The top yield across all CD terms on a nationally available certificate fell to 5.55% APY today. That rate is available from Newtek Bank for a 6-month term. The prior leader had been paying 5.75% APY since late January. The leading rate on a 1-year certificate also declined today, though the drop was a minor 3 basis points. The new leading 1-year rate is 5.40%, and it's available from two banks and four credit unions. 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 5.75% APY 5.55% APY - 0.20 Newtek Bank 1 year 5.43% APY 5.40% APY - 0.03 6 institutions 18 months 5.35% APY 5.35% APY No change Fortera Credit Union 2 years 5.20% APY 5.20% APY No change Credit Human 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect 4 years 4.60% APY 4.60% APY No change Credit Human 5 years 4.70% APY 4.70% APY No change Pelican State Credit Union To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. Today that count is down to just 8. But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great opportunity. Also keep in mind that snagging the highest APY isn't the only way to win with today's CDs. Since CD rates could fall much further in 2024 and 2025, locking in a rate soon that's guaranteed far into the future can also be a smart move. Today's Top Bank, Credit Union, and Jumbo CD Rates Today's best jumbo CD rate remains 5.65% APY on a 17-month term, available from Hughes Federal Credit Union. All other jumbo leading rates held steady today as well. As always, 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 every term but two below, so it's always wise to shop both certificate types before making a final decision. All other term leaders meanwhile held firm. 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* 5.51% APY 1 year 5.40% APY 5.40% APY 5.51% APY* 18 months 5.08% APY 5.35% APY 5.65% APY* 2 years 4.91% APY 5.20% APY* 5.06% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.55% APY 4.60% APY* 4.52% APY 5 years 4.55% APY 4.70% APY* 4.42% 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? The Federal Reserve announced at its Jan. 31 meeting that it is maintaining rates at their current level, the fourth meeting in a row it's done so. To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising the federal funds rate to its highest level in 22 years. This in turn created 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 continued rising to a peak this fall, reaching their highest levels in two decades. But inflation has been cooling, putting the Fed in a holding pattern since July. The central bank also signaled after its January meeting that it was most likely finished with its rate-hike campaign. This means we've entered a new phase, where the Fed committee is focused on deciding the right timing to pull the trigger on a first rate cut. Financial markets are currently forecasting more than one rate cut in 2024, according to the CME Group's FedWatch Tool, with a slight majority of traders believing the first cut will arrive by June. But what markets predict and what the Fed ultimately does may or may not align. Indeed, Fed Chair Jerome Powell's recent testimony to Congress indicated the rate-setting committee still thinks it's likely they will cut their benchmark rate this year. But his remarks also conveyed caution that predictions at this time are merely best guesses. "The economic outlook is uncertain, and ongoing progress toward our 2% objective for inflation is not assured," Powell said in his prepared comments. "Reducing policy restraint too soon or too much could result in a reversal of progress we have seen." Indeed, inflation is proving more stubborn than the Fed and most economists have been anticipating. Inflation data released last week showed February's reading was higher than expected and slightly above January's reading, which itself came in ahead of expectations last month. The Fed's next rate-setting meeting will conclude Wednesday, and the central bank will almost certainly announce another rate hold. But this announcement will also come with the release of a new "dot plot" chart, which indicates how many rate cuts—if any—each Fed member expects we'll see by the end of 2024. If the dot plot shows that central bankers still expect to make multiple rate cuts this year, CD rates would probably continue drifting gradually lower. But if instead next week's report shows that 2024 rate cuts are far less certain, then CD rates may plateau until it seems a Fed rate decrease is more forthcoming. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

https://www.investopedia.com/articles/markets/010816/3-early-warning-signs-you-can-use-exit-positions.asp

Early Warning Signs That Function as Exit Indicators for a Trade

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profit.asp">Profits</a> in the financial markets require multiple skills that can locate appropriate risk vehicles, enter positions at the right time, and manage them with wisdom and a strong stomach before finally taking an exit when <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/opportunitycost.asp">opportunity cost</a> turns adverse. Many investors, market timers and traders can perform the first three tasks admirably but fail miserably when it comes time to exit positions. </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/investing/understanding-exit-strategies/">Getting out</a> at the right time isn't difficult, but it does require close observation of <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-action.asp">price action</a>, looking for clues that may predict a large-scale <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reversal.asp">reversal</a> or trend change. This is an easier chore for short-term traders than long-term investors who have been programmed to open positions and walk away—holding firm through long cycles of buying and selling pressure. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> While <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buyandhold.asp">buy-and-hold</a> strategies work, adding exit timing mechanisms can yield greater profits because they address the long-developing shift from <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/openoutcry.asp">open outcry</a> and specialist matching to algorithmic software code that seeks out price levels forcing most investors and traders to give up and exit positions. This predatory influence is likely to grow in the coming years, making long-term strategies more untenable. </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"> Failing rallies and major reversals often generate early warning signs that, if heeded, can produce much stronger returns than waiting until <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalindicator.asp">technicals</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundamentals.asp">fundamentals</a> line up, pointing to a change in conditions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_9-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_10-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The good news with most trades/positions is that they are liquid enough to exit when you see some of these warning signs. </li><li>Trading psychology can be a good predictor of when to exit a trade. A good example is when there is an obvious trend reversal.</li><li>High-volume days are usually quite volatile, and market movers have the ability to influence trades that may leave you "holding the bag," and it is therefore considered good practice to book profits before such days.</li></ul></div></div></div> <span class="heading-toc" id="toc-high-volume-days"></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"> High-Volume Days </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Keep track of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/averagedailytradingvolume.asp">average daily volume</a> over 50 to 60 sessions and watch for trading days that post three times that volume or higher. These events mark good news when they occur in the direction of the position—whether long or short—and warning signs when they oppose the position. This is especially true if the adverse swing breaks a notable <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/support.asp">support or resistance</a> level. </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"> Uptrends need consistent buying pressure that can be observed as accumulation through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/onbalancevolume.asp">on-balance volume</a> (OBV) or another classic volume indicator. Downtrends need consistent selling pressure that can be observed as distribution. High-volume sessions that oppose position direction undermine <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accumulationdistribution.asp">accumulation-distribution</a> patterns, often signaling the start of a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profittaking.asp">profit-taking</a> phase in an uptrend or value buying in a downtrend. </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"> Also, watch out for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/climax.asp">climax</a> days that can stop trends dead in their tracks. These sessions print at least three to five times average daily volume in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wide-ranging-days.asp">wide-range price bars</a> that extend to new highs in an uptrend and new lows in a downtrend. Further, the climax bar shows up at the end of an extended price swing, well after <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/relativestrength.asp">relative strength</a> indicators hit extremely <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/overbought.asp">overbought</a> (uptrend) or <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/oversold.asp">oversold</a> (downtrend) levels. </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-failed-price-swings"></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"> Failed Price Swings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Markets tend to trend just 15% to 20% of the time and are caught in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tradingrange.asp">trading ranges</a> the other 80% to 85% of the time. Strong trends in both directions ease into trading ranges to <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consolidation.asp">consolidate</a> recent price changes, encourage profit-taking, and lower <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> levels. This is all-natural and a part of healthy <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trendtrading.asp">trend development</a>. However, a trading range becomes a top or bottom when it exits the range in the opposite direction of the prior trend swing. </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"> Price action generates an early warning sign for a trend change when a trading range gives way to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/breakout.asp">breakout</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/breakdown.asp">breakdown</a> as expected, but then quickly reverses, with the price jumping back within range boundaries. These <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/failedbreak.asp">failed breakouts</a> or breakdowns indicate that predatory algorithms are targeting investors in an uptrend and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortselling.asp">short-sellers</a> in a downtrend. </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 safest strategy is to exit after a failed breakout or breakdown, taking the profit or loss, and re-entering if the price exceeds the high of the breakout or low of the breakdown. The re-entry makes sense because the recovery indicates that the failure has been overcome and that the underlying trend can resume. More often, the price will swing to the other side of the trading range after a failure and enter a sizable trend in the opposite direction. </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-moving-average-crosses-and-trend-changes"></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"> Moving Average Crosses and Trend Changes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Short-term (20-day <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ema.asp">exponential moving average</a>, or EMA), intermediate (50-day EMA) and long-term (200-day EMA) moving averages allow instant analysis simply by looking at relationships between the three lines. Danger rises for long positions when the short-term moving average descends through the long-term moving average and for short sales when the short-term ascends through the long-term. </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"> Price action also waves a red flag when the intermediate moving average changes slope from higher to sideways on long positions and lower to sideways on short sales. Don't stick around and wait for the long-term moving average to change slope because a market can go dead for months when it flatlines—undermining opportunity-cost. It also raises the odds of a trend change. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> It's easy to find positions that match your fundamental or technical criteria, but taking a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/020915/mustknow-simple-effective-exit-trading-strategies.asp">timely exit</a> requires great skill in our current fast-moving electronic market environment. Address this task by being vigilant for these three red flags that warn of an impending trend change or adverse conditions that can rob you of hard-earned profits. </p></div>

[Profits](https://www.investopedia.com/terms/p/profit.asp) in the financial markets require multiple skills that can locate appropriate risk vehicles, enter positions at the right time, and manage them with wisdom and a strong stomach before finally taking an exit when [opportunity cost](https://www.investopedia.com/terms/o/opportunitycost.asp) turns adverse. Many investors, market timers and traders can perform the first three tasks admirably but fail miserably when it comes time to exit positions. [Getting out](https://www.investopedia.com/investing/understanding-exit-strategies/) at the right time isn't difficult, but it does require close observation of [price action](https://www.investopedia.com/terms/p/price-action.asp), looking for clues that may predict a large-scale [reversal](https://www.investopedia.com/terms/r/reversal.asp) or trend change. This is an easier chore for short-term traders than long-term investors who have been programmed to open positions and walk away—holding firm through long cycles of buying and selling pressure. While [buy-and-hold](https://www.investopedia.com/terms/b/buyandhold.asp) strategies work, adding exit timing mechanisms can yield greater profits because they address the long-developing shift from [open outcry](https://www.investopedia.com/terms/o/openoutcry.asp) and specialist matching to algorithmic software code that seeks out price levels forcing most investors and traders to give up and exit positions. This predatory influence is likely to grow in the coming years, making long-term strategies more untenable. Failing rallies and major reversals often generate early warning signs that, if heeded, can produce much stronger returns than waiting until [technicals](https://www.investopedia.com/terms/t/technicalindicator.asp) and [fundamentals](https://www.investopedia.com/terms/f/fundamentals.asp) line up, pointing to a change in conditions. ### Key Takeaways * The good news with most trades/positions is that they are liquid enough to exit when you see some of these warning signs. * Trading psychology can be a good predictor of when to exit a trade. A good example is when there is an obvious trend reversal. * High-volume days are usually quite volatile, and market movers have the ability to influence trades that may leave you "holding the bag," and it is therefore considered good practice to book profits before such days. ## High-Volume Days Keep track of the [average daily volume](https://www.investopedia.com/terms/a/averagedailytradingvolume.asp) over 50 to 60 sessions and watch for trading days that post three times that volume or higher. These events mark good news when they occur in the direction of the position—whether long or short—and warning signs when they oppose the position. This is especially true if the adverse swing breaks a notable [support or resistance](https://www.investopedia.com/terms/s/support.asp) level. Uptrends need consistent buying pressure that can be observed as accumulation through [on-balance volume](https://www.investopedia.com/terms/o/onbalancevolume.asp) (OBV) or another classic volume indicator. Downtrends need consistent selling pressure that can be observed as distribution. High-volume sessions that oppose position direction undermine [accumulation-distribution](https://www.investopedia.com/terms/a/accumulationdistribution.asp) patterns, often signaling the start of a [profit-taking](https://www.investopedia.com/terms/p/profittaking.asp) phase in an uptrend or value buying in a downtrend. Also, watch out for [climax](https://www.investopedia.com/terms/c/climax.asp) days that can stop trends dead in their tracks. These sessions print at least three to five times average daily volume in [wide-range price bars](https://www.investopedia.com/terms/w/wide-ranging-days.asp) that extend to new highs in an uptrend and new lows in a downtrend. Further, the climax bar shows up at the end of an extended price swing, well after [relative strength](https://www.investopedia.com/terms/r/relativestrength.asp) indicators hit extremely [overbought](https://www.investopedia.com/terms/o/overbought.asp) (uptrend) or [oversold](https://www.investopedia.com/terms/o/oversold.asp) (downtrend) levels. ## Failed Price Swings Markets tend to trend just 15% to 20% of the time and are caught in [trading ranges](https://www.investopedia.com/terms/t/tradingrange.asp) the other 80% to 85% of the time. Strong trends in both directions ease into trading ranges to [consolidate](https://www.investopedia.com/terms/c/consolidation.asp) recent price changes, encourage profit-taking, and lower [volatility](https://www.investopedia.com/terms/v/volatility.asp) levels. This is all-natural and a part of healthy [trend development](https://www.investopedia.com/terms/t/trendtrading.asp). However, a trading range becomes a top or bottom when it exits the range in the opposite direction of the prior trend swing. Price action generates an early warning sign for a trend change when a trading range gives way to a [breakout](https://www.investopedia.com/terms/b/breakout.asp) or [breakdown](https://www.investopedia.com/terms/b/breakdown.asp) as expected, but then quickly reverses, with the price jumping back within range boundaries. These [failed breakouts](https://www.investopedia.com/terms/f/failedbreak.asp) or breakdowns indicate that predatory algorithms are targeting investors in an uptrend and [short-sellers](https://www.investopedia.com/terms/s/shortselling.asp) in a downtrend. The safest strategy is to exit after a failed breakout or breakdown, taking the profit or loss, and re-entering if the price exceeds the high of the breakout or low of the breakdown. The re-entry makes sense because the recovery indicates that the failure has been overcome and that the underlying trend can resume. More often, the price will swing to the other side of the trading range after a failure and enter a sizable trend in the opposite direction. ## Moving Average Crosses and Trend Changes Short-term (20-day [exponential moving average](https://www.investopedia.com/terms/e/ema.asp), or EMA), intermediate (50-day EMA) and long-term (200-day EMA) moving averages allow instant analysis simply by looking at relationships between the three lines. Danger rises for long positions when the short-term moving average descends through the long-term moving average and for short sales when the short-term ascends through the long-term. Price action also waves a red flag when the intermediate moving average changes slope from higher to sideways on long positions and lower to sideways on short sales. Don't stick around and wait for the long-term moving average to change slope because a market can go dead for months when it flatlines—undermining opportunity-cost. It also raises the odds of a trend change. ## The Bottom Line It's easy to find positions that match your fundamental or technical criteria, but taking a [timely exit](https://www.investopedia.com/articles/active-trading/020915/mustknow-simple-effective-exit-trading-strategies.asp) requires great skill in our current fast-moving electronic market environment. Address this task by being vigilant for these three red flags that warn of an impending trend change or adverse conditions that can rob you of hard-earned profits.

Profits in the financial markets require multiple skills that can locate appropriate risk vehicles, enter positions at the right time, and manage them with wisdom and a strong stomach before finally taking an exit when opportunity cost turns adverse. Many investors, market timers and traders can perform the first three tasks admirably but fail miserably when it comes time to exit positions. Getting out at the right time isn't difficult, but it does require close observation of price action, looking for clues that may predict a large-scale reversal or trend change. This is an easier chore for short-term traders than long-term investors who have been programmed to open positions and walk away—holding firm through long cycles of buying and selling pressure. While buy-and-hold strategies work, adding exit timing mechanisms can yield greater profits because they address the long-developing shift from open outcry and specialist matching to algorithmic software code that seeks out price levels forcing most investors and traders to give up and exit positions. This predatory influence is likely to grow in the coming years, making long-term strategies more untenable. Failing rallies and major reversals often generate early warning signs that, if heeded, can produce much stronger returns than waiting until technicals and fundamentals line up, pointing to a change in conditions. Key Takeaways The good news with most trades/positions is that they are liquid enough to exit when you see some of these warning signs. Trading psychology can be a good predictor of when to exit a trade. A good example is when there is an obvious trend reversal.High-volume days are usually quite volatile, and market movers have the ability to influence trades that may leave you "holding the bag," and it is therefore considered good practice to book profits before such days. High-Volume Days Keep track of the average daily volume over 50 to 60 sessions and watch for trading days that post three times that volume or higher. These events mark good news when they occur in the direction of the position—whether long or short—and warning signs when they oppose the position. This is especially true if the adverse swing breaks a notable support or resistance level. Uptrends need consistent buying pressure that can be observed as accumulation through on-balance volume (OBV) or another classic volume indicator. Downtrends need consistent selling pressure that can be observed as distribution. High-volume sessions that oppose position direction undermine accumulation-distribution patterns, often signaling the start of a profit-taking phase in an uptrend or value buying in a downtrend. Also, watch out for climax days that can stop trends dead in their tracks. These sessions print at least three to five times average daily volume in wide-range price bars that extend to new highs in an uptrend and new lows in a downtrend. Further, the climax bar shows up at the end of an extended price swing, well after relative strength indicators hit extremely overbought (uptrend) or oversold (downtrend) levels. Failed Price Swings Markets tend to trend just 15% to 20% of the time and are caught in trading ranges the other 80% to 85% of the time. Strong trends in both directions ease into trading ranges to consolidate recent price changes, encourage profit-taking, and lower volatility levels. This is all-natural and a part of healthy trend development. However, a trading range becomes a top or bottom when it exits the range in the opposite direction of the prior trend swing. Price action generates an early warning sign for a trend change when a trading range gives way to a breakout or breakdown as expected, but then quickly reverses, with the price jumping back within range boundaries. These failed breakouts or breakdowns indicate that predatory algorithms are targeting investors in an uptrend and short-sellers in a downtrend. The safest strategy is to exit after a failed breakout or breakdown, taking the profit or loss, and re-entering if the price exceeds the high of the breakout or low of the breakdown. The re-entry makes sense because the recovery indicates that the failure has been overcome and that the underlying trend can resume. More often, the price will swing to the other side of the trading range after a failure and enter a sizable trend in the opposite direction. Moving Average Crosses and Trend Changes Short-term (20-day exponential moving average, or EMA), intermediate (50-day EMA) and long-term (200-day EMA) moving averages allow instant analysis simply by looking at relationships between the three lines. Danger rises for long positions when the short-term moving average descends through the long-term moving average and for short sales when the short-term ascends through the long-term. Price action also waves a red flag when the intermediate moving average changes slope from higher to sideways on long positions and lower to sideways on short sales. Don't stick around and wait for the long-term moving average to change slope because a market can go dead for months when it flatlines—undermining opportunity-cost. It also raises the odds of a trend change. The Bottom Line It's easy to find positions that match your fundamental or technical criteria, but taking a timely exit requires great skill in our current fast-moving electronic market environment. Address this task by being vigilant for these three red flags that warn of an impending trend change or adverse conditions that can rob you of hard-earned profits.

https://www.investopedia.com/terms/u/ucits.asp

Undertakings for Collective Investment in Transferable Securities

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-ucits"></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 UCITS? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Undertakings for the Collective Investment in Transferable Securities (UCITS) is the European Commission's regulatory framework for managing and selling mutual funds. UCITS funds can be registered and sold in any country in the European Union using unified regulatory and investor protection requirements.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> A UCITS is similar to a mutual fund in the U.S. They are registered in countries that belong to the European Union and regulated by the member states where they are registered. The European Commission publishes regular guidance for member regulatory authorities to follow to ensure these investment instruments are available and safe for EU citizens. </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"> UCITS funds are perceived as safe and well-regulated investments. They are popular in Europe, South America, and Asia among investors who prefer not to invest in a single <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/plc.asp">public limited company</a> but rather among diversified unit trusts within their countries.<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_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> According to the European Commission, they account for about 75% of all collective investments by small investors in Europe.<span class="ql-inline-citation" data-cite="6"></span> Many mutual fund providers use an expression such as "UCITS-compliant" as part of their marketing strategy. While the funds are regulated in Europe, buyers from all over the world can invest in EU UCITS funds if allowed by their country's securities laws. </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>UCITS stands for Undertakings for the Collective Investment in Transferable Securities.</li><li>It is a regulatory framework that allows for the sale of cross-boundary mutual funds for EU member states.</li><li>UCITS were created so that retail investors have transparent, regulated, and cross-border investment opportunities.</li><li>UCITS funds are perceived as safe and well-regulated investments and are popular among many investors looking to invest across Europe.</li></ul></div></div></div> <span class="heading-toc" id="toc-ucits-versions"></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"> UCITS Versions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> UCITS versions use Roman numerals to indicate latest revisions. The first UCITS directive was adopted on Dec. 20, 1985, to facilitate cross-border offerings of investment funds to retail investors.<span class="ql-inline-citation" data-cite="1"></span> In the early 1990s, proposals for modifications to the directive were made but never fully adopted. As such, there is no UCITS II.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>UCITS are not only available in the EU. Several other countries or regions have these instruments. South Africa, Latin America, and Australia also use UCITS as a framework for creating funds.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In 2002, following discussions among member countries, two new directives were adopted. Directives 2001/107/EC and 2001/108/EC, together known as UCITS III, broadened the investment spectrum of UCITS funds and relaxed some restrictions for index 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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> UCITS IV, or Directive 2009/65/EC, brought about further technical changes and was adopted in July 2011.<span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> UCITS V, or Directive 2014/91/EU, which went into effect in March 2016, aligns fund depositories' duties and responsibilities and fund managers' remuneration requirements with those of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/alternative-investment-fund-managers-directive-aifmd.asp">Alternative Investment Fund Managers Directive</a> (AIFMD).<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> UCITS VI, or Directive 2021/2261/EC, went into effect on Jan.1, 2023. This directive requires UCITS to provide a summary of the key elements in each fund. Most notably, this summary must explain the costs, risks, and potential for returns. The summaries are known as Key Information Documents (KID).<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_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-note" 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 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>If you buy into a UCITS through a broker, that broker doesn't manage the fund. It is managed by the company in the EU.</p></div></div></div> <span class="heading-toc" id="toc-ucits-directives"></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"> UCITS Directives </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Not all directives receive a version number or designation. Sometimes, several are combined into the latest numbered version. Here are all of the proposed directives after 2009, with a short summary of their intent: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <li><strong>Directive 2009/65/EC, July 13, 2009 (UCITS IV)</strong>: The UCITS directive that was fully enacted; it receives updates through other directives.<span class="ql-inline-citation" data-cite="17"></span></li><li><strong>Directive 2010/78/EU, Nov. 24, 2010</strong>: Gave more authority to financial regulators after the Great Financial Crisis of 2008 and amended various financial services laws. No longer in force.<span class="ql-inline-citation" data-cite="10"></span></li><li><strong>Directive 2011/61/EU, June 8, 2011</strong>: Implemented common requirements for alternative investment fund managers (AIFM) in the EU.<span class="ql-inline-citation" data-cite="11"></span></li><li><strong>Directive 2013/14/EU, May 21, 2013</strong>: Established the authority of the EU Commission to adopt measures to reduce fund managers' over-reliance on credit ratings when selecting investments.<span class="ql-inline-citation" data-cite="12"></span></li><li><strong>Directive 2014/91/EU, July 23, 2014 (UCITS V)</strong>: Implemented policies to ensure sound and less risky practices involved in remunerations, depositaries, and sanctions.<span class="ql-inline-citation" data-cite="13"></span></li><li><strong>Directive (EU) 2019/1160, June 20, 2019</strong>: Amended 2009/65/EU to address issues affecting the cross-border distribution of UCITS and alternate investment funds.<span class="ql-inline-citation" data-cite="14"></span></li><li><strong>Directive (EU) 2019/2034, Nov. 27, 2019</strong>: Established a framework to ensure "the prudential supervision of investment firms." Additionally, the directive gave guidance on ethical investment firm management and encouraged the creation of a mechanism for the exchange of information between member states.<span class="ql-inline-citation" data-cite="15"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span><li><strong>Directive (EU) 2019/2162, Nov. 27, 2019</strong>: Established a framework for issuing covered bonds in the EU.<span class="ql-inline-citation" data-cite="16"></span></li><li><strong>Directive (EU) 2021/2261, Dec. 15, 2021 (UCITS VI)</strong>: Established criteria for publishing key information about UCITS.<span class="ql-inline-citation" data-cite="9"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-does-ucits-mean-in-stocks"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does UCITS Mean In Stocks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Undertaking for collective investment in transferable securities (UCITS) is a regulatory framework for mutual funds in the European Union (EU). It governs how mutual funds are sold and managed.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_34-0"><span class="heading-toc" id="toc-what-is-the-difference-between-ucits-and-etf"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between UCITS and ETF?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An exchange-traded fund (ETF) that is UCITS compliant is a type of fund that abides by the UCITS framework for funds based and managed in the EU.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_36-0"><span class="heading-toc" id="toc-can-us-citizens-invest-in-ucits"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can U.S. Citizens Invest in UCITS?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Like many investments, you can buy UCITS funds through a broker that offers the service. U.S. citizens cannot invest in UCITS without using an authorized broker.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_38-0"><span class="heading-toc" id="toc-what-is-the-difference-between-ucits-and-non-ucits"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between UCITS and Non-UCITS?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Non-UTICS funds do not comply with UCITS guidelines. They are likely not open-ended and liquid, one of the more significant requirements for a fund to be UCITS compliant.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Undertakings for collective investment in transferable securities is a regulatory framework in the European Union that creates standards for funds to follow. Mutual funds and similar investments following these guidelines are considered to be UCITS compliant, which means they are designed with retail investors in mind. </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 standards were created to give EU member citizens investment instruments and opportunities that are transparent, regulated the same, and diverse. </p></div>

## What Is UCITS? The Undertakings for the Collective Investment in Transferable Securities (UCITS) is the European Commission's regulatory framework for managing and selling mutual funds. UCITS funds can be registered and sold in any country in the European Union using unified regulatory and investor protection requirements. A UCITS is similar to a mutual fund in the U.S. They are registered in countries that belong to the European Union and regulated by the member states where they are registered. The European Commission publishes regular guidance for member regulatory authorities to follow to ensure these investment instruments are available and safe for EU citizens. UCITS funds are perceived as safe and well-regulated investments. They are popular in Europe, South America, and Asia among investors who prefer not to invest in a single [public limited company](https://www.investopedia.com/terms/p/plc.asp) but rather among diversified unit trusts within their countries. According to the European Commission, they account for about 75% of all collective investments by small investors in Europe. Many mutual fund providers use an expression such as "UCITS-compliant" as part of their marketing strategy. While the funds are regulated in Europe, buyers from all over the world can invest in EU UCITS funds if allowed by their country's securities laws. ### Key Takeaways * UCITS stands for Undertakings for the Collective Investment in Transferable Securities. * It is a regulatory framework that allows for the sale of cross-boundary mutual funds for EU member states. * UCITS were created so that retail investors have transparent, regulated, and cross-border investment opportunities. * UCITS funds are perceived as safe and well-regulated investments and are popular among many investors looking to invest across Europe. ## UCITS Versions UCITS versions use Roman numerals to indicate latest revisions. The first UCITS directive was adopted on Dec. 20, 1985, to facilitate cross-border offerings of investment funds to retail investors. In the early 1990s, proposals for modifications to the directive were made but never fully adopted. As such, there is no UCITS II. ### UCITS are not only available in the EU. Several other countries or regions have these instruments. South Africa, Latin America, and Australia also use UCITS as a framework for creating funds. In 2002, following discussions among member countries, two new directives were adopted. Directives 2001/107/EC and 2001/108/EC, together known as UCITS III, broadened the investment spectrum of UCITS funds and relaxed some restrictions for index funds. UCITS IV, or Directive 2009/65/EC, brought about further technical changes and was adopted in July 2011. UCITS V, or Directive 2014/91/EU, which went into effect in March 2016, aligns fund depositories' duties and responsibilities and fund managers' remuneration requirements with those of the [Alternative Investment Fund Managers Directive](https://www.investopedia.com/terms/a/alternative-investment-fund-managers-directive-aifmd.asp) (AIFMD). UCITS VI, or Directive 2021/2261/EC, went into effect on Jan.1, 2023. This directive requires UCITS to provide a summary of the key elements in each fund. Most notably, this summary must explain the costs, risks, and potential for returns. The summaries are known as Key Information Documents (KID). ### If you buy into a UCITS through a broker, that broker doesn't manage the fund. It is managed by the company in the EU. ## UCITS Directives Not all directives receive a version number or designation. Sometimes, several are combined into the latest numbered version. Here are all of the proposed directives after 2009, with a short summary of their intent: * **Directive 2009/65/EC, July 13, 2009 (UCITS IV)**: The UCITS directive that was fully enacted; it receives updates through other directives. * **Directive 2010/78/EU, Nov. 24, 2010**: Gave more authority to financial regulators after the Great Financial Crisis of 2008 and amended various financial services laws. No longer in force. * **Directive 2011/61/EU, June 8, 2011**: Implemented common requirements for alternative investment fund managers (AIFM) in the EU. * **Directive 2013/14/EU, May 21, 2013**: Established the authority of the EU Commission to adopt measures to reduce fund managers' over-reliance on credit ratings when selecting investments. * **Directive 2014/91/EU, July 23, 2014 (UCITS V)**: Implemented policies to ensure sound and less risky practices involved in remunerations, depositaries, and sanctions. * **Directive (EU) 2019/1160, June 20, 2019**: Amended 2009/65/EU to address issues affecting the cross-border distribution of UCITS and alternate investment funds. * **Directive (EU) 2019/2034, Nov. 27, 2019**: Established a framework to ensure "the prudential supervision of investment firms." Additionally, the directive gave guidance on ethical investment firm management and encouraged the creation of a mechanism for the exchange of information between member states. * **Directive (EU) 2019/2162, Nov. 27, 2019**: Established a framework for issuing covered bonds in the EU. * **Directive (EU) 2021/2261, Dec. 15, 2021 (UCITS VI)**: Established criteria for publishing key information about UCITS. ## What Does UCITS Mean In Stocks? Undertaking for collective investment in transferable securities (UCITS) is a regulatory framework for mutual funds in the European Union (EU). It governs how mutual funds are sold and managed. ## What Is the Difference Between UCITS and ETF? An exchange-traded fund (ETF) that is UCITS compliant is a type of fund that abides by the UCITS framework for funds based and managed in the EU. ## Can U.S. Citizens Invest in UCITS? Like many investments, you can buy UCITS funds through a broker that offers the service. U.S. citizens cannot invest in UCITS without using an authorized broker. ## What Is the Difference Between UCITS and Non-UCITS? Non-UTICS funds do not comply with UCITS guidelines. They are likely not open-ended and liquid, one of the more significant requirements for a fund to be UCITS compliant. ## The Bottom Line Undertakings for collective investment in transferable securities is a regulatory framework in the European Union that creates standards for funds to follow. Mutual funds and similar investments following these guidelines are considered to be UCITS compliant, which means they are designed with retail investors in mind. The standards were created to give EU member citizens investment instruments and opportunities that are transparent, regulated the same, and diverse.

What Is UCITS? The Undertakings for the Collective Investment in Transferable Securities (UCITS) is the European Commission's regulatory framework for managing and selling mutual funds. UCITS funds can be registered and sold in any country in the European Union using unified regulatory and investor protection requirements. A UCITS is similar to a mutual fund in the U.S. They are registered in countries that belong to the European Union and regulated by the member states where they are registered. The European Commission publishes regular guidance for member regulatory authorities to follow to ensure these investment instruments are available and safe for EU citizens. UCITS funds are perceived as safe and well-regulated investments. They are popular in Europe, South America, and Asia among investors who prefer not to invest in a single public limited company but rather among diversified unit trusts within their countries. According to the European Commission, they account for about 75% of all collective investments by small investors in Europe. Many mutual fund providers use an expression such as "UCITS-compliant" as part of their marketing strategy. While the funds are regulated in Europe, buyers from all over the world can invest in EU UCITS funds if allowed by their country's securities laws. Key Takeaways UCITS stands for Undertakings for the Collective Investment in Transferable Securities.It is a regulatory framework that allows for the sale of cross-boundary mutual funds for EU member states.UCITS were created so that retail investors have transparent, regulated, and cross-border investment opportunities.UCITS funds are perceived as safe and well-regulated investments and are popular among many investors looking to invest across Europe. UCITS Versions UCITS versions use Roman numerals to indicate latest revisions. The first UCITS directive was adopted on Dec. 20, 1985, to facilitate cross-border offerings of investment funds to retail investors. In the early 1990s, proposals for modifications to the directive were made but never fully adopted. As such, there is no UCITS II. UCITS are not only available in the EU. Several other countries or regions have these instruments. South Africa, Latin America, and Australia also use UCITS as a framework for creating funds. In 2002, following discussions among member countries, two new directives were adopted. Directives 2001/107/EC and 2001/108/EC, together known as UCITS III, broadened the investment spectrum of UCITS funds and relaxed some restrictions for index funds. UCITS IV, or Directive 2009/65/EC, brought about further technical changes and was adopted in July 2011. UCITS V, or Directive 2014/91/EU, which went into effect in March 2016, aligns fund depositories' duties and responsibilities and fund managers' remuneration requirements with those of the Alternative Investment Fund Managers Directive (AIFMD). UCITS VI, or Directive 2021/2261/EC, went into effect on Jan.1, 2023. This directive requires UCITS to provide a summary of the key elements in each fund. Most notably, this summary must explain the costs, risks, and potential for returns. The summaries are known as Key Information Documents (KID). If you buy into a UCITS through a broker, that broker doesn't manage the fund. It is managed by the company in the EU. UCITS Directives Not all directives receive a version number or designation. Sometimes, several are combined into the latest numbered version. Here are all of the proposed directives after 2009, with a short summary of their intent: Directive 2009/65/EC, July 13, 2009 (UCITS IV): The UCITS directive that was fully enacted; it receives updates through other directives.Directive 2010/78/EU, Nov. 24, 2010: Gave more authority to financial regulators after the Great Financial Crisis of 2008 and amended various financial services laws. No longer in force.Directive 2011/61/EU, June 8, 2011: Implemented common requirements for alternative investment fund managers (AIFM) in the EU.Directive 2013/14/EU, May 21, 2013: Established the authority of the EU Commission to adopt measures to reduce fund managers' over-reliance on credit ratings when selecting investments.Directive 2014/91/EU, July 23, 2014 (UCITS V): Implemented policies to ensure sound and less risky practices involved in remunerations, depositaries, and sanctions.Directive (EU) 2019/1160, June 20, 2019: Amended 2009/65/EU to address issues affecting the cross-border distribution of UCITS and alternate investment funds.Directive (EU) 2019/2034, Nov. 27, 2019: Established a framework to ensure "the prudential supervision of investment firms." Additionally, the directive gave guidance on ethical investment firm management and encouraged the creation of a mechanism for the exchange of information between member states.Directive (EU) 2019/2162, Nov. 27, 2019: Established a framework for issuing covered bonds in the EU.Directive (EU) 2021/2261, Dec. 15, 2021 (UCITS VI): Established criteria for publishing key information about UCITS. What Does UCITS Mean In Stocks? Undertaking for collective investment in transferable securities (UCITS) is a regulatory framework for mutual funds in the European Union (EU). It governs how mutual funds are sold and managed. What Is the Difference Between UCITS and ETF? An exchange-traded fund (ETF) that is UCITS compliant is a type of fund that abides by the UCITS framework for funds based and managed in the EU. Can U.S. Citizens Invest in UCITS? Like many investments, you can buy UCITS funds through a broker that offers the service. U.S. citizens cannot invest in UCITS without using an authorized broker. What Is the Difference Between UCITS and Non-UCITS? Non-UTICS funds do not comply with UCITS guidelines. They are likely not open-ended and liquid, one of the more significant requirements for a fund to be UCITS compliant. The Bottom Line Undertakings for collective investment in transferable securities is a regulatory framework in the European Union that creates standards for funds to follow. Mutual funds and similar investments following these guidelines are considered to be UCITS compliant, which means they are designed with retail investors in mind. The standards were created to give EU member citizens investment instruments and opportunities that are transparent, regulated the same, and diverse.

https://www.investopedia.com/terms/h/horizontal-line.asp

Horizontal Line: Definition, Uses, Example in Technical 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-horizontal-line"></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 Horizontal Line? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> In <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalanalysis.asp">technical analysis</a>, a horizontal line is often drawn on a price chart to highlight areas of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/support-and-resistance-basics/">support or resistance</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> In geometric analysis, a horizontal line proceeds parallel to the x-axis. Put another way, on a perfectly horizontal line, all values on the line will have the same y-value. </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 horizontal line is commonly used in technical analysis to mark areas of support or resistance.</li><li>A horizontal line runs parallel to the x-axis.</li><li>In technical analysis, the horizontal line is typically drawn along a swing high, or a series of them, where each high in the series stopped at a similar level. The same concept applies to swing lows.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-horizontal-line"></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 Horizontal Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Horizontal lines are commonly used in technical analysis to highlight areas of support, where the price stopped falling and then bounced on prior occasions, or resistance, which is where the price stopped rising and then proceeded to fall on prior occasions. </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 horizontal line is drawn by connecting similar swing lows in price to create a horizontal support line. For a horizontal resistance line, similar <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swinghigh.asp">swing highs</a> are connected. </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 horizontal line is then used for analytical or trading purposes. For example, if the price of an asset is moving between support and resistance horizontal lines then the price is considered to be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rangeboundtrading.asp">range-bound</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"> A move below the support horizontal line could indicate a further price decline, but if support holds and the price bounces higher then prices could be forthcoming. The same concepts apply to a resistance horizontal line. If the price moves above resistance, higher prices could be forthcoming. If the price reaches resistance and then starts to decline, the horizontal line has held and traders will watch for lower prices. </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 more simple terms, a horizontal line on any chart is where the y-axis values are equal. If it has been drawn to show a series of highs in the data, a data point moving above the horizontal line would indicate a rise in the y-axis value over recent values in the data sample. </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-fundamental-horizontal-analysis"></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"> Fundamental Horizontal Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/horizontalanalysis.asp">Horizontal analysis</a> is used to compare values or prices over time. This is an aspect of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundamentalanalysis.asp">fundamental analysis</a> in which an analyst will compare various earnings reports and statements over time. In this kind of analysis, time functions as the horizontal x-axis and allows analysts to calculate percentage changes over time, a useful tool for representing the degree of change. </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"> Horizontal analysis looks at the trend of financial statements over multiple periods, using a specified base period, and typically shows the changes from the base period in dollars and percentages. </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 percentage change is calculated by first dividing the dollar change between the comparison year and the base year by the item value in the base year, then multiplying the quotient by 100. For example, when you hear someone saying that revenues increased by 10% this past quarter, that person is using horizontal analysis. </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"> Horizontal analysis can be used on any item in a company's financials, from revenues to <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</a> (EPS), and is useful when comparing the performance of various companies. </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-a-horizontal-line-as-it-relates-to-supply-and-demand-curves"></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"> A Horizontal Line as it Relates to Supply and Demand Curves </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/law-of-supply-demand.asp">Supply and demand curves</a> are drawn with price on the vertical axis of the graph and quantity demanded on the horizontal axis. When looking at supply and demand curves, a perfectly horizontal line indicates that an item has perfect <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/priceelasticity.asp">elasticity</a>, or that its demand is immediately responsive to changes in price. When the price of a perfectly elastic good or service increases above the market price, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quantitydemanded.asp">quantity demanded</a> falls to zero. With perfect elasticity, consumers simply are not willing to spend more than a specific price for a good or service. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-example-of-how-to-use-the-horizontal-line-in-technical-analysis"></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 How to Use the Horizontal Line in Technical Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Drawing a horizontal line is one of the simplest forms of technical analysis, but it also provides important information. On the chart below, a horizontal line is drawn on the SPDR S&amp;P 500 (SPY) <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange traded fund</a> (ETF). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_34-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:49.3%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/diOUWnaYNCDPk6vuFjmaLdKtAyc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV_final-Horizontal-Line_Feb_2021-01-f51f464885a244d1836ec0db938fd534.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/diOUWnaYNCDPk6vuFjmaLdKtAyc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV_final-Horizontal-Line_Feb_2021-01-f51f464885a244d1836ec0db938fd534.jpg" data-srcset="https://www.investopedia.com/thmb/jMm30GnJfT1tgDB25tOX7sxpPtw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV_final-Horizontal-Line_Feb_2021-01-f51f464885a244d1836ec0db938fd534.jpg 750w" data-tracking-container="true" height="1543" id="mntl-sc-block-image_1-0" width="3126"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="1543" sizes="750px" src="https://www.investopedia.com/thmb/diOUWnaYNCDPk6vuFjmaLdKtAyc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV_final-Horizontal-Line_Feb_2021-01-f51f464885a244d1836ec0db938fd534.jpg" srcset="https://www.investopedia.com/thmb/jMm30GnJfT1tgDB25tOX7sxpPtw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV_final-Horizontal-Line_Feb_2021-01-f51f464885a244d1836ec0db938fd534.jpg 750w" width="3126"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Image by Sabrina Jiang © Investopedia 2021</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/uptrend.asp">uptrend</a> is when a price makes higher swing highs and higher swing lows. Therefore, a horizontal line can highlight when price is making a new high, in this case, thus showing signs of an uptrend. On the SPY chart above, the price is moving above the horizontal line indicating an uptrend. If the price falls back below the horizontal line, it could warn that uptrend has failed and lower prices may be forthcoming. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> In this sense, the horizontal line acts like a line in the sand, where moving above the line is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bull.asp">bullish</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <span class="heading-toc" id="toc-the-difference-between-a-horizontal-line-and-a-trendline"></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 Difference Between a Horizontal Line and a Trendline </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Both these terms could refer to the same thing: drawn lines on a chart. While a horizontal line is specifically horizontal, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trendline.asp">trendline</a> is typically angled and drawn along rising swing lows during a price uptrend or drawn along dropping swing highs during a downtrend. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-limitations-of-using-a-horizontal-line-in-technical-analysis"></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"> Limitations of Using a Horizontal Line in Technical Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> A horizontal line is not an actual barrier for price. It is a technical tool which may help traders determine whether they should be more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bear.asp">bearish</a> or bullish. </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"> Where a horizontal line is drawn is subjective. Not all traders may place the horizontal line at the same price. </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"> At highly important prices, where a horizontal line may be drawn, it is possible the price will whipsaw around it. This could cause confusion or some potential losing trades until the price makes a more decisive move above or below the line. </p></div>

## What Is a Horizontal Line? In [technical analysis](https://www.investopedia.com/terms/t/technicalanalysis.asp), a horizontal line is often drawn on a price chart to highlight areas of [support or resistance](https://www.investopedia.com/trading/support-and-resistance-basics/). In geometric analysis, a horizontal line proceeds parallel to the x-axis. Put another way, on a perfectly horizontal line, all values on the line will have the same y-value. ### Key Takeaways * A horizontal line is commonly used in technical analysis to mark areas of support or resistance. * A horizontal line runs parallel to the x-axis. * In technical analysis, the horizontal line is typically drawn along a swing high, or a series of them, where each high in the series stopped at a similar level. The same concept applies to swing lows. ## Understanding a Horizontal Line Horizontal lines are commonly used in technical analysis to highlight areas of support, where the price stopped falling and then bounced on prior occasions, or resistance, which is where the price stopped rising and then proceeded to fall on prior occasions. The horizontal line is drawn by connecting similar swing lows in price to create a horizontal support line. For a horizontal resistance line, similar [swing highs](https://www.investopedia.com/terms/s/swinghigh.asp) are connected. The horizontal line is then used for analytical or trading purposes. For example, if the price of an asset is moving between support and resistance horizontal lines then the price is considered to be [range-bound](https://www.investopedia.com/terms/r/rangeboundtrading.asp). A move below the support horizontal line could indicate a further price decline, but if support holds and the price bounces higher then prices could be forthcoming. The same concepts apply to a resistance horizontal line. If the price moves above resistance, higher prices could be forthcoming. If the price reaches resistance and then starts to decline, the horizontal line has held and traders will watch for lower prices. In more simple terms, a horizontal line on any chart is where the y-axis values are equal. If it has been drawn to show a series of highs in the data, a data point moving above the horizontal line would indicate a rise in the y-axis value over recent values in the data sample. ## Fundamental Horizontal Analysis [Horizontal analysis](https://www.investopedia.com/terms/h/horizontalanalysis.asp) is used to compare values or prices over time. This is an aspect of [fundamental analysis](https://www.investopedia.com/terms/f/fundamentalanalysis.asp) in which an analyst will compare various earnings reports and statements over time. In this kind of analysis, time functions as the horizontal x-axis and allows analysts to calculate percentage changes over time, a useful tool for representing the degree of change. Horizontal analysis looks at the trend of financial statements over multiple periods, using a specified base period, and typically shows the changes from the base period in dollars and percentages. The percentage change is calculated by first dividing the dollar change between the comparison year and the base year by the item value in the base year, then multiplying the quotient by 100. For example, when you hear someone saying that revenues increased by 10% this past quarter, that person is using horizontal analysis. Horizontal analysis can be used on any item in a company's financials, from revenues to [earnings per share](https://www.investopedia.com/terms/e/eps.asp) (EPS), and is useful when comparing the performance of various companies. ## A Horizontal Line as it Relates to Supply and Demand Curves [Supply and demand curves](https://www.investopedia.com/terms/l/law-of-supply-demand.asp) are drawn with price on the vertical axis of the graph and quantity demanded on the horizontal axis. When looking at supply and demand curves, a perfectly horizontal line indicates that an item has perfect [elasticity](https://www.investopedia.com/terms/p/priceelasticity.asp), or that its demand is immediately responsive to changes in price. When the price of a perfectly elastic good or service increases above the market price, the [quantity demanded](https://www.investopedia.com/terms/q/quantitydemanded.asp) falls to zero. With perfect elasticity, consumers simply are not willing to spend more than a specific price for a good or service. ## Example of How to Use the Horizontal Line in Technical Analysis Drawing a horizontal line is one of the simplest forms of technical analysis, but it also provides important information. On the chart below, a horizontal line is drawn on the SPDR S&P 500 (SPY) [exchange traded fund](https://www.investopedia.com/terms/e/etf.asp) (ETF). ![Image]() :max_bytes(150000):strip_icc()/dotdash_INV_final-Horizontal-Line_Feb_2021-01-f51f464885a244d1836ec0db938fd534.jpg) Image by Sabrina Jiang © Investopedia 2021 An [uptrend](https://www.investopedia.com/terms/u/uptrend.asp) is when a price makes higher swing highs and higher swing lows. Therefore, a horizontal line can highlight when price is making a new high, in this case, thus showing signs of an uptrend. On the SPY chart above, the price is moving above the horizontal line indicating an uptrend. If the price falls back below the horizontal line, it could warn that uptrend has failed and lower prices may be forthcoming. In this sense, the horizontal line acts like a line in the sand, where moving above the line is [bullish](https://www.investopedia.com/terms/b/bull.asp). ## The Difference Between a Horizontal Line and a Trendline Both these terms could refer to the same thing: drawn lines on a chart. While a horizontal line is specifically horizontal, a [trendline](https://www.investopedia.com/terms/t/trendline.asp) is typically angled and drawn along rising swing lows during a price uptrend or drawn along dropping swing highs during a downtrend. ## Limitations of Using a Horizontal Line in Technical Analysis A horizontal line is not an actual barrier for price. It is a technical tool which may help traders determine whether they should be more [bearish](https://www.investopedia.com/terms/b/bear.asp) or bullish. Where a horizontal line is drawn is subjective. Not all traders may place the horizontal line at the same price. At highly important prices, where a horizontal line may be drawn, it is possible the price will whipsaw around it. This could cause confusion or some potential losing trades until the price makes a more decisive move above or below the line.

What Is a Horizontal Line? In technical analysis, a horizontal line is often drawn on a price chart to highlight areas of support or resistance. In geometric analysis, a horizontal line proceeds parallel to the x-axis. Put another way, on a perfectly horizontal line, all values on the line will have the same y-value. Key Takeaways A horizontal line is commonly used in technical analysis to mark areas of support or resistance.A horizontal line runs parallel to the x-axis.In technical analysis, the horizontal line is typically drawn along a swing high, or a series of them, where each high in the series stopped at a similar level. The same concept applies to swing lows. Understanding a Horizontal Line Horizontal lines are commonly used in technical analysis to highlight areas of support, where the price stopped falling and then bounced on prior occasions, or resistance, which is where the price stopped rising and then proceeded to fall on prior occasions. The horizontal line is drawn by connecting similar swing lows in price to create a horizontal support line. For a horizontal resistance line, similar swing highs are connected. The horizontal line is then used for analytical or trading purposes. For example, if the price of an asset is moving between support and resistance horizontal lines then the price is considered to be range-bound. A move below the support horizontal line could indicate a further price decline, but if support holds and the price bounces higher then prices could be forthcoming. The same concepts apply to a resistance horizontal line. If the price moves above resistance, higher prices could be forthcoming. If the price reaches resistance and then starts to decline, the horizontal line has held and traders will watch for lower prices. In more simple terms, a horizontal line on any chart is where the y-axis values are equal. If it has been drawn to show a series of highs in the data, a data point moving above the horizontal line would indicate a rise in the y-axis value over recent values in the data sample. Fundamental Horizontal Analysis Horizontal analysis is used to compare values or prices over time. This is an aspect of fundamental analysis in which an analyst will compare various earnings reports and statements over time. In this kind of analysis, time functions as the horizontal x-axis and allows analysts to calculate percentage changes over time, a useful tool for representing the degree of change. Horizontal analysis looks at the trend of financial statements over multiple periods, using a specified base period, and typically shows the changes from the base period in dollars and percentages. The percentage change is calculated by first dividing the dollar change between the comparison year and the base year by the item value in the base year, then multiplying the quotient by 100. For example, when you hear someone saying that revenues increased by 10% this past quarter, that person is using horizontal analysis. Horizontal analysis can be used on any item in a company's financials, from revenues to earnings per share (EPS), and is useful when comparing the performance of various companies. A Horizontal Line as it Relates to Supply and Demand Curves Supply and demand curves are drawn with price on the vertical axis of the graph and quantity demanded on the horizontal axis. When looking at supply and demand curves, a perfectly horizontal line indicates that an item has perfect elasticity, or that its demand is immediately responsive to changes in price. When the price of a perfectly elastic good or service increases above the market price, the quantity demanded falls to zero. With perfect elasticity, consumers simply are not willing to spend more than a specific price for a good or service. Example of How to Use the Horizontal Line in Technical Analysis Drawing a horizontal line is one of the simplest forms of technical analysis, but it also provides important information. On the chart below, a horizontal line is drawn on the SPDR S&P 500 (SPY) exchange traded fund (ETF). Image by Sabrina Jiang © Investopedia 2021 An uptrend is when a price makes higher swing highs and higher swing lows. Therefore, a horizontal line can highlight when price is making a new high, in this case, thus showing signs of an uptrend. On the SPY chart above, the price is moving above the horizontal line indicating an uptrend. If the price falls back below the horizontal line, it could warn that uptrend has failed and lower prices may be forthcoming. In this sense, the horizontal line acts like a line in the sand, where moving above the line is bullish. The Difference Between a Horizontal Line and a Trendline Both these terms could refer to the same thing: drawn lines on a chart. While a horizontal line is specifically horizontal, a trendline is typically angled and drawn along rising swing lows during a price uptrend or drawn along dropping swing highs during a downtrend. Limitations of Using a Horizontal Line in Technical Analysis A horizontal line is not an actual barrier for price. It is a technical tool which may help traders determine whether they should be more bearish or bullish. Where a horizontal line is drawn is subjective. Not all traders may place the horizontal line at the same price. At highly important prices, where a horizontal line may be drawn, it is possible the price will whipsaw around it. This could cause confusion or some potential losing trades until the price makes a more decisive move above or below the line.

https://www.investopedia.com/terms/f/family-and-medical-leave-act.asp

Family and Medical Leave Act (FMLA): What 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-family-and-medical-leave-act-fmla"></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 Family and Medical Leave Act (FMLA)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Family and Medical Leave Act (FMLA) is a labor law requiring employers of a certain size to provide employees with unpaid time off for serious family health issues or situations. Qualified reasons may include adoption, pregnancy, foster care placement, family or personal illness, or military leave. It also provides for the continuation of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/healthinsurance.asp">insurance</a> coverage and job protection while the employee is on leave. The FMLA is intended to provide families with the time and resources to deal with family emergencies, while also guiding employers. </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 U.S. Department of Labor’s Wage and Hour Division (DOL-WHD) is in charge of the FMLA program. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Family and Medical Leave Act (FMLA) is a 1993 labor law that protects the jobs of employees who need to take a leave of absence for personal or family reasons.<span class="ql-inline-citation" data-cite="6"></span></li><li>The law guarantees that a qualified employee may take up to 12 weeks for reasons such as childbirth, adoption, and personal or family illness.</li><li>The Family and Medical Leave Act of 1993 guarantees that when an employee returns to work, they can return to the job they held before the leave. If that job is no longer available, they must be offered a job that is essentially equal in pay and status.</li><li>To qualify for the FMLA, an employee must work for a firm that employs at least 50 people working within a 75-mile radius of the work site, and they must have been employed for at least 1,250 hours within the past 12 months.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-family-and-medical-leave-act-fmla"></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 Family and Medical Leave Act (FMLA) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The FMLA was signed into law on Feb. 5, 1993, by President Bill Clinton.<span class="ql-inline-citation" data-cite="7"></span> Its passage was an acknowledgment by the federal government of changes in U.S. families, the workplace, and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/labor-market.asp">labor force</a>—for example, the proliferation of single-parent households or households in which both parents work—and the expectations of both employees and employers. </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 law guarantees that a qualified employee may take up to 12 weeks off for reasons such as pregnancy/childbirth, adoption, personal illness, or the illness of a family member. The types of qualified medical and family situations also include foster care or military leave—for instance, if the eligible employee is a service member’s spouse, son, daughter, parent, or next of kin (military caregiver leave), they are entitled to 26 weeks of leave.<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_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The FMLA-mandated time off is an unpaid leave.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Furthermore, an employee who takes unpaid leave that falls under the FMLA is job-protected; that is, the employee can return to the same position held before the leave began. If the same position is unavailable, the employer must provide a position that is substantially equal in pay, benefits, and responsibility.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-the-purpose-of-the-family-and-medical-leave-act-fmla"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> The Purpose of the Family and Medical Leave Act (FMLA) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The FMLA seeks to remove the need for workers to choose between their jobs and their families, enabling them to balance employment security and caring for their children, parents, or other members of their extended family. </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"> It impacts women in particular by recognizing the outsized roles they play in caregiving, and the fact that their familial role as default caregiver has a significant effect on their working lives and careers. For instance, it allows them to take a leave to care for a newborn or an adopted child, with the assurance that they can return to their job afterward. </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 it also acknowledges the importance of men in serving a role in their families beyond that of the breadwinner. </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 FMLA's intentions are indicated in the stated intentions of the bill itself: </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>To balance the demands of the workplace with the needs of families, to promote the stability and economic security of families, and to promote national interests in preserving family integrity;</li><li>To entitle employees to take reasonable leave for medical reasons, for the birth or adoption of a child, and for the care of a child, spouse, or parent who has a serious health condition;</li><li>To accomplish these purposes in a manner that accommodates the legitimate interests of employers;</li><li>To accomplish these purposes in a manner that, consistent with the Equal Protection Clause of the Fourteenth Amendment, minimizes the potential for employment discrimination on the basis of sex by ensuring generally that leave is available for eligible medical reasons (including maternity-related disability) and for compelling family reasons, on a gender-neutral basis; and</li><li>To promote the goal of equal employment opportunity for women and men, pursuant to such clause.<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_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-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_29-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>In 2020, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-the-families-first-coronavirus-response-act-4802576">Families First Coronavirus Response Act</a> (FFCRA) expanded the FMLA's provisions to include leaves for COVID-19 related purposes. The American Rescue Plan Act (ARPA) expanded that program and extended it to Sept. 30, 2021.<span class="ql-inline-citation" data-cite="9"></span></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_30-0"> <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_31-0"> Not every employee is covered by the Family and Medical Leave Act. Companies have to be of a certain size, and the worker has to have met certain conditions. </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"> Specifically, to qualify for time off under the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/061615/how-fill-out-fmla-forms.asp">FMLA</a>, a worker: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <li>Must be employed by a business with 50 or more employees within a 75-mile radius of their work site</li><li>Must have worked for the employer for at least 12 months and 1,250 hours within the past 12 months</li> </ul></div>

## What Is the Family and Medical Leave Act (FMLA)? The Family and Medical Leave Act (FMLA) is a labor law requiring employers of a certain size to provide employees with unpaid time off for serious family health issues or situations. Qualified reasons may include adoption, pregnancy, foster care placement, family or personal illness, or military leave. It also provides for the continuation of [insurance](https://www.investopedia.com/terms/h/healthinsurance.asp) coverage and job protection while the employee is on leave. The FMLA is intended to provide families with the time and resources to deal with family emergencies, while also guiding employers. The U.S. Department of Labor’s Wage and Hour Division (DOL-WHD) is in charge of the FMLA program. ### Key Takeaways * The Family and Medical Leave Act (FMLA) is a 1993 labor law that protects the jobs of employees who need to take a leave of absence for personal or family reasons. * The law guarantees that a qualified employee may take up to 12 weeks for reasons such as childbirth, adoption, and personal or family illness. * The Family and Medical Leave Act of 1993 guarantees that when an employee returns to work, they can return to the job they held before the leave. If that job is no longer available, they must be offered a job that is essentially equal in pay and status. * To qualify for the FMLA, an employee must work for a firm that employs at least 50 people working within a 75-mile radius of the work site, and they must have been employed for at least 1,250 hours within the past 12 months. ## Understanding the Family and Medical Leave Act (FMLA) The FMLA was signed into law on Feb. 5, 1993, by President Bill Clinton. Its passage was an acknowledgment by the federal government of changes in U.S. families, the workplace, and the [labor force](https://www.investopedia.com/terms/l/labor-market.asp)—for example, the proliferation of single-parent households or households in which both parents work—and the expectations of both employees and employers. The law guarantees that a qualified employee may take up to 12 weeks off for reasons such as pregnancy/childbirth, adoption, personal illness, or the illness of a family member. The types of qualified medical and family situations also include foster care or military leave—for instance, if the eligible employee is a service member’s spouse, son, daughter, parent, or next of kin (military caregiver leave), they are entitled to 26 weeks of leave. ### The FMLA-mandated time off is an unpaid leave. Furthermore, an employee who takes unpaid leave that falls under the FMLA is job-protected; that is, the employee can return to the same position held before the leave began. If the same position is unavailable, the employer must provide a position that is substantially equal in pay, benefits, and responsibility. ## The Purpose of the Family and Medical Leave Act (FMLA) The FMLA seeks to remove the need for workers to choose between their jobs and their families, enabling them to balance employment security and caring for their children, parents, or other members of their extended family. It impacts women in particular by recognizing the outsized roles they play in caregiving, and the fact that their familial role as default caregiver has a significant effect on their working lives and careers. For instance, it allows them to take a leave to care for a newborn or an adopted child, with the assurance that they can return to their job afterward. But it also acknowledges the importance of men in serving a role in their families beyond that of the breadwinner. The FMLA's intentions are indicated in the stated intentions of the bill itself: * To balance the demands of the workplace with the needs of families, to promote the stability and economic security of families, and to promote national interests in preserving family integrity; * To entitle employees to take reasonable leave for medical reasons, for the birth or adoption of a child, and for the care of a child, spouse, or parent who has a serious health condition; * To accomplish these purposes in a manner that accommodates the legitimate interests of employers; * To accomplish these purposes in a manner that, consistent with the Equal Protection Clause of the Fourteenth Amendment, minimizes the potential for employment discrimination on the basis of sex by ensuring generally that leave is available for eligible medical reasons (including maternity-related disability) and for compelling family reasons, on a gender-neutral basis; and * To promote the goal of equal employment opportunity for women and men, pursuant to such clause. ### In 2020, the [Families First Coronavirus Response Act](https://www.investopedia.com/what-is-the-families-first-coronavirus-response-act-4802576) (FFCRA) expanded the FMLA's provisions to include leaves for COVID-19 related purposes. The American Rescue Plan Act (ARPA) expanded that program and extended it to Sept. 30, 2021. ## Special Considerations Not every employee is covered by the Family and Medical Leave Act. Companies have to be of a certain size, and the worker has to have met certain conditions. Specifically, to qualify for time off under the [FMLA](https://www.investopedia.com/articles/personal-finance/061615/how-fill-out-fmla-forms.asp), a worker: * Must be employed by a business with 50 or more employees within a 75-mile radius of their work site * Must have worked for the employer for at least 12 months and 1,250 hours within the past 12 months

What Is the Family and Medical Leave Act (FMLA)? The Family and Medical Leave Act (FMLA) is a labor law requiring employers of a certain size to provide employees with unpaid time off for serious family health issues or situations. Qualified reasons may include adoption, pregnancy, foster care placement, family or personal illness, or military leave. It also provides for the continuation of insurance coverage and job protection while the employee is on leave. The FMLA is intended to provide families with the time and resources to deal with family emergencies, while also guiding employers. The U.S. Department of Labor’s Wage and Hour Division (DOL-WHD) is in charge of the FMLA program. Key Takeaways The Family and Medical Leave Act (FMLA) is a 1993 labor law that protects the jobs of employees who need to take a leave of absence for personal or family reasons.The law guarantees that a qualified employee may take up to 12 weeks for reasons such as childbirth, adoption, and personal or family illness.The Family and Medical Leave Act of 1993 guarantees that when an employee returns to work, they can return to the job they held before the leave. If that job is no longer available, they must be offered a job that is essentially equal in pay and status.To qualify for the FMLA, an employee must work for a firm that employs at least 50 people working within a 75-mile radius of the work site, and they must have been employed for at least 1,250 hours within the past 12 months. Understanding the Family and Medical Leave Act (FMLA) The FMLA was signed into law on Feb. 5, 1993, by President Bill Clinton. Its passage was an acknowledgment by the federal government of changes in U.S. families, the workplace, and the labor force—for example, the proliferation of single-parent households or households in which both parents work—and the expectations of both employees and employers. The law guarantees that a qualified employee may take up to 12 weeks off for reasons such as pregnancy/childbirth, adoption, personal illness, or the illness of a family member. The types of qualified medical and family situations also include foster care or military leave—for instance, if the eligible employee is a service member’s spouse, son, daughter, parent, or next of kin (military caregiver leave), they are entitled to 26 weeks of leave. The FMLA-mandated time off is an unpaid leave. Furthermore, an employee who takes unpaid leave that falls under the FMLA is job-protected; that is, the employee can return to the same position held before the leave began. If the same position is unavailable, the employer must provide a position that is substantially equal in pay, benefits, and responsibility. The Purpose of the Family and Medical Leave Act (FMLA) The FMLA seeks to remove the need for workers to choose between their jobs and their families, enabling them to balance employment security and caring for their children, parents, or other members of their extended family. It impacts women in particular by recognizing the outsized roles they play in caregiving, and the fact that their familial role as default caregiver has a significant effect on their working lives and careers. For instance, it allows them to take a leave to care for a newborn or an adopted child, with the assurance that they can return to their job afterward. But it also acknowledges the importance of men in serving a role in their families beyond that of the breadwinner. The FMLA's intentions are indicated in the stated intentions of the bill itself: To balance the demands of the workplace with the needs of families, to promote the stability and economic security of families, and to promote national interests in preserving family integrity;To entitle employees to take reasonable leave for medical reasons, for the birth or adoption of a child, and for the care of a child, spouse, or parent who has a serious health condition;To accomplish these purposes in a manner that accommodates the legitimate interests of employers;To accomplish these purposes in a manner that, consistent with the Equal Protection Clause of the Fourteenth Amendment, minimizes the potential for employment discrimination on the basis of sex by ensuring generally that leave is available for eligible medical reasons (including maternity-related disability) and for compelling family reasons, on a gender-neutral basis; andTo promote the goal of equal employment opportunity for women and men, pursuant to such clause. In 2020, the Families First Coronavirus Response Act (FFCRA) expanded the FMLA's provisions to include leaves for COVID-19 related purposes. The American Rescue Plan Act (ARPA) expanded that program and extended it to Sept. 30, 2021. Special Considerations Not every employee is covered by the Family and Medical Leave Act. Companies have to be of a certain size, and the worker has to have met certain conditions. Specifically, to qualify for time off under the FMLA, a worker: Must be employed by a business with 50 or more employees within a 75-mile radius of their work siteMust have worked for the employer for at least 12 months and 1,250 hours within the past 12 months

https://www.investopedia.com/best-tech-stocks-8549526

Best Tech Stocks for 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"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> April saw a return of inflationary concerns, as Federal Reserve Chairman Jerome Powell<br/>pared back expectations of a rate cut by this summer. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk-on-risk-off.asp">risk-off</a> sentiment weighed negatively on tech names, leading the Technology Select Sector SPDR Fund (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLK">XLK</a>) to give up some of its gains this year. The fund returned 38% over the past year, still ahead of the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell_1000index.asp">Russell 1000 Index</a>, which notched 25% during the same period. Moreover, stalwart tech names such as Meta Platforms Inc (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>) <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/meta-q1-fy-2024-earnings-8638311">reported</a> a weaker forward outlook that weighed heavily on its share price. It remains to be seen how the rest of the earnings season will play out, but it looks like the tech rally might be taking a pause in May. </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 is an analysis of the top <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/10/primer-on-the-tech-industry.asp">tech stocks</a> for May 2024, screened for best value, fastest growth, and most momentum. All data are current as of April 25, 2024.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <span class="heading-toc" id="toc-best-value-tech-stocks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Best-Value Tech Stocks </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/v/valueinvesting.asp">Value investing</a> is an investing strategy that holds that investors can identify stocks that are trading below their true value. At the time the market corrects this mispricing, these undervalued names<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueinvesting.asp"><br/></a>may increase in value. Investors typically attempt to identify undervalued stocks using fundamental metrics like the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp">price-to-earnings (P/E) ratio</a>. Typically, a lower P/E ratio signals an undervalued stock because the company is valued less than its fundamental value. These stocks may offer a stronger return after the market adjusts.<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_7-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_8-0"> <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">Best-Value Tech Stocks</th> </tr> </thead> <tbody data-check="-1"> <tr> <td></td> <td>Price ($)</td> <td>Market Capitalization (Market Cap) ($B)</td> <td>12-Month Trailing P/E Ratio</td> </tr> <tr> <td>Yiren Digital Ltd (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=YRD" rel="noopener noreferrer">YRD</a>)</td> <td>5.0</td> <td>0.43</td> <td>1.6</td> </tr> <tr> <td>Surge Pays, Inc. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SURG" rel="noopener noreferrer">SURG</a>)</td> <td>3.3</td> <td>0.06</td> <td>2.4</td> </tr> <tr> <td>Consensus Cloud Solutions, Inc. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CCSI" rel="noopener noreferrer">CCSI</a>)</td> <td>12.6</td> <td>0.24</td> <td>3.2</td> </tr> </tbody> </table> <figcaption>Source: TradingView</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <li><strong>Yiren Digital Ltd.: </strong>Yiren Digital Ltd. offers a variety of AI-driven financial and lifestyle services in China, focusing on improving individual and business finances through personalized financial solutions and insurance. As of March 2024, the company served over 100 million borrowers, facilitating 11.6 billion RMB worth of loans on its platform in the fourth quarter of 2023.<span class="ql-inline-citation" data-cite="29"></span></li><li><strong>SurgePays, Inc.:</strong> SurgePays, Inc. is a technology and telecom company that leverages its platform to provide financial and prepaid wireless services to the underbanked through over 8,000 convenience stores across the U.S. In 2023, the company experienced significant growth, reporting a net income of $20.6 million, up from a net loss the previous year, attributing this to high revenue and gross margins, along with strategic acquisitions like Clearline Mobile, a cloud-based digital marketing platform.<span class="ql-inline-citation" data-cite="30"></span></li><li><strong>Consensus Cloud Solutions, Inc.: </strong>Consensus Cloud Solutions is<strong> </strong>a leading global provider of digital fax solutions and digital information exchange services. Its offerings include cloud faxing, digital signatures, data extraction using AI and natural language processing, with a focus on finance, insurance, healthcare and manufacturing.<span class="ql-inline-citation" data-cite="31"></span><br/></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-fastest-growing-tech-stocks"></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"> Fastest-Growing Tech Stocks </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/g/growthinvesting.asp">Growth</a> investors believe that increases in a company's revenue and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp">earnings per share (EPS)</a> can be an indicator of a strong business that has the potential to increase in value. However, focusing on just one or the other of these two metrics can give an incomplete picture of a company's growth potential. Circumstances unrelated to a company's fundamental business strength—such as tax law changes, mergers, or one-off gains—can skew these figures on their own. </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"> Investopedia uses a dual-metric approach to reach a more balanced assessment of growth companies. We equally weight the latest year-over-year (YOY) percentage growth for both EPS and revenue. This approach aims to reduce the impact of those one-time anomalies to provide a better view of a company's true growth pattern and potential. Additionally, any companies with quarterly growth in excess of 1,000% are excluded as outliers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_17-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="5">Fastest-Growing Tech Stocks</th> </tr> </thead> <tbody data-check="-1"> <tr> <td></td> <td>Price ($)</td> <td>Market Cap ($B)</td> <td>EPS Growth (%)</td> <td>Revenue Growth (%)</td> </tr> <tr> <td>TeraWulf Inc. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WULF" rel="noopener noreferrer">WULF</a>)</td> <td>2.5</td> <td>0.76</td> <td>55</td> <td>143</td> </tr> <tr> <td>HIVE Digital Technologies (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HIVE" rel="noopener noreferrer">HIVE</a>)</td> <td>3.1</td> <td>0.32</td> <td>0.78</td> <td>124</td> </tr> <tr> <td>SoundHound AI, Inc (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SOUN" rel="noopener noreferrer">SOUN</a>)</td> <td>4.0</td> <td>1.24</td> <td>24</td> <td>80</td> </tr> </tbody> </table> <figcaption>Source: TradingView</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> <li><strong>TeraWulf Inc.</strong>: TeraWulf is a vertically integrated bitcoin mine, operating two facilities in New York and Pennsylvania. Due to the rise in bitcoin prices, TeraWulf saw its fiscal 2023 revenues increase 360% to $69.2 million, compared to $15 million in fiscal 2022. <span class="ql-inline-citation" data-cite="32"></span></li> <li><strong>HIVE Digital Technologies.</strong>: Similar to TeraWulf, HIVE operates bitcoin mining operations in Canada and Iceland. As of March 2024, the company holds $160 million BTC on the balance sheet, averaging 7.2 BTC per day.<span class="ql-inline-citation" data-cite="33"></span></li> <li><strong>SoundHound AI, Inc.</strong>: SoundHound provides cutting-edge voice AI solutions built on proprietary technology in multiple languages, serving industries such as automotive, television, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/internet-things.asp">Internet of Things (IoT)</a>, and customer service. 2023 was a banner year for SoundHound, with the company achieving 47% revenue growth versus 2022, while also launching the world’s first voice assistant with integrated generative AI to go into full production with automaker Stellantis’ DS Automobiles.<span class="ql-inline-citation" data-cite="34"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-tech-stocks-with-the-most-momentum"></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"> Tech Stocks With the Most Momentum </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/m/momentum.asp">Momentum</a> investing is a strategy aiming to capitalize on pre-existing market trends by focusing on stocks that have outpaced their peers or the broader market on returns. This investment principal holds that stocks on an upward path are likely to continue to outperform, as long as fundamental aspects of the business, industry, or sector do not change. </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"> Momentum investing is a common strategy applied to tech stocks because they regularly experience significant market disruptions. As companies launch new products, announce technological breakthroughs, and gain rapid popularity, investors have the potential to climb on board while these stocks are still ascending. </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"> Here are the tech stocks with the highest total return in the last 12 months. We've excluded stocks with a share price of under a dollar. </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="width: 66px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Tech Stocks With the Most Momentum</th> </tr> </thead> <tbody data-check="-1"> <tr> <td></td> <td>Price ($)</td> <td>Market Cap ($B)</td> <td>12-Month Trailing Total Return (%)</td> </tr> <tr> <td>MoneyLion, Inc (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ML" rel="noopener noreferrer">ML</a>)</td> <td>70.2</td> <td>0.73</td> <td>551</td> </tr> <tr> <td>CleanSpark, Inc (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CLSK" rel="noopener noreferrer">CLSK</a>)</td> <td>19.8</td> <td>4.5</td> <td>430</td> </tr> <tr> <td>NextNav, Inc (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NN" rel="noopener noreferrer">NN</a>)</td> <td>8.3</td> <td>0.93</td> <td>288</td> </tr> </tbody> </table> <figcaption>Source: TradingView</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <li><strong>MoneyLion, Inc.</strong>: MoneyLion is a fintech company that offers a broad range of personalized financial products and content through its comprehensive app and platform. 2023 was an excellent year for the company, as revenues grew by 24% from the past year to $423 million, while generating <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ebitda.asp">EBITDA</a> of $46 million.<span class="ql-inline-citation" data-cite="35"></span></li> <li><strong>CleanSpark, Inc.</strong>: CleanSpark describes itself as “America’s bitcoin miner,” operating mining sites in Georgia and Mississippi. Like TeraWulf, CleanSpark has benefitted from the increase in BTC prices. <span class="ql-inline-citation" data-cite="36"></span></li> <li><strong>NextNav, Inc.</strong>: NextNav is looking to revolutionize GPS by building a platform from scratch that can neither be jammed nor spoofed, and which allows for indoor navigation on mobile phones and urban navigation for autonomous vehicles and drones. <span class="ql-inline-citation" data-cite="37"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-advantages-of-tech-stocks"></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"> Advantages of Tech Stocks </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-subheading__text"> Growth potential </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Tech stocks, particularly those in emerging areas, are known for experiencing some of the sharpest growth of any publicly traded company. Anticipating this, investors have sought periods in which the sector underperforms to invest heavily, as they expect significant growth over the long term. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> But growth among tech stocks can vary dramatically. Many of the larger firms have limited growth potential because their market saturation and capitalization are already very high. Small-cap or penny tech stocks that experience technological breakthroughs or suddenly become incredibly popular may have periods of massive growth. Unusually, some of the biggest names in tech—including Amazon.com Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/amazon-stock-amzn-5094245">AMZN</a>), Meta Platforms Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/facebook-stock-fb-5205635">META</a>), and Alphabet Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/020515/business-google.asp">GOOGL</a>)—have continued to grow at significant rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-subheading__text"> Advanced innovation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Tech trends are always changing, with companies aiming to capitalize on the latest technology and to guide and follow developments in innovation. This makes the sector primed for breakthroughs. One of the most recent major trends to sweep the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technology_sector.asp">tech sector</a> has been AI-related technologies, which are increasingly integrated into companies across many industries and sectors. To the extent that some tech companies continue to play a role in making this possible, they stand to benefit from the ongoing AI trend. </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-disadvantages-of-tech-stocks"></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"> Disadvantages of Tech Stocks </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"> Fluctuations in the tech sector </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Tech stocks are known for their high volatility, where rapid technological changes and competitive pressures can lead to significant price fluctuations. They often carry high valuations based on growth expectations, making them susceptible to market corrections if they fail to meet these projections. Furthermore, regulatory challenges and geopolitical tensions can impact the sector, introducing additional risks and uncertainties for investors. </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"> Trends shift quickly </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> The sharp gains of many tech firms can prove tempting to investors who may not be well-versed in the technologies themselves. With rapid innovation characterizing the sector, trends and prospects shift very quickly as well. Investors who are unprepared for this pace or who lack knowledge of the fundamental strengths of different tech companies may find themselves following a trend that has already changed. </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">Advantages</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Growth potential</p></li> <li><p>Advanced innovation</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>Tech sector turbulence and rich valuations</p></li> <li><p>Investors may be left behind with rapidly shifting trends</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-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> The tech sector's performance in 2024 is poised to be significantly influenced by advancements in AI, which is expected to drive long-term growth. The adoption of AI, along with ongoing digitization and cloud computing, offers promising opportunities, particularly for companies involved in semiconductor production and cloud software services.  However, the macroeconomic environment will also play a key role in determining the sector's short-term performance, with the potential for volatility depending on interest-rate policies and economic conditions​. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <em>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_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> <em>As of the date this article was written, the author does not own any of the above securities.</em> </p></div>

April saw a return of inflationary concerns, as Federal Reserve Chairman Jerome Powell pared back expectations of a rate cut by this summer. The [risk-off](https://www.investopedia.com/terms/r/risk-on-risk-off.asp) sentiment weighed negatively on tech names, leading the Technology Select Sector SPDR Fund ([XLK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLK)) to give up some of its gains this year. The fund returned 38% over the past year, still ahead of the [Russell 1000 Index](https://www.investopedia.com/terms/r/russell_1000index.asp), which notched 25% during the same period. Moreover, stalwart tech names such as Meta Platforms Inc ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)) [reported](https://www.investopedia.com/meta-q1-fy-2024-earnings-8638311) a weaker forward outlook that weighed heavily on its share price. It remains to be seen how the rest of the earnings season will play out, but it looks like the tech rally might be taking a pause in May. Below is an analysis of the top [tech stocks](https://www.investopedia.com/articles/stocks/10/primer-on-the-tech-industry.asp) for May 2024, screened for best value, fastest growth, and most momentum. All data are current as of April 25, 2024. ## Best-Value Tech Stocks [Value investing](https://www.investopedia.com/terms/v/valueinvesting.asp) is an investing strategy that holds that investors can identify stocks that are trading below their true value. At the time the market corrects this mispricing, these undervalued namesmay increase in value. Investors typically attempt to identify undervalued stocks using fundamental metrics like the [price-to-earnings (P/E) ratio](https://www.investopedia.com/terms/p/price-earningsratio.asp). Typically, a lower P/E ratio signals an undervalued stock because the company is valued less than its fundamental value. These stocks may offer a stronger return after the market adjusts. | Best-Value Tech Stocks | | | | | --- | --- | --- | --- | | | Price ($) | Market Capitalization (Market Cap) ($B) | 12-Month Trailing P/E Ratio | | Yiren Digital Ltd ([YRD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=YRD)) | 5.0 | 0.43 | 1.6 | | Surge Pays, Inc. ([SURG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SURG)) | 3.3 | 0.06 | 2.4 | | Consensus Cloud Solutions, Inc. ([CCSI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CCSI)) | 12.6 | 0.24 | 3.2 | Source: TradingView * **Yiren Digital Ltd.:**Yiren Digital Ltd. offers a variety of AI-driven financial and lifestyle services in China, focusing on improving individual and business finances through personalized financial solutions and insurance. As of March 2024, the company served over 100 million borrowers, facilitating 11.6 billion RMB worth of loans on its platform in the fourth quarter of 2023. * **SurgePays, Inc.:** SurgePays, Inc. is a technology and telecom company that leverages its platform to provide financial and prepaid wireless services to the underbanked through over 8,000 convenience stores across the U.S. In 2023, the company experienced significant growth, reporting a net income of $20.6 million, up from a net loss the previous year, attributing this to high revenue and gross margins, along with strategic acquisitions like Clearline Mobile, a cloud-based digital marketing platform. * **Consensus Cloud Solutions, Inc.:** Consensus Cloud Solutions isa leading global provider of digital fax solutions and digital information exchange services. Its offerings include cloud faxing, digital signatures, data extraction using AI and natural language processing, with a focus on finance, insurance, healthcare and manufacturing. ## Fastest-Growing Tech Stocks [Growth](https://www.investopedia.com/terms/g/growthinvesting.asp) investors believe that increases in a company's revenue and [earnings per share (EPS)](https://www.investopedia.com/terms/e/eps.asp) can be an indicator of a strong business that has the potential to increase in value. However, focusing on just one or the other of these two metrics can give an incomplete picture of a company's growth potential. Circumstances unrelated to a company's fundamental business strength—such as tax law changes, mergers, or one-off gains—can skew these figures on their own. Investopedia uses a dual-metric approach to reach a more balanced assessment of growth companies. We equally weight the latest year-over-year (YOY) percentage growth for both EPS and revenue. This approach aims to reduce the impact of those one-time anomalies to provide a better view of a company's true growth pattern and potential. Additionally, any companies with quarterly growth in excess of 1,000% are excluded as outliers. | Fastest-Growing Tech Stocks | | | | | | --- | --- | --- | --- | --- | | | Price ($) | Market Cap ($B) | EPS Growth (%) | Revenue Growth (%) | | TeraWulf Inc. ([WULF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WULF)) | 2.5 | 0.76 | 55 | 143 | | HIVE Digital Technologies ([HIVE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HIVE)) | 3.1 | 0.32 | 0.78 | 124 | | SoundHound AI, Inc ([SOUN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SOUN)) | 4.0 | 1.24 | 24 | 80 | Source: TradingView * **TeraWulf Inc.**: TeraWulf is a vertically integrated bitcoin mine, operating two facilities in New York and Pennsylvania. Due to the rise in bitcoin prices, TeraWulf saw its fiscal 2023 revenues increase 360% to $69.2 million, compared to $15 million in fiscal 2022. * **HIVE Digital Technologies.**: Similar to TeraWulf, HIVE operates bitcoin mining operations in Canada and Iceland. As of March 2024, the company holds $160 million BTC on the balance sheet, averaging 7.2 BTC per day. * **SoundHound AI, Inc.**: SoundHound provides cutting-edge voice AI solutions built on proprietary technology in multiple languages, serving industries such as automotive, television, the [Internet of Things (IoT)](https://www.investopedia.com/terms/i/internet-things.asp), and customer service. 2023 was a banner year for SoundHound, with the company achieving 47% revenue growth versus 2022, while also launching the world’s first voice assistant with integrated generative AI to go into full production with automaker Stellantis’ DS Automobiles. ## Tech Stocks With the Most Momentum [Momentum](https://www.investopedia.com/terms/m/momentum.asp) investing is a strategy aiming to capitalize on pre-existing market trends by focusing on stocks that have outpaced their peers or the broader market on returns. This investment principal holds that stocks on an upward path are likely to continue to outperform, as long as fundamental aspects of the business, industry, or sector do not change. Momentum investing is a common strategy applied to tech stocks because they regularly experience significant market disruptions. As companies launch new products, announce technological breakthroughs, and gain rapid popularity, investors have the potential to climb on board while these stocks are still ascending. Here are the tech stocks with the highest total return in the last 12 months. We've excluded stocks with a share price of under a dollar. | Tech Stocks With the Most Momentum | | | | | --- | --- | --- | --- | | | Price ($) | Market Cap ($B) | 12-Month Trailing Total Return (%) | | MoneyLion, Inc ([ML](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ML)) | 70.2 | 0.73 | 551 | | CleanSpark, Inc ([CLSK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CLSK)) | 19.8 | 4.5 | 430 | | NextNav, Inc ([NN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NN)) | 8.3 | 0.93 | 288 | Source: TradingView * **MoneyLion, Inc.**: MoneyLion is a fintech company that offers a broad range of personalized financial products and content through its comprehensive app and platform. 2023 was an excellent year for the company, as revenues grew by 24% from the past year to $423 million, while generating [EBITDA](https://www.investopedia.com/terms/e/ebitda.asp) of $46 million. * **CleanSpark, Inc.**: CleanSpark describes itself as “America’s bitcoin miner,” operating mining sites in Georgia and Mississippi. Like TeraWulf, CleanSpark has benefitted from the increase in BTC prices. * **NextNav, Inc.**: NextNav is looking to revolutionize GPS by building a platform from scratch that can neither be jammed nor spoofed, and which allows for indoor navigation on mobile phones and urban navigation for autonomous vehicles and drones. ## Advantages of Tech Stocks ### Growth potential Tech stocks, particularly those in emerging areas, are known for experiencing some of the sharpest growth of any publicly traded company. Anticipating this, investors have sought periods in which the sector underperforms to invest heavily, as they expect significant growth over the long term. But growth among tech stocks can vary dramatically. Many of the larger firms have limited growth potential because their market saturation and capitalization are already very high. Small-cap or penny tech stocks that experience technological breakthroughs or suddenly become incredibly popular may have periods of massive growth. Unusually, some of the biggest names in tech—including Amazon.com Inc. ([AMZN](https://www.investopedia.com/amazon-stock-amzn-5094245)), Meta Platforms Inc. ([META](https://www.investopedia.com/facebook-stock-fb-5205635)), and Alphabet Inc. ([GOOGL](https://www.investopedia.com/articles/investing/020515/business-google.asp))—have continued to grow at significant rates. ### Advanced innovation Tech trends are always changing, with companies aiming to capitalize on the latest technology and to guide and follow developments in innovation. This makes the sector primed for breakthroughs. One of the most recent major trends to sweep the [tech sector](https://www.investopedia.com/terms/t/technology_sector.asp) has been AI-related technologies, which are increasingly integrated into companies across many industries and sectors. To the extent that some tech companies continue to play a role in making this possible, they stand to benefit from the ongoing AI trend. ## Disadvantages of Tech Stocks ### Fluctuations in the tech sector Tech stocks are known for their high volatility, where rapid technological changes and competitive pressures can lead to significant price fluctuations. They often carry high valuations based on growth expectations, making them susceptible to market corrections if they fail to meet these projections. Furthermore, regulatory challenges and geopolitical tensions can impact the sector, introducing additional risks and uncertainties for investors. ### Trends shift quickly The sharp gains of many tech firms can prove tempting to investors who may not be well-versed in the technologies themselves. With rapid innovation characterizing the sector, trends and prospects shift very quickly as well. Investors who are unprepared for this pace or who lack knowledge of the fundamental strengths of different tech companies may find themselves following a trend that has already changed. Advantages * Growth potential * Advanced innovation Disadvantages * Tech sector turbulence and rich valuations * Investors may be left behind with rapidly shifting trends ## The Bottom Line The tech sector's performance in 2024 is poised to be significantly influenced by advancements in AI, which is expected to drive long-term growth. The adoption of AI, along with ongoing digitization and cloud computing, offers promising opportunities, particularly for companies involved in semiconductor production and cloud software services.  However, the macroeconomic environment will also play a key role in determining the sector's short-term performance, with the potential for volatility depending on interest-rate policies and economic conditions​. *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.*

April saw a return of inflationary concerns, as Federal Reserve Chairman Jerome Powellpared back expectations of a rate cut by this summer. The risk-off sentiment weighed negatively on tech names, leading the Technology Select Sector SPDR Fund (XLK) to give up some of its gains this year. The fund returned 38% over the past year, still ahead of the Russell 1000 Index, which notched 25% during the same period. Moreover, stalwart tech names such as Meta Platforms Inc (META) reported a weaker forward outlook that weighed heavily on its share price. It remains to be seen how the rest of the earnings season will play out, but it looks like the tech rally might be taking a pause in May. Below is an analysis of the top tech stocks for May 2024, screened for best value, fastest growth, and most momentum. All data are current as of April 25, 2024. Best-Value Tech Stocks Value investing is an investing strategy that holds that investors can identify stocks that are trading below their true value. At the time the market corrects this mispricing, these undervalued namesmay increase in value. Investors typically attempt to identify undervalued stocks using fundamental metrics like the price-to-earnings (P/E) ratio. Typically, a lower P/E ratio signals an undervalued stock because the company is valued less than its fundamental value. These stocks may offer a stronger return after the market adjusts. Best-Value Tech Stocks Price ($) Market Capitalization (Market Cap) ($B) 12-Month Trailing P/E Ratio Yiren Digital Ltd (YRD) 5.0 0.43 1.6 Surge Pays, Inc. (SURG) 3.3 0.06 2.4 Consensus Cloud Solutions, Inc. (CCSI) 12.6 0.24 3.2 Source: TradingView Yiren Digital Ltd.: Yiren Digital Ltd. offers a variety of AI-driven financial and lifestyle services in China, focusing on improving individual and business finances through personalized financial solutions and insurance. As of March 2024, the company served over 100 million borrowers, facilitating 11.6 billion RMB worth of loans on its platform in the fourth quarter of 2023.SurgePays, Inc.: SurgePays, Inc. is a technology and telecom company that leverages its platform to provide financial and prepaid wireless services to the underbanked through over 8,000 convenience stores across the U.S. In 2023, the company experienced significant growth, reporting a net income of $20.6 million, up from a net loss the previous year, attributing this to high revenue and gross margins, along with strategic acquisitions like Clearline Mobile, a cloud-based digital marketing platform.Consensus Cloud Solutions, Inc.: Consensus Cloud Solutions is a leading global provider of digital fax solutions and digital information exchange services. Its offerings include cloud faxing, digital signatures, data extraction using AI and natural language processing, with a focus on finance, insurance, healthcare and manufacturing. Fastest-Growing Tech Stocks Growth investors believe that increases in a company's revenue and earnings per share (EPS) can be an indicator of a strong business that has the potential to increase in value. However, focusing on just one or the other of these two metrics can give an incomplete picture of a company's growth potential. Circumstances unrelated to a company's fundamental business strength—such as tax law changes, mergers, or one-off gains—can skew these figures on their own. Investopedia uses a dual-metric approach to reach a more balanced assessment of growth companies. We equally weight the latest year-over-year (YOY) percentage growth for both EPS and revenue. This approach aims to reduce the impact of those one-time anomalies to provide a better view of a company's true growth pattern and potential. Additionally, any companies with quarterly growth in excess of 1,000% are excluded as outliers. Fastest-Growing Tech Stocks Price ($) Market Cap ($B) EPS Growth (%) Revenue Growth (%) TeraWulf Inc. (WULF) 2.5 0.76 55 143 HIVE Digital Technologies (HIVE) 3.1 0.32 0.78 124 SoundHound AI, Inc (SOUN) 4.0 1.24 24 80 Source: TradingView TeraWulf Inc.: TeraWulf is a vertically integrated bitcoin mine, operating two facilities in New York and Pennsylvania. Due to the rise in bitcoin prices, TeraWulf saw its fiscal 2023 revenues increase 360% to $69.2 million, compared to $15 million in fiscal 2022.  HIVE Digital Technologies.: Similar to TeraWulf, HIVE operates bitcoin mining operations in Canada and Iceland. As of March 2024, the company holds $160 million BTC on the balance sheet, averaging 7.2 BTC per day. SoundHound AI, Inc.: SoundHound provides cutting-edge voice AI solutions built on proprietary technology in multiple languages, serving industries such as automotive, television, the Internet of Things (IoT), and customer service. 2023 was a banner year for SoundHound, with the company achieving 47% revenue growth versus 2022, while also launching the world’s first voice assistant with integrated generative AI to go into full production with automaker Stellantis’ DS Automobiles. Tech Stocks With the Most Momentum Momentum investing is a strategy aiming to capitalize on pre-existing market trends by focusing on stocks that have outpaced their peers or the broader market on returns. This investment principal holds that stocks on an upward path are likely to continue to outperform, as long as fundamental aspects of the business, industry, or sector do not change. Momentum investing is a common strategy applied to tech stocks because they regularly experience significant market disruptions. As companies launch new products, announce technological breakthroughs, and gain rapid popularity, investors have the potential to climb on board while these stocks are still ascending. Here are the tech stocks with the highest total return in the last 12 months. We've excluded stocks with a share price of under a dollar. Tech Stocks With the Most Momentum Price ($) Market Cap ($B) 12-Month Trailing Total Return (%) MoneyLion, Inc (ML) 70.2 0.73 551 CleanSpark, Inc (CLSK) 19.8 4.5 430 NextNav, Inc (NN) 8.3 0.93 288 Source: TradingView MoneyLion, Inc.: MoneyLion is a fintech company that offers a broad range of personalized financial products and content through its comprehensive app and platform. 2023 was an excellent year for the company, as revenues grew by 24% from the past year to $423 million, while generating EBITDA of $46 million. CleanSpark, Inc.: CleanSpark describes itself as “America’s bitcoin miner,” operating mining sites in Georgia and Mississippi. Like TeraWulf, CleanSpark has benefitted from the increase in BTC prices. NextNav, Inc.: NextNav is looking to revolutionize GPS by building a platform from scratch that can neither be jammed nor spoofed, and which allows for indoor navigation on mobile phones and urban navigation for autonomous vehicles and drones.  Advantages of Tech Stocks Growth potential Tech stocks, particularly those in emerging areas, are known for experiencing some of the sharpest growth of any publicly traded company. Anticipating this, investors have sought periods in which the sector underperforms to invest heavily, as they expect significant growth over the long term. But growth among tech stocks can vary dramatically. Many of the larger firms have limited growth potential because their market saturation and capitalization are already very high. Small-cap or penny tech stocks that experience technological breakthroughs or suddenly become incredibly popular may have periods of massive growth. Unusually, some of the biggest names in tech—including Amazon.com Inc. (AMZN), Meta Platforms Inc. (META), and Alphabet Inc. (GOOGL)—have continued to grow at significant rates. Advanced innovation Tech trends are always changing, with companies aiming to capitalize on the latest technology and to guide and follow developments in innovation. This makes the sector primed for breakthroughs. One of the most recent major trends to sweep the tech sector has been AI-related technologies, which are increasingly integrated into companies across many industries and sectors. To the extent that some tech companies continue to play a role in making this possible, they stand to benefit from the ongoing AI trend. Disadvantages of Tech Stocks Fluctuations in the tech sector Tech stocks are known for their high volatility, where rapid technological changes and competitive pressures can lead to significant price fluctuations. They often carry high valuations based on growth expectations, making them susceptible to market corrections if they fail to meet these projections. Furthermore, regulatory challenges and geopolitical tensions can impact the sector, introducing additional risks and uncertainties for investors. Trends shift quickly The sharp gains of many tech firms can prove tempting to investors who may not be well-versed in the technologies themselves. With rapid innovation characterizing the sector, trends and prospects shift very quickly as well. Investors who are unprepared for this pace or who lack knowledge of the fundamental strengths of different tech companies may find themselves following a trend that has already changed. Advantages Growth potential Advanced innovation Disadvantages Tech sector turbulence and rich valuations Investors may be left behind with rapidly shifting trends The Bottom Line The tech sector's performance in 2024 is poised to be significantly influenced by advancements in AI, which is expected to drive long-term growth. The adoption of AI, along with ongoing digitization and cloud computing, offers promising opportunities, particularly for companies involved in semiconductor production and cloud software services.  However, the macroeconomic environment will also play a key role in determining the sector's short-term performance, with the potential for volatility depending on interest-rate policies and economic conditions​. 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.

https://www.investopedia.com/articles/personal-finance/040215/financial-advisor-vs-financial-planner.asp

Financial Planner vs. Financial Advisor: 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-financial-planner-vs-financial-advisor-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"> Financial Planner vs. Financial Advisor: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> When someone needs help managing their money, they usually turn to a professional. “Financial advisor” and “financial planner” are both specialists who help consumers manage their money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> There is a wide range of financial professionals, from insurance agents and accountants to investment advisors, brokers, and financial planners. Every <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialplanner.asp">financial planner</a> is a type of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-advisor.asp">financial advisor</a>, but not every financial advisor is considered a financial planner. There are more than 100 certifications that a financial advisor might attain. </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 financial planner is a professional who helps individuals and organizations create a strategy to meet long-term financial goals.</li><li>"Financial advisor" is a broader category that can also include brokers, money managers, insurance agents, or bankers.</li><li>There is no single body in charge of regulating financial planners. Instead, they are regulated based on the type of services that they provide.</li><li>If a financial advisor is working with the public, they must pass FINRA's Series 65 licensing exam.</li><li>Given the proliferation of the financial industry, many planners and advisors may actually do the same thing—therefore, do your homework before hiring somebody to guide you.</li></ul></div></div></div> <span class="heading-toc" id="toc-financial-planner"></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"> Financial Planner </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A financial planner is a professional who helps individuals and organizations create a strategy to meet their long-term <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>. Typically, a financial planner will help map out a plan for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/budget.asp">budgeting</a>, saving, investing, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retirement-planning.asp">retirement planning</a>. Although many financial planners assist individual clients through their own practice, they might also work for a bank, wealth management firm, or <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/not-for-profit.asp">non-profit organization</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"> When choosing a financial planner, it’s important to understand the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/091613/introduction-financial-planning-organizations.asp">financial planning landscape</a>. According to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finra.asp">Financial Industry Regulatory Authority (FINRA)</a>, almost anyone can claim to be a financial planner and they might come from many different backgrounds.<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"> Financial planners might be brokers or investment advisors, insurance agents, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/professionals/100515/career-advice-accountant-vs-financial-planner.asp">practicing accountants</a>, or individuals with no financial credentials. That is why consumers must perform their due diligence before turning their money over to any sort of financial advisor. Here are some differences between the two terms. </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 planner might have a specialty in investments, taxes, retirement, and/or estate planning. There are also different licenses or designations, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfp.asp">Certified Financial Planner (CFP)</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfa.asp">Chartered Financial Analyst (CFA)</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chartered-financial-consultant-chfc.asp">Chartered Financial Consultant (ChFC)</a>, or Certified Investment Management Analyst (CIMA), <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/101001.asp">among others</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"> To obtain each of these qualifications, the financial planner must complete a different set of educational, examination, and work history requirements. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>According to FINRA, almost anyone can call themself a financial planner, and they will often come from many different types of backgrounds.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-financial-advisor"></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"> Financial Advisor </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> This is a broad term for a professional who helps manage your money. You pay the advisor, and in exchange, they help with any number of money-related tasks. A financial advisor (sometimes spelled “adviser”) might help manage investments, buy or sell stocks, or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/091815/do-financial-advisors-prepare-tax-returns-clients.asp">create a comprehensive estate and tax plan</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"> If the advisor is working with the public, they must hold a FINRA <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/series65.asp">Series 65 license</a>.<span class="ql-inline-citation" data-cite="3"></span> In addition to that license, there are many other financial advisor credentials that the advisor might hold, depending on the provided services. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> “Financial advisor” as a general term includes many types of professionals, such as stockbrokers, insurance agents, money managers, estate planners, bankers, and more. An investment advisor is a type of financial advisor who specializes in securities. </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_3-0">Advisor vs. Adviser</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>There are two common spellings for this financial term. U.S. laws and regulations spell out the rules for financial <em>advisers</em>, while many investment firms and media default to the more familiar <em>advisor</em>. Regardless of the spelling, all agree that there is no meaningful distinction between the two terms.</p></div></div></div> <span class="heading-toc" id="toc-key-differences"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Key Differences </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> While these two terms often overlap, a financial planner can be viewed as a type of financial advisor. In particular, a financial planner is a professional who helps individuals or organizations achieve their long-term financial goals. These can include planning for retirement, a child’s college education, the down payment for a home, and so on. A financial planner relies on strategic portfolio allocation for investments with relatively long time horizons, ensuring that expected returns and risk tolerances are in balance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> A financial advisor, on the other hand, is a broader term for somebody who may be involved in not only this type of planning but also other facets of money management or financial products. They may, for instance, provide life insurance, real estate, or accounting services, help place short-term trades, or provide banking services.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_35-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_36-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Want more advice for saving money toward your financial goals? Order a copy of Investopedia's <a data-component="amazon" data-ordinal="1" data-source="affiliate" data-type="externalLink" href="https://www.amazon.com/dp/1547862912/ref=sr_1_7?keywords=investopedia&amp;qid=1684168403&amp;sr=8-7" rel="sponsored nofollow">What To Do With $10,000 magazine</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_37-0"> <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_38-0"> Most individuals who <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/finding-financial-advisor-any-age-5295497">need money help</a> will enlist a financial planner, which is a more specific type of financial advisor. But the decision regarding the "type" of financial planner <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/insights/biggest-stock-market-myths/">requires some investigation</a>.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Before hiring a planner to help with your finances, it's important to do your homework and research their credentials, such as whether their licensed and how many years they've been practicing. Be sure to question the planner about their specific training and qualifications, such as whether they specialize in tax or estate planning. </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"> Clients should also understand how the financial planner is compensated and what they will receive in return. For example, is there a one-time fee for the financial review or are there multiple fees every time an investment change or plan update is made? </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"> It's also important to ensure that the advice and investments from your planner match 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 long-term financial goals.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Consider developing a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/050416/6-key-questions-ask-your-financial-advisor-2016.asp">list of questions</a> when <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vetting.asp">vetting</a> a financial planner. Finally, check the disciplinary record and references for the planner to ensure that you're receiving the best quality financial guidance. </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"> It's important to note that under the U.S. Department of Labor's new fiduciary rule, all professionals who give retirement planning advice or create retirement plans are held to a certain legal and ethical standard.<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_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-are-all-financial-planners-also-financial-advisors"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are All Financial Planners Also Financial Advisors?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>All financial planners are financial advisors, but not every financial advisor is also a financial planner. Financial advisors may also work for brokers, bankers, or in other areas of the financial industry.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-how-can-i-find-a-trustworthy-financial-planner-or-advisor"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Find a Trustworthy Financial Planner or Advisor?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can start by asking around to close friends, family members, or colleagues for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-find-a-woman-financial-advisor-or-planner-5270527">recommendations</a>. If your company has a company that manages a retirement plan, they may also be somebody to ask. You can also search the database offered by The National Association of Personal Financial Advisors (NAPFA).<span class="ql-inline-citation" data-cite="4"></span></p><p>Once you have the names of people, check their reputation on BrokerCheck and meet or talk with them first before hiring them.<span class="ql-inline-citation" data-cite="5"></span><br/></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-who-can-i-become-a-financial-advisor-or-planner"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Can I Become a Financial Advisor or Planner?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No specific background is necessary to become a planner, although you must pass Financial Industry Regulatory Authority (FINRA) licensing exams if you will be handling customer money. In addition, several professional certifications, such as the Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) designations, will provide extensive knowledge in relevant fields.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Financial advisors are a broad category of professionals with different specialties and qualifications. Financial planners are specialists who help their clients with a specific financial need, whether that be estate planning, saving for retirement wealth management, or tax accounting. </p></div>

## Financial Planner vs. Financial Advisor: An Overview When someone needs help managing their money, they usually turn to a professional. “Financial advisor” and “financial planner” are both specialists who help consumers manage their money. There is a wide range of financial professionals, from insurance agents and accountants to investment advisors, brokers, and financial planners. Every [financial planner](https://www.investopedia.com/terms/f/financialplanner.asp) is a type of [financial advisor](https://www.investopedia.com/terms/f/financial-advisor.asp), but not every financial advisor is considered a financial planner. There are more than 100 certifications that a financial advisor might attain. ### Key Takeaways * A financial planner is a professional who helps individuals and organizations create a strategy to meet long-term financial goals. * "Financial advisor" is a broader category that can also include brokers, money managers, insurance agents, or bankers. * There is no single body in charge of regulating financial planners. Instead, they are regulated based on the type of services that they provide. * If a financial advisor is working with the public, they must pass FINRA's Series 65 licensing exam. * Given the proliferation of the financial industry, many planners and advisors may actually do the same thing—therefore, do your homework before hiring somebody to guide you. ## Financial Planner A financial planner is a professional who helps individuals and organizations create a strategy to meet their long-term [financial goals](https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/). Typically, a financial planner will help map out a plan for [budgeting](https://www.investopedia.com/terms/b/budget.asp), saving, investing, and [retirement planning](https://www.investopedia.com/terms/r/retirement-planning.asp). Although many financial planners assist individual clients through their own practice, they might also work for a bank, wealth management firm, or [non-profit organization](https://www.investopedia.com/terms/n/not-for-profit.asp). When choosing a financial planner, it’s important to understand the [financial planning landscape](https://www.investopedia.com/articles/personal-finance/091613/introduction-financial-planning-organizations.asp). According to the [Financial Industry Regulatory Authority (FINRA)](https://www.investopedia.com/terms/f/finra.asp), almost anyone can claim to be a financial planner and they might come from many different backgrounds. Financial planners might be brokers or investment advisors, insurance agents, [practicing accountants](https://www.investopedia.com/articles/professionals/100515/career-advice-accountant-vs-financial-planner.asp), or individuals with no financial credentials. That is why consumers must perform their due diligence before turning their money over to any sort of financial advisor. Here are some differences between the two terms. The planner might have a specialty in investments, taxes, retirement, and/or estate planning. There are also different licenses or designations, such as [Certified Financial Planner (CFP)](https://www.investopedia.com/terms/c/cfp.asp), [Chartered Financial Analyst (CFA)](https://www.investopedia.com/terms/c/cfa.asp), [Chartered Financial Consultant (ChFC)](https://www.investopedia.com/terms/c/chartered-financial-consultant-chfc.asp), or Certified Investment Management Analyst (CIMA), [among others](https://www.investopedia.com/articles/01/101001.asp). To obtain each of these qualifications, the financial planner must complete a different set of educational, examination, and work history requirements. ### According to FINRA, almost anyone can call themself a financial planner, and they will often come from many different types of backgrounds. ## Financial Advisor This is a broad term for a professional who helps manage your money. You pay the advisor, and in exchange, they help with any number of money-related tasks. A financial advisor (sometimes spelled “adviser”) might help manage investments, buy or sell stocks, or [create a comprehensive estate and tax plan](https://www.investopedia.com/ask/answers/091815/do-financial-advisors-prepare-tax-returns-clients.asp). If the advisor is working with the public, they must hold a FINRA [Series 65 license](https://www.investopedia.com/terms/s/series65.asp). In addition to that license, there are many other financial advisor credentials that the advisor might hold, depending on the provided services. “Financial advisor” as a general term includes many types of professionals, such as stockbrokers, insurance agents, money managers, estate planners, bankers, and more. An investment advisor is a type of financial advisor who specializes in securities. ### Advisor vs. Adviser There are two common spellings for this financial term. U.S. laws and regulations spell out the rules for financial *advisers*, while many investment firms and media default to the more familiar *advisor*. Regardless of the spelling, all agree that there is no meaningful distinction between the two terms. ## Key Differences While these two terms often overlap, a financial planner can be viewed as a type of financial advisor. In particular, a financial planner is a professional who helps individuals or organizations achieve their long-term financial goals. These can include planning for retirement, a child’s college education, the down payment for a home, and so on. A financial planner relies on strategic portfolio allocation for investments with relatively long time horizons, ensuring that expected returns and risk tolerances are in balance. A financial advisor, on the other hand, is a broader term for somebody who may be involved in not only this type of planning but also other facets of money management or financial products. They may, for instance, provide life insurance, real estate, or accounting services, help place short-term trades, or provide banking services. ### Tip Want more advice for saving money toward your financial goals? Order a copy of Investopedia's [What To Do With $10,000 magazine](https://www.amazon.com/dp/1547862912/ref=sr_1_7?keywords=investopedia&qid=1684168403&sr=8-7). ## Special Considerations Most individuals who [need money help](https://www.investopedia.com/finding-financial-advisor-any-age-5295497) will enlist a financial planner, which is a more specific type of financial advisor. But the decision regarding the "type" of financial planner [requires some investigation](https://www.investopedia.com/insights/biggest-stock-market-myths/). Before hiring a planner to help with your finances, it's important to do your homework and research their credentials, such as whether their licensed and how many years they've been practicing. Be sure to question the planner about their specific training and qualifications, such as whether they specialize in tax or estate planning. Clients should also understand how the financial planner is compensated and what they will receive in return. For example, is there a one-time fee for the financial review or are there multiple fees every time an investment change or plan update is made? It's also important to ensure that the advice and investments from your planner match your [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp) and long-term financial goals. Consider developing a [list of questions](https://www.investopedia.com/articles/investing/050416/6-key-questions-ask-your-financial-advisor-2016.asp) when [vetting](https://www.investopedia.com/terms/v/vetting.asp) a financial planner. Finally, check the disciplinary record and references for the planner to ensure that you're receiving the best quality financial guidance. It's important to note that under the U.S. Department of Labor's new fiduciary rule, all professionals who give retirement planning advice or create retirement plans are held to a certain legal and ethical standard. ## Are All Financial Planners Also Financial Advisors? All financial planners are financial advisors, but not every financial advisor is also a financial planner. Financial advisors may also work for brokers, bankers, or in other areas of the financial industry. ## How Can I Find a Trustworthy Financial Planner or Advisor? You can start by asking around to close friends, family members, or colleagues for [recommendations](https://www.investopedia.com/how-to-find-a-woman-financial-advisor-or-planner-5270527). If your company has a company that manages a retirement plan, they may also be somebody to ask. You can also search the database offered by The National Association of Personal Financial Advisors (NAPFA). Once you have the names of people, check their reputation on BrokerCheck and meet or talk with them first before hiring them. ## Who Can I Become a Financial Advisor or Planner? No specific background is necessary to become a planner, although you must pass Financial Industry Regulatory Authority (FINRA) licensing exams if you will be handling customer money. In addition, several professional certifications, such as the Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) designations, will provide extensive knowledge in relevant fields. ## The Bottom Line Financial advisors are a broad category of professionals with different specialties and qualifications. Financial planners are specialists who help their clients with a specific financial need, whether that be estate planning, saving for retirement wealth management, or tax accounting.

Financial Planner vs. Financial Advisor: An Overview When someone needs help managing their money, they usually turn to a professional. “Financial advisor” and “financial planner” are both specialists who help consumers manage their money. There is a wide range of financial professionals, from insurance agents and accountants to investment advisors, brokers, and financial planners. Every financial planner is a type of financial advisor, but not every financial advisor is considered a financial planner. There are more than 100 certifications that a financial advisor might attain. Key Takeaways A financial planner is a professional who helps individuals and organizations create a strategy to meet long-term financial goals."Financial advisor" is a broader category that can also include brokers, money managers, insurance agents, or bankers.There is no single body in charge of regulating financial planners. Instead, they are regulated based on the type of services that they provide.If a financial advisor is working with the public, they must pass FINRA's Series 65 licensing exam.Given the proliferation of the financial industry, many planners and advisors may actually do the same thing—therefore, do your homework before hiring somebody to guide you. Financial Planner A financial planner is a professional who helps individuals and organizations create a strategy to meet their long-term financial goals. Typically, a financial planner will help map out a plan for budgeting, saving, investing, and retirement planning. Although many financial planners assist individual clients through their own practice, they might also work for a bank, wealth management firm, or non-profit organization. When choosing a financial planner, it’s important to understand the financial planning landscape. According to the Financial Industry Regulatory Authority (FINRA), almost anyone can claim to be a financial planner and they might come from many different backgrounds. Financial planners might be brokers or investment advisors, insurance agents, practicing accountants, or individuals with no financial credentials. That is why consumers must perform their due diligence before turning their money over to any sort of financial advisor. Here are some differences between the two terms. The planner might have a specialty in investments, taxes, retirement, and/or estate planning. There are also different licenses or designations, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), or Certified Investment Management Analyst (CIMA), among others. To obtain each of these qualifications, the financial planner must complete a different set of educational, examination, and work history requirements. According to FINRA, almost anyone can call themself a financial planner, and they will often come from many different types of backgrounds. Financial Advisor This is a broad term for a professional who helps manage your money. You pay the advisor, and in exchange, they help with any number of money-related tasks. A financial advisor (sometimes spelled “adviser”) might help manage investments, buy or sell stocks, or create a comprehensive estate and tax plan. If the advisor is working with the public, they must hold a FINRA Series 65 license. In addition to that license, there are many other financial advisor credentials that the advisor might hold, depending on the provided services. “Financial advisor” as a general term includes many types of professionals, such as stockbrokers, insurance agents, money managers, estate planners, bankers, and more. An investment advisor is a type of financial advisor who specializes in securities. Advisor vs. Adviser There are two common spellings for this financial term. U.S. laws and regulations spell out the rules for financial advisers, while many investment firms and media default to the more familiar advisor. Regardless of the spelling, all agree that there is no meaningful distinction between the two terms. Key Differences While these two terms often overlap, a financial planner can be viewed as a type of financial advisor. In particular, a financial planner is a professional who helps individuals or organizations achieve their long-term financial goals. These can include planning for retirement, a child’s college education, the down payment for a home, and so on. A financial planner relies on strategic portfolio allocation for investments with relatively long time horizons, ensuring that expected returns and risk tolerances are in balance. A financial advisor, on the other hand, is a broader term for somebody who may be involved in not only this type of planning but also other facets of money management or financial products. They may, for instance, provide life insurance, real estate, or accounting services, help place short-term trades, or provide banking services. Tip Want more advice for saving money toward your financial goals? Order a copy of Investopedia's What To Do With $10,000 magazine. Special Considerations Most individuals who need money help will enlist a financial planner, which is a more specific type of financial advisor. But the decision regarding the "type" of financial planner requires some investigation. Before hiring a planner to help with your finances, it's important to do your homework and research their credentials, such as whether their licensed and how many years they've been practicing. Be sure to question the planner about their specific training and qualifications, such as whether they specialize in tax or estate planning. Clients should also understand how the financial planner is compensated and what they will receive in return. For example, is there a one-time fee for the financial review or are there multiple fees every time an investment change or plan update is made? It's also important to ensure that the advice and investments from your planner match your risk tolerance and long-term financial goals. Consider developing a list of questions when vetting a financial planner. Finally, check the disciplinary record and references for the planner to ensure that you're receiving the best quality financial guidance. It's important to note that under the U.S. Department of Labor's new fiduciary rule, all professionals who give retirement planning advice or create retirement plans are held to a certain legal and ethical standard. Are All Financial Planners Also Financial Advisors? All financial planners are financial advisors, but not every financial advisor is also a financial planner. Financial advisors may also work for brokers, bankers, or in other areas of the financial industry. How Can I Find a Trustworthy Financial Planner or Advisor? You can start by asking around to close friends, family members, or colleagues for recommendations. If your company has a company that manages a retirement plan, they may also be somebody to ask. You can also search the database offered by The National Association of Personal Financial Advisors (NAPFA).Once you have the names of people, check their reputation on BrokerCheck and meet or talk with them first before hiring them. Who Can I Become a Financial Advisor or Planner? No specific background is necessary to become a planner, although you must pass Financial Industry Regulatory Authority (FINRA) licensing exams if you will be handling customer money. In addition, several professional certifications, such as the Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) designations, will provide extensive knowledge in relevant fields. The Bottom Line Financial advisors are a broad category of professionals with different specialties and qualifications. Financial planners are specialists who help their clients with a specific financial need, whether that be estate planning, saving for retirement wealth management, or tax accounting.

https://www.investopedia.com/terms/t/trading-platform.asp

What Is a Trading Platform? Definition, Examples, and Features

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-trading-platform"></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 Trading Platform? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A trading platform is a software system that is used to trade securities. It allows investors to open, close, and manage market positions online through a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialintermediary.asp">financial intermediary</a>, such as an online broker. Trading platforms are frequently offered by brokers for free or at a discount in exchange for maintaining a funded account and/or making a specified number of trades per month. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-brokers-4587872">best trading platforms</a> offer a mix of robust features and low fees. </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>Trading platforms are software systems used to execute and manage market positions online.</li><li>These platforms offer an easy-to-use interface with basic order entry screens for beginning investors.</li><li>They can also offer more sophisticated tools like real-time streaming quotes, advanced charting tools, live news feeds, educational resources, and access to proprietary research.</li><li>Traders and investors should consider fees and features when comparing trading platforms.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-trading-platforms"></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 Trading Platforms </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A trading platform is a software system offered to investors and traders by financial institutions, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-company.asp">brokerages</a> and banks. They essentially enable investors and traders to place trades and monitor their accounts. </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"> Platforms allow investors to open a variety of brokerage or trading accounts, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marginaccount.asp">margin accounts</a>, cash accounts, retirement accounts, and self-directed accounts. Through these accounts, traders can make buy and sell orders for stocks, bonds, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a>, and mutual funds among others. </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"> Trading platforms often include other features that help investors make important investment decisions. These features can include real-time quotes and interactive charts along with a range of charting tools, streaming news feeds, and premium research. Platforms also may be tailored to specific markets, such as stocks, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency.asp">currencies</a>, options, or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a> markets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-types-of-trading-platforms"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Types of Trading Platforms </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <br/>There are two types of trading platforms: commercial and proprietary platforms. </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><strong>Commercial Platforms: </strong>Commercial trading platforms are designed for a range of investors, including <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> and retail investors. These sites are easy to use and provide traders with useful features, such as real-time quotes, international news feeds, live, interactive charts, educational content, and research tools. Many popular sites are commercial platforms.</li> <li><strong>Proprietary Platforms: </strong>These trading platforms are customized and developed by large brokerages and other <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialinstitution.asp">financial institutions</a> for themselves. Using proprietary platforms allows institutions to gain direct access to the markets, which gives them a competitive advantage. Since these platforms are designed for institutional use, they are not available to the public.</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-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>The market for online trading platforms was estimated to be worth $10.03 billion in 2024. This figure is expected to grow to over $14.20 billion by 2031.<span class="ql-inline-citation" data-cite="11"></span></p></div></div></div> <span class="heading-toc" id="toc-what-to-look-for-in-a-trading-platform"></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"> What to Look for in a Trading Platform </span> </h2> <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"> Features </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Traders and investors should consider whether the features offered meet their trading needs when choosing a trading platform. Day traders and other short-term traders may require features like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/level2.asp">Level 2</a> quotes and access to market information, such as price levels, order size, and volume to assist them in timing their orders. </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"> Traders may also need <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalanalysis.asp">technical analysis</a> tools such as live charts with a range of technical indicators. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/optionscontract.asp">Options</a> traders may need tools that are specifically designed to help them research, analyze, and test their trading strategies. </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"> Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Fees are also important to consider when choosing a trading platform. For example, traders who employ <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/scalping.asp">scalping</a> as a trading strategy will gravitate towards platforms with low fees. </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"> Lower fees are generally always preferable but there may be trade-offs to consider. For example, low fees may not be advantageous if they translate to fewer or less powerful features. </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"> Provider </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Some trading platforms aren't connected to a specific <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialintermediary.asp">intermediary</a> or broker while others are only available when you work with a particular intermediary or broker. As a result, investors should consider carefully the reputation of the intermediary or broker before committing to a specific trading platform to execute trades and manage their accounts. Be sure a provider stands solidly behind all that a platform offers. </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"> Requirements </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Trading platforms may have specific requirements that must be met before you can open an account and/or trade. For example, day trading platforms may require that traders have at least $25,000 in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a> in their accounts and be approved for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buying-on-margin.asp">margin trading</a>. Options platforms may require that traders be approved to trade various types of options before they can use the trading platform. </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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Charles Schwab officially acquired TD Ameritrade for about $22 billion in 2020. The acquisition resulted in client assets valued at over $6 trillion and approximately 28 million brokerage accounts.<span class="ql-inline-citation" data-cite="10"></span></p></div></div></div> <span class="heading-toc" id="toc-popular-trading-platforms"></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"> Popular Trading Platforms </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> There are hundreds—if not thousands—of different trading platforms, including these four popular options: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> <li><strong>Interactive Brokers</strong>: Interactive Brokers is the most popular trading platform for professionals, with low fees and access to markets around the world.<span class="ql-inline-citation" data-cite="1"></span></li> <li><strong>TradeStation</strong>: TradeStation is a popular trading platform for algorithmic traders who prefer to execute trading strategies using automated scripts developed with EasyLanguage.<span class="ql-inline-citation" data-cite="8"></span></li> <li><strong>TD Ameritrade</strong>: TD Ameritrade is a popular broker for both traders and investors, especially following its acquisition of thinkorswim.<span class="ql-inline-citation" data-cite="7"></span></li> <li><strong>Robinhood</strong>: Robinhood is a commission-free trading platform targeting millennials.<span class="ql-inline-citation" data-cite="6"></span> It started off as a mobile app and now has a web interface as well. The platform <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/020515/how-robinhood-makes-money.asp">makes money</a> from several sources, from interest on cash in its accounts to selling order flow to large brokerages.<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_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> The most popular platform for many <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreign-exchange.asp">foreign exchange (forex)</a> market participants is MetaTrader, which is a trading platform that interfaces with many different brokers. Its MQL scripting language has become a popular tool for those looking to automate their trading in currencies.<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_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-whats-a-trading-platform"></span> <h2 class="mntl-sc-block-questionandanswer__question">What's a Trading Platform?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A trading platform is essentially a software system typically offered through a brokerage or other financial institution that lets you trade online, on your own. A trading platform gives investors an online interface through which they can access various markets, place trades, monitor positions, and manage their accounts.</p><p>Trading platforms can offer a number of other features, as well. Broadly speaking, these include real-time quotes, live business and financial news feeds, instant access to a wealth of streaming and historical financial data, technical analysis tools, investment research, and educational resources.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-is-there-a-good-trading-platform-for-beginning-traders"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is There a Good Trading Platform for Beginning Traders?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>E*Trade and TD Ameritrade are choices that beginners may want to consider. TD Ameritrade has excellent educational resources that can help novice traders understand the markets and become more comfortable with trading before actually placing trades. E*Trade's user-friendly interface can eliminate the frustrations a beginner might have trying to navigate a trading platform.</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-what-is-a-day-trader"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Day Trader?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A day trader is a trader who makes multiple trades in a single day, rarely (if ever) holding a position overnight. Day traders try to take advantage of intraday price movements and market inefficiencies to make money. They tend to use technical analysis to help them time their market entries and exits. Day trading requires focus, dedication, and discipline.</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"> Trading platforms make it easier for people to invest their money and reach their goals. These portals are usually online, giving the individual freedom to choose to invest on their own or with the guidance of an investment professional. Choosing the right trading platform depends on how much capital you have, your needs and goals, and your experience. Make sure you do your due diligence and research before you commit to one. </p></div>

## What Is a Trading Platform? A trading platform is a software system that is used to trade securities. It allows investors to open, close, and manage market positions online through a [financial intermediary](https://www.investopedia.com/terms/f/financialintermediary.asp), such as an online broker. Trading platforms are frequently offered by brokers for free or at a discount in exchange for maintaining a funded account and/or making a specified number of trades per month. The [best trading platforms](https://www.investopedia.com/best-online-brokers-4587872) offer a mix of robust features and low fees. ### Key Takeaways * Trading platforms are software systems used to execute and manage market positions online. * These platforms offer an easy-to-use interface with basic order entry screens for beginning investors. * They can also offer more sophisticated tools like real-time streaming quotes, advanced charting tools, live news feeds, educational resources, and access to proprietary research. * Traders and investors should consider fees and features when comparing trading platforms. ## Understanding Trading Platforms A trading platform is a software system offered to investors and traders by financial institutions, such as [brokerages](https://www.investopedia.com/terms/b/brokerage-company.asp) and banks. They essentially enable investors and traders to place trades and monitor their accounts. Platforms allow investors to open a variety of brokerage or trading accounts, including [margin accounts](https://www.investopedia.com/terms/m/marginaccount.asp), cash accounts, retirement accounts, and self-directed accounts. Through these accounts, traders can make buy and sell orders for stocks, bonds, [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp), and mutual funds among others. Trading platforms often include other features that help investors make important investment decisions. These features can include real-time quotes and interactive charts along with a range of charting tools, streaming news feeds, and premium research. Platforms also may be tailored to specific markets, such as stocks, [currencies](https://www.investopedia.com/terms/c/currency.asp), options, or [futures](https://www.investopedia.com/terms/f/futures.asp) markets. ## Types of Trading Platforms There are two types of trading platforms: commercial and proprietary platforms. * **Commercial Platforms:** Commercial trading platforms are designed for a range of investors, including [day traders](https://www.investopedia.com/terms/d/daytrader.asp) and retail investors. These sites are easy to use and provide traders with useful features, such as real-time quotes, international news feeds, live, interactive charts, educational content, and research tools. Many popular sites are commercial platforms. * **Proprietary Platforms:** These trading platforms are customized and developed by large brokerages and other [financial institutions](https://www.investopedia.com/terms/f/financialinstitution.asp) for themselves. Using proprietary platforms allows institutions to gain direct access to the markets, which gives them a competitive advantage. Since these platforms are designed for institutional use, they are not available to the public. ### The market for online trading platforms was estimated to be worth $10.03 billion in 2024. This figure is expected to grow to over $14.20 billion by 2031. ## What to Look for in a Trading Platform ### Features Traders and investors should consider whether the features offered meet their trading needs when choosing a trading platform. Day traders and other short-term traders may require features like [Level 2](https://www.investopedia.com/terms/l/level2.asp) quotes and access to market information, such as price levels, order size, and volume to assist them in timing their orders. Traders may also need [technical analysis](https://www.investopedia.com/terms/t/technicalanalysis.asp) tools such as live charts with a range of technical indicators. [Options](https://www.investopedia.com/terms/o/optionscontract.asp) traders may need tools that are specifically designed to help them research, analyze, and test their trading strategies. ### Fees Fees are also important to consider when choosing a trading platform. For example, traders who employ [scalping](https://www.investopedia.com/terms/s/scalping.asp) as a trading strategy will gravitate towards platforms with low fees. Lower fees are generally always preferable but there may be trade-offs to consider. For example, low fees may not be advantageous if they translate to fewer or less powerful features. ### Provider Some trading platforms aren't connected to a specific [intermediary](https://www.investopedia.com/terms/f/financialintermediary.asp) or broker while others are only available when you work with a particular intermediary or broker. As a result, investors should consider carefully the reputation of the intermediary or broker before committing to a specific trading platform to execute trades and manage their accounts. Be sure a provider stands solidly behind all that a platform offers. ### Requirements Trading platforms may have specific requirements that must be met before you can open an account and/or trade. For example, day trading platforms may require that traders have at least $25,000 in [equity](https://www.investopedia.com/terms/e/equity.asp) in their accounts and be approved for [margin trading](https://www.investopedia.com/terms/b/buying-on-margin.asp). Options platforms may require that traders be approved to trade various types of options before they can use the trading platform. ### Charles Schwab officially acquired TD Ameritrade for about $22 billion in 2020. The acquisition resulted in client assets valued at over $6 trillion and approximately 28 million brokerage accounts. ## Popular Trading Platforms There are hundreds—if not thousands—of different trading platforms, including these four popular options: * **Interactive Brokers**: Interactive Brokers is the most popular trading platform for professionals, with low fees and access to markets around the world. * **TradeStation**: TradeStation is a popular trading platform for algorithmic traders who prefer to execute trading strategies using automated scripts developed with EasyLanguage. * **TD Ameritrade**: TD Ameritrade is a popular broker for both traders and investors, especially following its acquisition of thinkorswim. * **Robinhood**: Robinhood is a commission-free trading platform targeting millennials. It started off as a mobile app and now has a web interface as well. The platform [makes money](https://www.investopedia.com/articles/active-trading/020515/how-robinhood-makes-money.asp) from several sources, from interest on cash in its accounts to selling order flow to large brokerages. The most popular platform for many [foreign exchange (forex)](https://www.investopedia.com/terms/f/foreign-exchange.asp) market participants is MetaTrader, which is a trading platform that interfaces with many different brokers. Its MQL scripting language has become a popular tool for those looking to automate their trading in currencies. ## What's a Trading Platform? A trading platform is essentially a software system typically offered through a brokerage or other financial institution that lets you trade online, on your own. A trading platform gives investors an online interface through which they can access various markets, place trades, monitor positions, and manage their accounts. Trading platforms can offer a number of other features, as well. Broadly speaking, these include real-time quotes, live business and financial news feeds, instant access to a wealth of streaming and historical financial data, technical analysis tools, investment research, and educational resources. ## Is There a Good Trading Platform for Beginning Traders? E\*Trade and TD Ameritrade are choices that beginners may want to consider. TD Ameritrade has excellent educational resources that can help novice traders understand the markets and become more comfortable with trading before actually placing trades. E\*Trade's user-friendly interface can eliminate the frustrations a beginner might have trying to navigate a trading platform. ## What Is a Day Trader? A day trader is a trader who makes multiple trades in a single day, rarely (if ever) holding a position overnight. Day traders try to take advantage of intraday price movements and market inefficiencies to make money. They tend to use technical analysis to help them time their market entries and exits. Day trading requires focus, dedication, and discipline. ## The Bottom Line Trading platforms make it easier for people to invest their money and reach their goals. These portals are usually online, giving the individual freedom to choose to invest on their own or with the guidance of an investment professional. Choosing the right trading platform depends on how much capital you have, your needs and goals, and your experience. Make sure you do your due diligence and research before you commit to one.

What Is a Trading Platform? A trading platform is a software system that is used to trade securities. It allows investors to open, close, and manage market positions online through a financial intermediary, such as an online broker. Trading platforms are frequently offered by brokers for free or at a discount in exchange for maintaining a funded account and/or making a specified number of trades per month. The best trading platforms offer a mix of robust features and low fees. Key Takeaways Trading platforms are software systems used to execute and manage market positions online.These platforms offer an easy-to-use interface with basic order entry screens for beginning investors.They can also offer more sophisticated tools like real-time streaming quotes, advanced charting tools, live news feeds, educational resources, and access to proprietary research.Traders and investors should consider fees and features when comparing trading platforms. Understanding Trading Platforms A trading platform is a software system offered to investors and traders by financial institutions, such as brokerages and banks. They essentially enable investors and traders to place trades and monitor their accounts. Platforms allow investors to open a variety of brokerage or trading accounts, including margin accounts, cash accounts, retirement accounts, and self-directed accounts. Through these accounts, traders can make buy and sell orders for stocks, bonds, exchange-traded funds (ETFs), and mutual funds among others. Trading platforms often include other features that help investors make important investment decisions. These features can include real-time quotes and interactive charts along with a range of charting tools, streaming news feeds, and premium research. Platforms also may be tailored to specific markets, such as stocks, currencies, options, or futures markets. Types of Trading Platforms There are two types of trading platforms: commercial and proprietary platforms. Commercial Platforms: Commercial trading platforms are designed for a range of investors, including day traders and retail investors. These sites are easy to use and provide traders with useful features, such as real-time quotes, international news feeds, live, interactive charts, educational content, and research tools. Many popular sites are commercial platforms. Proprietary Platforms: These trading platforms are customized and developed by large brokerages and other financial institutions for themselves. Using proprietary platforms allows institutions to gain direct access to the markets, which gives them a competitive advantage. Since these platforms are designed for institutional use, they are not available to the public. The market for online trading platforms was estimated to be worth $10.03 billion in 2024. This figure is expected to grow to over $14.20 billion by 2031. What to Look for in a Trading Platform Features Traders and investors should consider whether the features offered meet their trading needs when choosing a trading platform. Day traders and other short-term traders may require features like Level 2 quotes and access to market information, such as price levels, order size, and volume to assist them in timing their orders. Traders may also need technical analysis tools such as live charts with a range of technical indicators. Options traders may need tools that are specifically designed to help them research, analyze, and test their trading strategies. Fees Fees are also important to consider when choosing a trading platform. For example, traders who employ scalping as a trading strategy will gravitate towards platforms with low fees. Lower fees are generally always preferable but there may be trade-offs to consider. For example, low fees may not be advantageous if they translate to fewer or less powerful features. Provider Some trading platforms aren't connected to a specific intermediary or broker while others are only available when you work with a particular intermediary or broker. As a result, investors should consider carefully the reputation of the intermediary or broker before committing to a specific trading platform to execute trades and manage their accounts. Be sure a provider stands solidly behind all that a platform offers. Requirements Trading platforms may have specific requirements that must be met before you can open an account and/or trade. For example, day trading platforms may require that traders have at least $25,000 in equity in their accounts and be approved for margin trading. Options platforms may require that traders be approved to trade various types of options before they can use the trading platform. Charles Schwab officially acquired TD Ameritrade for about $22 billion in 2020. The acquisition resulted in client assets valued at over $6 trillion and approximately 28 million brokerage accounts. Popular Trading Platforms There are hundreds—if not thousands—of different trading platforms, including these four popular options: Interactive Brokers: Interactive Brokers is the most popular trading platform for professionals, with low fees and access to markets around the world. TradeStation: TradeStation is a popular trading platform for algorithmic traders who prefer to execute trading strategies using automated scripts developed with EasyLanguage. TD Ameritrade: TD Ameritrade is a popular broker for both traders and investors, especially following its acquisition of thinkorswim. Robinhood: Robinhood is a commission-free trading platform targeting millennials. It started off as a mobile app and now has a web interface as well. The platform makes money from several sources, from interest on cash in its accounts to selling order flow to large brokerages. The most popular platform for many foreign exchange (forex) market participants is MetaTrader, which is a trading platform that interfaces with many different brokers. Its MQL scripting language has become a popular tool for those looking to automate their trading in currencies. What's a Trading Platform? A trading platform is essentially a software system typically offered through a brokerage or other financial institution that lets you trade online, on your own. A trading platform gives investors an online interface through which they can access various markets, place trades, monitor positions, and manage their accounts.Trading platforms can offer a number of other features, as well. Broadly speaking, these include real-time quotes, live business and financial news feeds, instant access to a wealth of streaming and historical financial data, technical analysis tools, investment research, and educational resources. Is There a Good Trading Platform for Beginning Traders? E*Trade and TD Ameritrade are choices that beginners may want to consider. TD Ameritrade has excellent educational resources that can help novice traders understand the markets and become more comfortable with trading before actually placing trades. E*Trade's user-friendly interface can eliminate the frustrations a beginner might have trying to navigate a trading platform. What Is a Day Trader? A day trader is a trader who makes multiple trades in a single day, rarely (if ever) holding a position overnight. Day traders try to take advantage of intraday price movements and market inefficiencies to make money. They tend to use technical analysis to help them time their market entries and exits. Day trading requires focus, dedication, and discipline. The Bottom Line Trading platforms make it easier for people to invest their money and reach their goals. These portals are usually online, giving the individual freedom to choose to invest on their own or with the guidance of an investment professional. Choosing the right trading platform depends on how much capital you have, your needs and goals, and your experience. Make sure you do your due diligence and research before you commit to one.

https://www.investopedia.com/at-home-covid-tests-are-eligible-expenses-irs-says-5201592

At-Home COVID Tests Are Eligible Medical Expenses, the IRS Says

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 COVID-19 testing markedly expands under President Biden’s recently announced six-point national strategy,<span class="ql-inline-citation" data-cite="1"></span> people who use at-home tests may be able to have their out-of-pocket costs covered in full. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The costs of home COVID-19 tests are eligible medical expenses, the IRS says, making them reimbursable under FSAs or HSAs and tax-deductible for some taxpayers.</li><li>To be eligible for a tax deduction, your total unreimbursed medical and dental costs must exceed 7.5% of your income.</li><li>Demand for at-home tests is surging along with the Delta variant, which has led to supply constraints and calls to ramp up production.</li></ul></div></div></div> <span class="heading-toc" id="toc-whats-eligible-for-reimbursement-or-a-deduction"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> What's Eligible for Reimbursement or a Deduction? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The IRS last week reminded taxpayers that the cost of at-home COVID testing is an eligible medical expense. That means it qualifies as a tax deduction or for payment or reimbursement by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/flexiblespendingaccount.asp">flexible spending accounts</a> (FSAs), <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hsa.asp">health savings accounts </a>(HSAs), <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hra.asp">health reimbursement arrangements</a> (HRAs), and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/archer-msa.asp">Archer medical savings accounts</a> that remain active.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The cost of personal protective equipment (PPE) bought to prevent the spread of COVID-19—including masks, hand sanitizer, and sanitizing wipes—is an eligible medical expense, as well.<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"> Taxpayers who itemize and whose expenses aren't reimbursed can deduct both the cost of home testing kits and PPE to the extent that their total eligible medical and dental expenses in 2021 exceed 7.5% of adjusted gross income.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-demand-for-home-tests-escalates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Demand for Home Tests Escalates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The IRS reminder comes as demand for at-home COVID-19 tests—already surging during the Delta variant's spread—is expected to rise sharply as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wide-ranging-federal-policy-allays-employers-dilemma-over-vaccine-mandates-5200954">White House plan</a> boosts testing access and production.  </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"> Biden has proposed using the Defense Production Act and other procurement processes to expand production capacity to support COVID-19 testing at home and elsewhere. Under the plan big retailers like Amazon, Kroger, and Walmart will sell at-home rapid COVID-19 tests to consumers at cost (up to 35% less than the usual retail price) for the next three months.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> A recent study found that adults have a strong preference for at-home test kits over drive-through or clinic-based COVID testing.<span class="ql-inline-citation" data-cite="6"></span> But recent reports also indicate that such tests have been harder to come by on pharmacy shelves, given the brisk demand in recent weeks. </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"> Late last month, for example, CVS said it was limiting customers' purchases of its rapid, over-the-counter COVID-19 tests both online and in-store, while suppliers worked to ramp up the pace of production.<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_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> At-home COVID-19 tests first became available in stores this spring. </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-health-reimbursement-accounts-work"></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 Health Reimbursement Accounts Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> If you don't already have a health reimbursement account at your job, here are some basics on how they work. </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>Health savings accounts (HSAs)</strong> have three tax advantages: Your money goes in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pretaxcontribution.asp">pretax</a> (or is tax-deductible in some cases), grows tax-free, and comes out tax-free for qualified medical expenses. HSA funds can be used anytime, and any unspent money rolls over each year with no time limit. To be eligible for an HSA, you must participate in a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hdhp.asp">high-deductible health plan</a> (HDHP).</li> <li><strong>Flexible spending accounts (FSAs)</strong> have similar tax advantages to HSAs, although the carryover rules are more stringent. Normally, employers can either allow a portion to roll over into the next calendar year or provide a grace period of 2.5 months to spend the money after the end of the plan year. These rules were loosened because of the pandemic, however, giving employers more flexibility to let workers keep and spend unlimited amounts in 2021 and 2022. You do not have to participate in a high-deductible health plan to be eligible for an FSA.</li> <li><strong>Health reimbursement arrangements (HRAs)</strong> are employer-funded group health plans—not accounts—that reimburse you tax-free for qualified medical expenses up to a fixed dollar amount per year. Any unused amounts may be rolled over.</li> </ul> <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 COVID-19 testing markedly expands under President Biden’s recently announced six-point national strategy, people who use at-home tests may be able to have their out-of-pocket costs covered in full. ### Key Takeaways * The costs of home COVID-19 tests are eligible medical expenses, the IRS says, making them reimbursable under FSAs or HSAs and tax-deductible for some taxpayers. * To be eligible for a tax deduction, your total unreimbursed medical and dental costs must exceed 7.5% of your income. * Demand for at-home tests is surging along with the Delta variant, which has led to supply constraints and calls to ramp up production. ## What's Eligible for Reimbursement or a Deduction? The IRS last week reminded taxpayers that the cost of at-home COVID testing is an eligible medical expense. That means it qualifies as a tax deduction or for payment or reimbursement by [flexible spending accounts](https://www.investopedia.com/terms/f/flexiblespendingaccount.asp) (FSAs), [health savings accounts](https://www.investopedia.com/terms/h/hsa.asp) (HSAs), [health reimbursement arrangements](https://www.investopedia.com/terms/h/hra.asp) (HRAs), and [Archer medical savings accounts](https://www.investopedia.com/terms/a/archer-msa.asp) that remain active. The cost of personal protective equipment (PPE) bought to prevent the spread of COVID-19—including masks, hand sanitizer, and sanitizing wipes—is an eligible medical expense, as well. Taxpayers who itemize and whose expenses aren't reimbursed can deduct both the cost of home testing kits and PPE to the extent that their total eligible medical and dental expenses in 2021 exceed 7.5% of adjusted gross income. ## Demand for Home Tests Escalates The IRS reminder comes as demand for at-home COVID-19 tests—already surging during the Delta variant's spread—is expected to rise sharply as the [White House plan](https://www.investopedia.com/wide-ranging-federal-policy-allays-employers-dilemma-over-vaccine-mandates-5200954) boosts testing access and production.  Biden has proposed using the Defense Production Act and other procurement processes to expand production capacity to support COVID-19 testing at home and elsewhere. Under the plan big retailers like Amazon, Kroger, and Walmart will sell at-home rapid COVID-19 tests to consumers at cost (up to 35% less than the usual retail price) for the next three months. A recent study found that adults have a strong preference for at-home test kits over drive-through or clinic-based COVID testing. But recent reports also indicate that such tests have been harder to come by on pharmacy shelves, given the brisk demand in recent weeks. Late last month, for example, CVS said it was limiting customers' purchases of its rapid, over-the-counter COVID-19 tests both online and in-store, while suppliers worked to ramp up the pace of production. At-home COVID-19 tests first became available in stores this spring. ## How Health Reimbursement Accounts Work If you don't already have a health reimbursement account at your job, here are some basics on how they work. * **Health savings accounts (HSAs)** have three tax advantages: Your money goes in [pretax](https://www.investopedia.com/terms/p/pretaxcontribution.asp) (or is tax-deductible in some cases), grows tax-free, and comes out tax-free for qualified medical expenses. HSA funds can be used anytime, and any unspent money rolls over each year with no time limit. To be eligible for an HSA, you must participate in a [high-deductible health plan](https://www.investopedia.com/terms/h/hdhp.asp) (HDHP). * **Flexible spending accounts (FSAs)** have similar tax advantages to HSAs, although the carryover rules are more stringent. Normally, employers can either allow a portion to roll over into the next calendar year or provide a grace period of 2.5 months to spend the money after the end of the plan year. These rules were loosened because of the pandemic, however, giving employers more flexibility to let workers keep and spend unlimited amounts in 2021 and 2022. You do not have to participate in a high-deductible health plan to be eligible for an FSA. * **Health reimbursement arrangements (HRAs)** are employer-funded group health plans—not accounts—that reimburse you tax-free for qualified medical expenses up to a fixed dollar amount per year. Any unused amounts may be rolled over. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

As COVID-19 testing markedly expands under President Biden’s recently announced six-point national strategy, people who use at-home tests may be able to have their out-of-pocket costs covered in full. Key Takeaways The costs of home COVID-19 tests are eligible medical expenses, the IRS says, making them reimbursable under FSAs or HSAs and tax-deductible for some taxpayers.To be eligible for a tax deduction, your total unreimbursed medical and dental costs must exceed 7.5% of your income.Demand for at-home tests is surging along with the Delta variant, which has led to supply constraints and calls to ramp up production. What's Eligible for Reimbursement or a Deduction? The IRS last week reminded taxpayers that the cost of at-home COVID testing is an eligible medical expense. That means it qualifies as a tax deduction or for payment or reimbursement by flexible spending accounts (FSAs), health savings accounts (HSAs), health reimbursement arrangements (HRAs), and Archer medical savings accounts that remain active. The cost of personal protective equipment (PPE) bought to prevent the spread of COVID-19—including masks, hand sanitizer, and sanitizing wipes—is an eligible medical expense, as well. Taxpayers who itemize and whose expenses aren't reimbursed can deduct both the cost of home testing kits and PPE to the extent that their total eligible medical and dental expenses in 2021 exceed 7.5% of adjusted gross income. Demand for Home Tests Escalates The IRS reminder comes as demand for at-home COVID-19 tests—already surging during the Delta variant's spread—is expected to rise sharply as the White House plan boosts testing access and production.  Biden has proposed using the Defense Production Act and other procurement processes to expand production capacity to support COVID-19 testing at home and elsewhere. Under the plan big retailers like Amazon, Kroger, and Walmart will sell at-home rapid COVID-19 tests to consumers at cost (up to 35% less than the usual retail price) for the next three months. A recent study found that adults have a strong preference for at-home test kits over drive-through or clinic-based COVID testing. But recent reports also indicate that such tests have been harder to come by on pharmacy shelves, given the brisk demand in recent weeks. Late last month, for example, CVS said it was limiting customers' purchases of its rapid, over-the-counter COVID-19 tests both online and in-store, while suppliers worked to ramp up the pace of production. At-home COVID-19 tests first became available in stores this spring. How Health Reimbursement Accounts Work If you don't already have a health reimbursement account at your job, here are some basics on how they work. Health savings accounts (HSAs) have three tax advantages: Your money goes in pretax (or is tax-deductible in some cases), grows tax-free, and comes out tax-free for qualified medical expenses. HSA funds can be used anytime, and any unspent money rolls over each year with no time limit. To be eligible for an HSA, you must participate in a high-deductible health plan (HDHP). Flexible spending accounts (FSAs) have similar tax advantages to HSAs, although the carryover rules are more stringent. Normally, employers can either allow a portion to roll over into the next calendar year or provide a grace period of 2.5 months to spend the money after the end of the plan year. These rules were loosened because of the pandemic, however, giving employers more flexibility to let workers keep and spend unlimited amounts in 2021 and 2022. You do not have to participate in a high-deductible health plan to be eligible for an FSA. Health reimbursement arrangements (HRAs) are employer-funded group health plans—not accounts—that reimburse you tax-free for qualified medical expenses up to a fixed dollar amount per year. Any unused amounts may be rolled over. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/articles/basics/06/contemplatingcollectibles.asp

Contemplating Collectible Investments

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> If you have a lot of storage space, your attic and garage may be stuffed with old furniture, books, and other items you've held onto over the years. At first glance, it may just seem like nothing more than a pile of junk. But if you rummage through carefully, there may be a chance that you're sitting on a few valuable collectibles just waiting to make you money. </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>Collectibles range from dinosaur fossils to comic books, each with unique factors affecting their worth.</li><li>The value of collectibles can often hinge on nostalgia and emotional appeal for the buyer rather than just monetary worth.</li><li>The future value of collectibles depends on their rarity and how appealing they are to future collectors based on trends.</li><li>Collectibles require proper maintenance and care to retain their value, usually requiring additional costs.</li><li>Having a keen eye for market trends and predicting how popular items will be in the future is essential for success in collectible investing.</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"> Collectibles are items worth far more than their original sale price and are considered <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/alternative_investment.asp">alternative investments</a>—vehicles that don't fall into any other category like stocks, bonds, cash, or real estate. Investing in this asset class can be rewarding and help you maximize your returns. But it helps to know some of the basics. This article looks at collectibles as an investment and helps you decide whether this emotional market is a good place to park your money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-subheading__text"> All Things Old Made New Again </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A collectible is anything that can be sold for more money than it was originally worth. These are items whose value increases over time. While they may be rare, some mass-produced items become collectibles—consider Beanie Babies when they first hit the market. Another trait collectibles have is that they pique the interest of collectors, like rare photographs and many works of art. To get the most return on a collectible, the owner must ensure it's in stellar condition. Trading cards, stamps, and comic books are just some of the most well-known collectibles around. Here are a few specific examples: </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"> 140,000,000 B.C. </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> A young Allosaurus dinosaur gets itself mired in mud hidden beneath the underbrush. Millions of years later, an amateur paleontologist pulls it out—or at least what was left of its head. When it hits the market, the Allosaurus' restored skull sells for a few thousand dollars. </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"> 1908 </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Honus Wagner of the Pittsburgh Pirates hit his tenth home run—an incredible feat before Babe Ruth started the home run era—and ended the year with a .354 batting average, marking one of the best years of his career. The next year, the American Tobacco Company commemorated Wagner by putting a trading card inside its cigarette packages. Fewer than 60 made it into stores before the world found out that Honus was vehemently against smoking. In 2000, Wagner's cigarette trading card sold on eBay for $1.1 million. </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"> 1962 </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Stan Lee created a superhero who worried about paying his rent, his ailing aunt, and passing his next test at school—all in addition to saving the world. In 2021, a near-mint-condition copy of Spiderman's first appearance in a comic book sold at Heritage Auctions for $3.6 million. The comic book, Amazing Fantasy No. 15, sold for 12 cents in 1962, the year it was issued.<span class="ql-inline-citation" data-cite="2"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-what-do-collectibles-have-in-common"></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"> What Do Collectibles Have in Common? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> So, what do a fossil, a comic, and a baseball card have in common? Most people have no qualms about calling them collectibles. But when you speak about diamonds, gold, and other precious materials, people tend to call them investments. In theory, these materials—and even stocks—could be termed collectibles because their price is based more on what people are willing to pay for them, known as their <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>, rather than their intrinsic value. This is the calculated or perceived value of the good. Precious metals and stocks all have an intrinsic value. </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 metals, this value is based on rarity. If you melt it, burn it, or bend it, you still have the same atomic substance in the end. For stocks, the value is produced by the underlying brick-and-mortar company that the share represents—a company that generates earnings to justify the prices you pay for its stock. </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"> What makes collectibles different is that even a little damage can erase all of a collectible's value. This is because a collectible's value is based on nostalgia and other emotional factors—which can be erratic. Collectibles in pristine condition are valued higher than those that aren't. So, the value of a baseball card that's scratched or torn up is much lower than one still in its original condition. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-the-20-year-itch"></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 20-Year Itch </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> It's believed that nostalgia runs in 20-year cycles.<span class="ql-inline-citation" data-cite="1"></span> That is, the things that are popular now will become collectibles in 20 years when people want to reconnect with their past. This doesn't mean you can buy the top 10 items from consumer polls, set them aside for 20 years, and then sell them for a fortune. If this were the case, every pack rat would be rich. So what's the take-away? Some items this year will become collectibles if they meet two conditions: rarity and appeal. </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"> Rarity is more difficult for the last century's products as mass production allows companies to (over)fill demand without incurring an extra cost. Beanie Babies have devalued as more and more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/product-line.asp">product lines</a> are introduced. It is profitable for a company to sell as many products as possible to meet demand—and that mentality eliminates the chance for a future collector's profits. </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"> Appeal is difficult to nail down. To make money at collecting, you have to predict what will become popular in retrospect—perhaps the objects aren't in high demand today but will become more popular in the future, either because they are rare or they're not fully appreciated yet. For example, in the 1950s and 1960s, wing-tipped plastic sunglasses with glass lenses were sold for a few dollars in drugstores, but they can now fetch hundreds of dollars in collectors' markets. </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"> Reasons Not To Buy Collectibles </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Just like everything else, there are inherent risks with buying collectibles. Some are fairly common, while others aren't so obvious. Here's a list of some of the reasons you may hesitate before handing your hard-earned money over for a collectible. </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"> Markups </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> When you buy a collectible from a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dealer.asp">dealer</a>, they usually mark up the price to make a profit. Unlike collectors, dealers do not have the luxury of holding an item for years while the value increases—they have sales to make and a business to run. </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"> Maintenance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> A collectible doesn't produce income while you hold it; it may actually eat into your other income as you wait for it to increase in value. Collectors incur plenty of different costs before they sell an item. </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"> Many collectibles require special care to keep them in mint condition. These can range in cost from the $1 plastic cover used to keep hockey cards safe to a special room with moisture, heat, and light monitors to extend a painting's life. On top of storage costs, there are the added costs of buying insurance for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-insure-wine-7970439">the more valuable types of collectibles</a>, as well as paying to have professionals, appraisers, restorers, and dealers look at the collectible before you sell it. </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"> Wear and Tear </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Most collectibles—from Pokemon cards to antique plumbing fixtures—have a manual classifying how much they're worth given the type of condition they're in. For example, a well-read copy of "The Amazing Spider-Man #1" may only be worth 30% to 60% of its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/list-price.asp">list price</a>, depending on the type and degree of wear it shows. </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"> Counterfeiting </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Most museums display models of dinosaur fossils, not the real thing. Can you tell the difference between an Allosaurus skull made of plaster and cement versus fossilized bone? No matter how experienced the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appraiser.asp">appraiser</a>, forgeries do make it to dealers, then to the market of collectors. This could leave you holding a very expensive piece of criminal art. </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"> Low Returns </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Collectibles tend to have lower returns than a stock market index fund, a money market account, and most bond funds. If you took an average of the returns on all collectibles—which is practically impossible to do given some have little or no market to measure—it would be dismal compared with the S&amp;P 500. Even if you took diamonds and stamps—the collectibles with the best returns—you would still find a sizable gap. A generous estimate is that stamps return 5% to 10%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <span class="heading-toc" id="toc-reasons-to-buy-collectibles"></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"> Reasons to Buy Collectibles </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Sure, there may be many reasons not to buy collectibles. You won't necessarily make a good return on your item and there's no guarantee that anyone will actually be interested in the same thing you are. It may seem the only reason to buy them is for your own interest. But that doesn't mean you should avoid them altogether. </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"> Remember, people don't invest in collectibles, they spend money on them. If they are lucky, they can sell that same object in the future and beat inflation for the period during which they owned it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <span class="heading-toc" id="toc-tips-on-buying-and-selling-collectibles"></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"> Tips on Buying and Selling Collectibles </span> </h2> <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"> Keep Heirlooms </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> It may smell like cats and tobacco, but you never know what people will pay for an old snuffbox. If you have inherited antiques or collectibles from relatives, check around and see whether they are worth something before you throw them away. The profit margin goes way up when you pay nothing for a collectible. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_62-0"> <span class="mntl-sc-block-subheading__text"> Compare and Call </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> If you have your eye on a collectible, take the time to call other dealers and price out similar items. Yes, there will always be “two interested buyers” coming back the next day, but you should not make snap decisions under pressure from the dealer. The best method is to browse the store and call the dealer when you get home. You’ll think more clearly and have fewer regrets in the end. If possible, purchase from other collectors (better yet, trade). They will be less likely to markup items because they will assume you have the same pricing guide they do. </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"> Ask for a Written Guarantee </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> If a collectible is really an “unbelievable buy” with “several interested buyers,” ask the seller to write a buyback guarantee for an agreed period of time. After all, the dealer can buy it back at the same price and then sell it again to all those interested buyers banging on the windows. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-subheading__text"> Do Your Own Research </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> Pick up <em>Kovels' Guide To Selling, Buying, and Fixing Your Antiques and Collectibles</em> (or any of the other guides written by Ralph and Terry Kovel) or another collectibles publication and read up on the items you want. The literature will show you the pricing guides as well as how to care for your collectibles and what kind of markets to buy and sell them in. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_71-0"> <span class="mntl-sc-block-subheading__text"> Consider Collectibles Insurance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Keeping in mind the risks associated with owning valuable items, it may be worthwhile to purchase <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-collectibles-insurance-5101072">collectibles insurance</a>. These policies protect your collection from potential mishaps such as accidental breakage, theft, flood, and other types of loss. While this type of protection may be essential for owners of priceless items, your collection does not need to be worth millions to be worth insuring. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_74-0"><span class="heading-toc" id="toc-are-collectibles-a-reliable-investment-compared-with-traditional-investments-like-stocks-and-bonds"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Collectibles a Reliable Investment compared with Traditional Investments Like Stocks and Bonds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Collectibles are considered alternative investments and are generally less reliable as investments than stocks or bonds, though, of course, it depends on the stocks or bonds in question. Their value can be more subjective and can fluctuate based on trends in collector interest. In addition, they don't typically generate passive income and frequently incur maintenance costs.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_76-0"><span class="heading-toc" id="toc-what-should-i-consider-before-investing-in-collectibles"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Should I Consider Before Investing in Collectibles?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Potential collectors should consider the maintenance costs, the need for proper insurance and securing the items (if applicable), the risk of counterfeits, and the potential for lower returns than other investments. You should research the market in the collectibles category that interests you and have a personal interest that will reward you in case the market doesn't.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_78-0"><span class="heading-toc" id="toc-what-are-the-most-valuable-collectibles"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Most Valuable Collectibles?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The most valuable collectibles include rare artworks, vintage cars, antique furniture, historical memorabilia, and first-edition books. In terms of categories, the Honus Wagner baseball card, rare comic books like the first edition of “The Amazing Spider-Man,” and unique historical artifacts can fetch high prices. Their value depends on their historical significance, rarity, and condition.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_80-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> There are more reliable ways to hedge against inflation. A collectible is an illiquid, taxed investment that produces no income and can lose its value if you drop it. If you buy one, make sure it is one you will be happy to own forever rather than counting on some major sale in the future. </p></div>

If you have a lot of storage space, your attic and garage may be stuffed with old furniture, books, and other items you've held onto over the years. At first glance, it may just seem like nothing more than a pile of junk. But if you rummage through carefully, there may be a chance that you're sitting on a few valuable collectibles just waiting to make you money. ### Key Takeaways * Collectibles range from dinosaur fossils to comic books, each with unique factors affecting their worth. * The value of collectibles can often hinge on nostalgia and emotional appeal for the buyer rather than just monetary worth. * The future value of collectibles depends on their rarity and how appealing they are to future collectors based on trends. * Collectibles require proper maintenance and care to retain their value, usually requiring additional costs. * Having a keen eye for market trends and predicting how popular items will be in the future is essential for success in collectible investing. Collectibles are items worth far more than their original sale price and are considered [alternative investments](https://www.investopedia.com/terms/a/alternative_investment.asp)—vehicles that don't fall into any other category like stocks, bonds, cash, or real estate. Investing in this asset class can be rewarding and help you maximize your returns. But it helps to know some of the basics. This article looks at collectibles as an investment and helps you decide whether this emotional market is a good place to park your money. ### All Things Old Made New Again A collectible is anything that can be sold for more money than it was originally worth. These are items whose value increases over time. While they may be rare, some mass-produced items become collectibles—consider Beanie Babies when they first hit the market. Another trait collectibles have is that they pique the interest of collectors, like rare photographs and many works of art. To get the most return on a collectible, the owner must ensure it's in stellar condition. Trading cards, stamps, and comic books are just some of the most well-known collectibles around. Here are a few specific examples: ### 140,000,000 B.C. A young Allosaurus dinosaur gets itself mired in mud hidden beneath the underbrush. Millions of years later, an amateur paleontologist pulls it out—or at least what was left of its head. When it hits the market, the Allosaurus' restored skull sells for a few thousand dollars. ### 1908 Honus Wagner of the Pittsburgh Pirates hit his tenth home run—an incredible feat before Babe Ruth started the home run era—and ended the year with a .354 batting average, marking one of the best years of his career. The next year, the American Tobacco Company commemorated Wagner by putting a trading card inside its cigarette packages. Fewer than 60 made it into stores before the world found out that Honus was vehemently against smoking. In 2000, Wagner's cigarette trading card sold on eBay for $1.1 million. ### 1962 Stan Lee created a superhero who worried about paying his rent, his ailing aunt, and passing his next test at school—all in addition to saving the world. In 2021, a near-mint-condition copy of Spiderman's first appearance in a comic book sold at Heritage Auctions for $3.6 million. The comic book, Amazing Fantasy No. 15, sold for 12 cents in 1962, the year it was issued.  ## What Do Collectibles Have in Common? So, what do a fossil, a comic, and a baseball card have in common? Most people have no qualms about calling them collectibles. But when you speak about diamonds, gold, and other precious materials, people tend to call them investments. In theory, these materials—and even stocks—could be termed collectibles because their price is based more on what people are willing to pay for them, known as their [market value](https://www.investopedia.com/terms/m/marketvalue.asp), rather than their intrinsic value. This is the calculated or perceived value of the good. Precious metals and stocks all have an intrinsic value. For metals, this value is based on rarity. If you melt it, burn it, or bend it, you still have the same atomic substance in the end. For stocks, the value is produced by the underlying brick-and-mortar company that the share represents—a company that generates earnings to justify the prices you pay for its stock. What makes collectibles different is that even a little damage can erase all of a collectible's value. This is because a collectible's value is based on nostalgia and other emotional factors—which can be erratic. Collectibles in pristine condition are valued higher than those that aren't. So, the value of a baseball card that's scratched or torn up is much lower than one still in its original condition. ## The 20-Year Itch It's believed that nostalgia runs in 20-year cycles. That is, the things that are popular now will become collectibles in 20 years when people want to reconnect with their past. This doesn't mean you can buy the top 10 items from consumer polls, set them aside for 20 years, and then sell them for a fortune. If this were the case, every pack rat would be rich. So what's the take-away? Some items this year will become collectibles if they meet two conditions: rarity and appeal. Rarity is more difficult for the last century's products as mass production allows companies to (over)fill demand without incurring an extra cost. Beanie Babies have devalued as more and more [product lines](https://www.investopedia.com/terms/p/product-line.asp) are introduced. It is profitable for a company to sell as many products as possible to meet demand—and that mentality eliminates the chance for a future collector's profits. Appeal is difficult to nail down. To make money at collecting, you have to predict what will become popular in retrospect—perhaps the objects aren't in high demand today but will become more popular in the future, either because they are rare or they're not fully appreciated yet. For example, in the 1950s and 1960s, wing-tipped plastic sunglasses with glass lenses were sold for a few dollars in drugstores, but they can now fetch hundreds of dollars in collectors' markets. ### Reasons Not To Buy Collectibles Just like everything else, there are inherent risks with buying collectibles. Some are fairly common, while others aren't so obvious. Here's a list of some of the reasons you may hesitate before handing your hard-earned money over for a collectible. ### Markups When you buy a collectible from a [dealer](https://www.investopedia.com/terms/d/dealer.asp), they usually mark up the price to make a profit. Unlike collectors, dealers do not have the luxury of holding an item for years while the value increases—they have sales to make and a business to run. ### Maintenance A collectible doesn't produce income while you hold it; it may actually eat into your other income as you wait for it to increase in value. Collectors incur plenty of different costs before they sell an item. Many collectibles require special care to keep them in mint condition. These can range in cost from the $1 plastic cover used to keep hockey cards safe to a special room with moisture, heat, and light monitors to extend a painting's life. On top of storage costs, there are the added costs of buying insurance for [the more valuable types of collectibles](https://www.investopedia.com/how-to-insure-wine-7970439), as well as paying to have professionals, appraisers, restorers, and dealers look at the collectible before you sell it. ### Wear and Tear Most collectibles—from Pokemon cards to antique plumbing fixtures—have a manual classifying how much they're worth given the type of condition they're in. For example, a well-read copy of "The Amazing Spider-Man #1" may only be worth 30% to 60% of its [list price](https://www.investopedia.com/terms/l/list-price.asp), depending on the type and degree of wear it shows. ### Counterfeiting Most museums display models of dinosaur fossils, not the real thing. Can you tell the difference between an Allosaurus skull made of plaster and cement versus fossilized bone? No matter how experienced the [appraiser](https://www.investopedia.com/terms/a/appraiser.asp), forgeries do make it to dealers, then to the market of collectors. This could leave you holding a very expensive piece of criminal art. ### Low Returns Collectibles tend to have lower returns than a stock market index fund, a money market account, and most bond funds. If you took an average of the returns on all collectibles—which is practically impossible to do given some have little or no market to measure—it would be dismal compared with the S&P 500. Even if you took diamonds and stamps—the collectibles with the best returns—you would still find a sizable gap. A generous estimate is that stamps return 5% to 10%. ## Reasons to Buy Collectibles Sure, there may be many reasons not to buy collectibles. You won't necessarily make a good return on your item and there's no guarantee that anyone will actually be interested in the same thing you are. It may seem the only reason to buy them is for your own interest. But that doesn't mean you should avoid them altogether. Remember, people don't invest in collectibles, they spend money on them. If they are lucky, they can sell that same object in the future and beat inflation for the period during which they owned it. ## Tips on Buying and Selling Collectibles ### Keep Heirlooms It may smell like cats and tobacco, but you never know what people will pay for an old snuffbox. If you have inherited antiques or collectibles from relatives, check around and see whether they are worth something before you throw them away. The profit margin goes way up when you pay nothing for a collectible. ### Compare and Call If you have your eye on a collectible, take the time to call other dealers and price out similar items. Yes, there will always be “two interested buyers” coming back the next day, but you should not make snap decisions under pressure from the dealer. The best method is to browse the store and call the dealer when you get home. You’ll think more clearly and have fewer regrets in the end. If possible, purchase from other collectors (better yet, trade). They will be less likely to markup items because they will assume you have the same pricing guide they do. ### Ask for a Written Guarantee If a collectible is really an “unbelievable buy” with “several interested buyers,” ask the seller to write a buyback guarantee for an agreed period of time. After all, the dealer can buy it back at the same price and then sell it again to all those interested buyers banging on the windows. ### Do Your Own Research Pick up *Kovels' Guide To Selling, Buying, and Fixing Your Antiques and Collectibles* (or any of the other guides written by Ralph and Terry Kovel) or another collectibles publication and read up on the items you want. The literature will show you the pricing guides as well as how to care for your collectibles and what kind of markets to buy and sell them in. ### Consider Collectibles Insurance Keeping in mind the risks associated with owning valuable items, it may be worthwhile to purchase [collectibles insurance](https://www.investopedia.com/best-collectibles-insurance-5101072). These policies protect your collection from potential mishaps such as accidental breakage, theft, flood, and other types of loss. While this type of protection may be essential for owners of priceless items, your collection does not need to be worth millions to be worth insuring. ## Are Collectibles a Reliable Investment compared with Traditional Investments Like Stocks and Bonds? Collectibles are considered alternative investments and are generally less reliable as investments than stocks or bonds, though, of course, it depends on the stocks or bonds in question. Their value can be more subjective and can fluctuate based on trends in collector interest. In addition, they don't typically generate passive income and frequently incur maintenance costs. ## What Should I Consider Before Investing in Collectibles? Potential collectors should consider the maintenance costs, the need for proper insurance and securing the items (if applicable), the risk of counterfeits, and the potential for lower returns than other investments. You should research the market in the collectibles category that interests you and have a personal interest that will reward you in case the market doesn't. ## What Are the Most Valuable Collectibles? The most valuable collectibles include rare artworks, vintage cars, antique furniture, historical memorabilia, and first-edition books. In terms of categories, the Honus Wagner baseball card, rare comic books like the first edition of “The Amazing Spider-Man,” and unique historical artifacts can fetch high prices. Their value depends on their historical significance, rarity, and condition. ## The Bottom Line There are more reliable ways to hedge against inflation. A collectible is an illiquid, taxed investment that produces no income and can lose its value if you drop it. If you buy one, make sure it is one you will be happy to own forever rather than counting on some major sale in the future.

If you have a lot of storage space, your attic and garage may be stuffed with old furniture, books, and other items you've held onto over the years. At first glance, it may just seem like nothing more than a pile of junk. But if you rummage through carefully, there may be a chance that you're sitting on a few valuable collectibles just waiting to make you money. Key Takeaways Collectibles range from dinosaur fossils to comic books, each with unique factors affecting their worth.The value of collectibles can often hinge on nostalgia and emotional appeal for the buyer rather than just monetary worth.The future value of collectibles depends on their rarity and how appealing they are to future collectors based on trends.Collectibles require proper maintenance and care to retain their value, usually requiring additional costs.Having a keen eye for market trends and predicting how popular items will be in the future is essential for success in collectible investing. Collectibles are items worth far more than their original sale price and are considered alternative investments—vehicles that don't fall into any other category like stocks, bonds, cash, or real estate. Investing in this asset class can be rewarding and help you maximize your returns. But it helps to know some of the basics. This article looks at collectibles as an investment and helps you decide whether this emotional market is a good place to park your money. All Things Old Made New Again A collectible is anything that can be sold for more money than it was originally worth. These are items whose value increases over time. While they may be rare, some mass-produced items become collectibles—consider Beanie Babies when they first hit the market. Another trait collectibles have is that they pique the interest of collectors, like rare photographs and many works of art. To get the most return on a collectible, the owner must ensure it's in stellar condition. Trading cards, stamps, and comic books are just some of the most well-known collectibles around. Here are a few specific examples: 140,000,000 B.C. A young Allosaurus dinosaur gets itself mired in mud hidden beneath the underbrush. Millions of years later, an amateur paleontologist pulls it out—or at least what was left of its head. When it hits the market, the Allosaurus' restored skull sells for a few thousand dollars. 1908 Honus Wagner of the Pittsburgh Pirates hit his tenth home run—an incredible feat before Babe Ruth started the home run era—and ended the year with a .354 batting average, marking one of the best years of his career. The next year, the American Tobacco Company commemorated Wagner by putting a trading card inside its cigarette packages. Fewer than 60 made it into stores before the world found out that Honus was vehemently against smoking. In 2000, Wagner's cigarette trading card sold on eBay for $1.1 million. 1962 Stan Lee created a superhero who worried about paying his rent, his ailing aunt, and passing his next test at school—all in addition to saving the world. In 2021, a near-mint-condition copy of Spiderman's first appearance in a comic book sold at Heritage Auctions for $3.6 million. The comic book, Amazing Fantasy No. 15, sold for 12 cents in 1962, the year it was issued.  What Do Collectibles Have in Common? So, what do a fossil, a comic, and a baseball card have in common? Most people have no qualms about calling them collectibles. But when you speak about diamonds, gold, and other precious materials, people tend to call them investments. In theory, these materials—and even stocks—could be termed collectibles because their price is based more on what people are willing to pay for them, known as their market value, rather than their intrinsic value. This is the calculated or perceived value of the good. Precious metals and stocks all have an intrinsic value. For metals, this value is based on rarity. If you melt it, burn it, or bend it, you still have the same atomic substance in the end. For stocks, the value is produced by the underlying brick-and-mortar company that the share represents—a company that generates earnings to justify the prices you pay for its stock. What makes collectibles different is that even a little damage can erase all of a collectible's value. This is because a collectible's value is based on nostalgia and other emotional factors—which can be erratic. Collectibles in pristine condition are valued higher than those that aren't. So, the value of a baseball card that's scratched or torn up is much lower than one still in its original condition. The 20-Year Itch It's believed that nostalgia runs in 20-year cycles. That is, the things that are popular now will become collectibles in 20 years when people want to reconnect with their past. This doesn't mean you can buy the top 10 items from consumer polls, set them aside for 20 years, and then sell them for a fortune. If this were the case, every pack rat would be rich. So what's the take-away? Some items this year will become collectibles if they meet two conditions: rarity and appeal. Rarity is more difficult for the last century's products as mass production allows companies to (over)fill demand without incurring an extra cost. Beanie Babies have devalued as more and more product lines are introduced. It is profitable for a company to sell as many products as possible to meet demand—and that mentality eliminates the chance for a future collector's profits. Appeal is difficult to nail down. To make money at collecting, you have to predict what will become popular in retrospect—perhaps the objects aren't in high demand today but will become more popular in the future, either because they are rare or they're not fully appreciated yet. For example, in the 1950s and 1960s, wing-tipped plastic sunglasses with glass lenses were sold for a few dollars in drugstores, but they can now fetch hundreds of dollars in collectors' markets. Reasons Not To Buy Collectibles Just like everything else, there are inherent risks with buying collectibles. Some are fairly common, while others aren't so obvious. Here's a list of some of the reasons you may hesitate before handing your hard-earned money over for a collectible. Markups When you buy a collectible from a dealer, they usually mark up the price to make a profit. Unlike collectors, dealers do not have the luxury of holding an item for years while the value increases—they have sales to make and a business to run. Maintenance A collectible doesn't produce income while you hold it; it may actually eat into your other income as you wait for it to increase in value. Collectors incur plenty of different costs before they sell an item. Many collectibles require special care to keep them in mint condition. These can range in cost from the $1 plastic cover used to keep hockey cards safe to a special room with moisture, heat, and light monitors to extend a painting's life. On top of storage costs, there are the added costs of buying insurance for the more valuable types of collectibles, as well as paying to have professionals, appraisers, restorers, and dealers look at the collectible before you sell it. Wear and Tear Most collectibles—from Pokemon cards to antique plumbing fixtures—have a manual classifying how much they're worth given the type of condition they're in. For example, a well-read copy of "The Amazing Spider-Man #1" may only be worth 30% to 60% of its list price, depending on the type and degree of wear it shows. Counterfeiting Most museums display models of dinosaur fossils, not the real thing. Can you tell the difference between an Allosaurus skull made of plaster and cement versus fossilized bone? No matter how experienced the appraiser, forgeries do make it to dealers, then to the market of collectors. This could leave you holding a very expensive piece of criminal art. Low Returns Collectibles tend to have lower returns than a stock market index fund, a money market account, and most bond funds. If you took an average of the returns on all collectibles—which is practically impossible to do given some have little or no market to measure—it would be dismal compared with the S&P 500. Even if you took diamonds and stamps—the collectibles with the best returns—you would still find a sizable gap. A generous estimate is that stamps return 5% to 10%. Reasons to Buy Collectibles Sure, there may be many reasons not to buy collectibles. You won't necessarily make a good return on your item and there's no guarantee that anyone will actually be interested in the same thing you are. It may seem the only reason to buy them is for your own interest. But that doesn't mean you should avoid them altogether. Remember, people don't invest in collectibles, they spend money on them. If they are lucky, they can sell that same object in the future and beat inflation for the period during which they owned it. Tips on Buying and Selling Collectibles Keep Heirlooms It may smell like cats and tobacco, but you never know what people will pay for an old snuffbox. If you have inherited antiques or collectibles from relatives, check around and see whether they are worth something before you throw them away. The profit margin goes way up when you pay nothing for a collectible. Compare and Call If you have your eye on a collectible, take the time to call other dealers and price out similar items. Yes, there will always be “two interested buyers” coming back the next day, but you should not make snap decisions under pressure from the dealer. The best method is to browse the store and call the dealer when you get home. You’ll think more clearly and have fewer regrets in the end. If possible, purchase from other collectors (better yet, trade). They will be less likely to markup items because they will assume you have the same pricing guide they do. Ask for a Written Guarantee If a collectible is really an “unbelievable buy” with “several interested buyers,” ask the seller to write a buyback guarantee for an agreed period of time. After all, the dealer can buy it back at the same price and then sell it again to all those interested buyers banging on the windows. Do Your Own Research Pick up Kovels' Guide To Selling, Buying, and Fixing Your Antiques and Collectibles (or any of the other guides written by Ralph and Terry Kovel) or another collectibles publication and read up on the items you want. The literature will show you the pricing guides as well as how to care for your collectibles and what kind of markets to buy and sell them in. Consider Collectibles Insurance Keeping in mind the risks associated with owning valuable items, it may be worthwhile to purchase collectibles insurance. These policies protect your collection from potential mishaps such as accidental breakage, theft, flood, and other types of loss. While this type of protection may be essential for owners of priceless items, your collection does not need to be worth millions to be worth insuring. Are Collectibles a Reliable Investment compared with Traditional Investments Like Stocks and Bonds? Collectibles are considered alternative investments and are generally less reliable as investments than stocks or bonds, though, of course, it depends on the stocks or bonds in question. Their value can be more subjective and can fluctuate based on trends in collector interest. In addition, they don't typically generate passive income and frequently incur maintenance costs. What Should I Consider Before Investing in Collectibles? Potential collectors should consider the maintenance costs, the need for proper insurance and securing the items (if applicable), the risk of counterfeits, and the potential for lower returns than other investments. You should research the market in the collectibles category that interests you and have a personal interest that will reward you in case the market doesn't. What Are the Most Valuable Collectibles? The most valuable collectibles include rare artworks, vintage cars, antique furniture, historical memorabilia, and first-edition books. In terms of categories, the Honus Wagner baseball card, rare comic books like the first edition of “The Amazing Spider-Man,” and unique historical artifacts can fetch high prices. Their value depends on their historical significance, rarity, and condition. The Bottom Line There are more reliable ways to hedge against inflation. A collectible is an illiquid, taxed investment that produces no income and can lose its value if you drop it. If you buy one, make sure it is one you will be happy to own forever rather than counting on some major sale in the future.

https://www.investopedia.com/terms/f/franc-f.asp

French Franc (F): What it was, History, 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-french-franc-f"></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 French Franc (F)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The French franc (F) was the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/national-currency.asp" rel="noopener noreferrer">national currency</a> of France prior to France’s adoption of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/euro.asp" rel="noopener noreferrer">euro (EUR)</a> in January 2002. Prior to its replacement by the EUR, the franc was administered by the Bank of France and was comprised of 100 subunits, or ‘centimes.’ </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 franc was available in coin denominations of 1, 5, 10, and 20 centimes; and in 0.5, 1, 2, 5, 10, and 20 francs. Its banknotes were available in denominations of 20, 50, 100, 200, and 500 francs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The French franc was the national currency of France prior to its adoption of the euro.</li><li>The franc has a long history dating back more than 600 years.</li><li>France had been a long-standing advocate of European monetary integration prior to the adoption of the euro in 2002.</li></ul></div></div></div> <span class="heading-toc" id="toc-history-of-the-french-franc-f"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> History of the French Franc (F) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The history of the French franc begins in 1360, following the capture of King John II by England during the Battle of Poitiers—a seminal battle of the Hundred Years' War. In order to afford his ransom, France was forced to mint new gold coins. One franc coin contained the image of King John II free from captivity on horseback, while another coin showed him free on foot. The French phrases for these two images, “<em>franc à cheval</em>” and “<em>franc à pied</em>," caught on. Soon, users of the coins referred to them simply as "francs."<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"> The French Revolution was a time of major political and economic upheaval, in which changes to the national currency were introduced on numerous occasions. One such change was the creation of a new gold franc in 1803, containing 290.32 mg of gold. This was the first gold coin to be denominated in francs, and it depicted Napoleon Bonaparte as Emperor of France. This new coin, and the several iterations which followed them, were popularly known as “Gold Napoleons” and were widely praised for their status as sound money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> As the French economy <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/industrialization.asp">industrialized</a> throughout the 19th century, the franc grew to become a significant international currency. In 1865, France was a founding member of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency-union.asp">Latin Monetary Union</a>, an early attempt to unite European economies under one currency. The union was first based on a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bimetallic.asp">bimetallic standard</a> but later switched to a standard based <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/09/gold-standard.asp">solely on gold</a>. Following World War II, France continued its advocacy for further integration of European currencies. </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"> Before the euro was introduced, francs were either part of the monetary system or accepted as legal tender in several European countries other than France. These included Belgium, Luxembourg, Andorra, Monaco. It was also used in some countries that were colonized by France, such as Algeria and Cambodia. </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 1992, the French public approved the passage of the Maastricht Treaty, which serves as the basis for the European Union and the implementation of the euro. This approval put the country on the path to establishing the euro. On Jan. 1, 2002, France finalized its adoption of the euro, following a three-year transitional period during which both the franc and the euro were treated as legal tender.<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> <span class="heading-toc" id="toc-value-of-the-french-franc-vs-the-euro"></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"> Value of the French Franc vs. the Euro </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The franc saw its value decline precipitously in the roughly 100-year period prior to the adoption of the euro. This was due in large part to the two World Wars, which required France to bear significant wartime spending. This inflationary pressure, combined with the severe destruction of property caused by the fighting, contributed to a persistent downward slide in the value of the franc during the first half of the 20th century. Although its value stabilized briefly during the 1930s, the outbreak of World War II led to further erosion 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>. </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 contrast to this turbulent history, the euro has been relatively stable since its adoption by France in 2002. Between 2002 and 2022, the euro has seen its value range from 0.68 euros per <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/u/usd-united-states-dollar.asp">U.S. dollar (USD)</a> to $1.058 euros per USD.<span class="ql-inline-citation" data-cite="6"></span> France’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gdp.asp">gross domestic product (GDP)</a> grew by an average of about 1.09% per year from 2002 to 2021, though the variation in GDP ranged from -7.8% to 6.8%.<span class="ql-inline-citation" data-cite="7"></span> During the same time period, inflation held steady at an average of 1.41% per year, ranging only from 0% to 2.8%.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Economic disruption caused by the coronavirus pandemic contributed to outliers in France's GDP growth, ranging from -7.8% in 2020 to 6.8% in 2021. Before the pandemic, GDP was more consistent, ranging from only -2.9% in 2009 to 2.8% in 2004.</p></div></div></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-are-francs-divided-up"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Are Francs Divided Up?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One franc is typically divided up into 100 centimes</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-do-any-countries-still-use-the-franc"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Any Countries Still Use the Franc?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chf.asp">Swiss franc</a> is a major world currency due to the prominence of Swiss banking institutions in the global economy. Other countries that use francs include Liechtenstein and many Francophone countries in Africa.</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-can-i-still-exchange-francs-for-euros"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Still Exchange Francs for Euros?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The French franc stopped being legal tender on February 18, 2002. It was still possible to exchange francs at French banks up through February 17, 2012. French banks no longer exchange francs for euros. However, French franc coins and banknotes still have value to collectors, who may be willing to purchase them at varying price points.<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_31-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The French franc (F) was the national currency of France until the country adopted the euro as its currency in 2002. Before that, the franc had a long history that spanned more than 600 years, since its first use in 1360. </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"> France was a long-time supporter of monetary integration in the European Union, even before it adopted the euro. The euro has been a relatively stable currency since France began using it, with both inflation and GDP rising steadily over time.<br/> </p></div>

## What Is the French Franc (F)? The French franc (F) was the [national currency](https://www.investopedia.com/terms/n/national-currency.asp) of France prior to France’s adoption of the [euro (EUR)](https://www.investopedia.com/terms/e/euro.asp) in January 2002. Prior to its replacement by the EUR, the franc was administered by the Bank of France and was comprised of 100 subunits, or ‘centimes.’ The franc was available in coin denominations of 1, 5, 10, and 20 centimes; and in 0.5, 1, 2, 5, 10, and 20 francs. Its banknotes were available in denominations of 20, 50, 100, 200, and 500 francs. ### Key Takeaways * The French franc was the national currency of France prior to its adoption of the euro. * The franc has a long history dating back more than 600 years. * France had been a long-standing advocate of European monetary integration prior to the adoption of the euro in 2002. ## History of the French Franc (F) The history of the French franc begins in 1360, following the capture of King John II by England during the Battle of Poitiers—a seminal battle of the Hundred Years' War. In order to afford his ransom, France was forced to mint new gold coins. One franc coin contained the image of King John II free from captivity on horseback, while another coin showed him free on foot. The French phrases for these two images, “*franc à cheval*” and “*franc à pied*," caught on. Soon, users of the coins referred to them simply as "francs." The French Revolution was a time of major political and economic upheaval, in which changes to the national currency were introduced on numerous occasions. One such change was the creation of a new gold franc in 1803, containing 290.32 mg of gold. This was the first gold coin to be denominated in francs, and it depicted Napoleon Bonaparte as Emperor of France. This new coin, and the several iterations which followed them, were popularly known as “Gold Napoleons” and were widely praised for their status as sound money. As the French economy [industrialized](https://www.investopedia.com/terms/i/industrialization.asp) throughout the 19th century, the franc grew to become a significant international currency. In 1865, France was a founding member of the [Latin Monetary Union](https://www.investopedia.com/terms/c/currency-union.asp), an early attempt to unite European economies under one currency. The union was first based on a [bimetallic standard](https://www.investopedia.com/terms/b/bimetallic.asp) but later switched to a standard based [solely on gold](https://www.investopedia.com/ask/answers/09/gold-standard.asp). Following World War II, France continued its advocacy for further integration of European currencies. Before the euro was introduced, francs were either part of the monetary system or accepted as legal tender in several European countries other than France. These included Belgium, Luxembourg, Andorra, Monaco. It was also used in some countries that were colonized by France, such as Algeria and Cambodia. In 1992, the French public approved the passage of the Maastricht Treaty, which serves as the basis for the European Union and the implementation of the euro. This approval put the country on the path to establishing the euro. On Jan. 1, 2002, France finalized its adoption of the euro, following a three-year transitional period during which both the franc and the euro were treated as legal tender. ## Value of the French Franc vs. the Euro The franc saw its value decline precipitously in the roughly 100-year period prior to the adoption of the euro. This was due in large part to the two World Wars, which required France to bear significant wartime spending. This inflationary pressure, combined with the severe destruction of property caused by the fighting, contributed to a persistent downward slide in the value of the franc during the first half of the 20th century. Although its value stabilized briefly during the 1930s, the outbreak of World War II led to further erosion of [purchasing power](https://www.investopedia.com/terms/p/purchasingpower.asp). In contrast to this turbulent history, the euro has been relatively stable since its adoption by France in 2002. Between 2002 and 2022, the euro has seen its value range from 0.68 euros per [U.S. dollar (USD)](https://www.investopedia.com/terms/forex/u/usd-united-states-dollar.asp) to $1.058 euros per USD. France’s [gross domestic product (GDP)](https://www.investopedia.com/terms/g/gdp.asp) grew by an average of about 1.09% per year from 2002 to 2021, though the variation in GDP ranged from -7.8% to 6.8%. During the same time period, inflation held steady at an average of 1.41% per year, ranging only from 0% to 2.8%. ### Economic disruption caused by the coronavirus pandemic contributed to outliers in France's GDP growth, ranging from -7.8% in 2020 to 6.8% in 2021. Before the pandemic, GDP was more consistent, ranging from only -2.9% in 2009 to 2.8% in 2004. ## How Are Francs Divided Up? One franc is typically divided up into 100 centimes ## Do Any Countries Still Use the Franc? The [Swiss franc](https://www.investopedia.com/terms/c/chf.asp) is a major world currency due to the prominence of Swiss banking institutions in the global economy. Other countries that use francs include Liechtenstein and many Francophone countries in Africa. ## Can I Still Exchange Francs for Euros? The French franc stopped being legal tender on February 18, 2002. It was still possible to exchange francs at French banks up through February 17, 2012. French banks no longer exchange francs for euros. However, French franc coins and banknotes still have value to collectors, who may be willing to purchase them at varying price points. ## The Bottom Line The French franc (F) was the national currency of France until the country adopted the euro as its currency in 2002. Before that, the franc had a long history that spanned more than 600 years, since its first use in 1360. France was a long-time supporter of monetary integration in the European Union, even before it adopted the euro. The euro has been a relatively stable currency since France began using it, with both inflation and GDP rising steadily over time.

What Is the French Franc (F)? The French franc (F) was the national currency of France prior to France’s adoption of the euro (EUR) in January 2002. Prior to its replacement by the EUR, the franc was administered by the Bank of France and was comprised of 100 subunits, or ‘centimes.’ The franc was available in coin denominations of 1, 5, 10, and 20 centimes; and in 0.5, 1, 2, 5, 10, and 20 francs. Its banknotes were available in denominations of 20, 50, 100, 200, and 500 francs. Key Takeaways The French franc was the national currency of France prior to its adoption of the euro.The franc has a long history dating back more than 600 years.France had been a long-standing advocate of European monetary integration prior to the adoption of the euro in 2002. History of the French Franc (F) The history of the French franc begins in 1360, following the capture of King John II by England during the Battle of Poitiers—a seminal battle of the Hundred Years' War. In order to afford his ransom, France was forced to mint new gold coins. One franc coin contained the image of King John II free from captivity on horseback, while another coin showed him free on foot. The French phrases for these two images, “franc à cheval” and “franc à pied," caught on. Soon, users of the coins referred to them simply as "francs." The French Revolution was a time of major political and economic upheaval, in which changes to the national currency were introduced on numerous occasions. One such change was the creation of a new gold franc in 1803, containing 290.32 mg of gold. This was the first gold coin to be denominated in francs, and it depicted Napoleon Bonaparte as Emperor of France. This new coin, and the several iterations which followed them, were popularly known as “Gold Napoleons” and were widely praised for their status as sound money. As the French economy industrialized throughout the 19th century, the franc grew to become a significant international currency. In 1865, France was a founding member of the Latin Monetary Union, an early attempt to unite European economies under one currency. The union was first based on a bimetallic standard but later switched to a standard based solely on gold. Following World War II, France continued its advocacy for further integration of European currencies. Before the euro was introduced, francs were either part of the monetary system or accepted as legal tender in several European countries other than France. These included Belgium, Luxembourg, Andorra, Monaco. It was also used in some countries that were colonized by France, such as Algeria and Cambodia. In 1992, the French public approved the passage of the Maastricht Treaty, which serves as the basis for the European Union and the implementation of the euro. This approval put the country on the path to establishing the euro. On Jan. 1, 2002, France finalized its adoption of the euro, following a three-year transitional period during which both the franc and the euro were treated as legal tender. Value of the French Franc vs. the Euro The franc saw its value decline precipitously in the roughly 100-year period prior to the adoption of the euro. This was due in large part to the two World Wars, which required France to bear significant wartime spending. This inflationary pressure, combined with the severe destruction of property caused by the fighting, contributed to a persistent downward slide in the value of the franc during the first half of the 20th century. Although its value stabilized briefly during the 1930s, the outbreak of World War II led to further erosion of purchasing power. In contrast to this turbulent history, the euro has been relatively stable since its adoption by France in 2002. Between 2002 and 2022, the euro has seen its value range from 0.68 euros per U.S. dollar (USD) to $1.058 euros per USD. France’s gross domestic product (GDP) grew by an average of about 1.09% per year from 2002 to 2021, though the variation in GDP ranged from -7.8% to 6.8%. During the same time period, inflation held steady at an average of 1.41% per year, ranging only from 0% to 2.8%. Economic disruption caused by the coronavirus pandemic contributed to outliers in France's GDP growth, ranging from -7.8% in 2020 to 6.8% in 2021. Before the pandemic, GDP was more consistent, ranging from only -2.9% in 2009 to 2.8% in 2004. How Are Francs Divided Up? One franc is typically divided up into 100 centimes Do Any Countries Still Use the Franc? The Swiss franc is a major world currency due to the prominence of Swiss banking institutions in the global economy. Other countries that use francs include Liechtenstein and many Francophone countries in Africa. Can I Still Exchange Francs for Euros? The French franc stopped being legal tender on February 18, 2002. It was still possible to exchange francs at French banks up through February 17, 2012. French banks no longer exchange francs for euros. However, French franc coins and banknotes still have value to collectors, who may be willing to purchase them at varying price points. The Bottom Line The French franc (F) was the national currency of France until the country adopted the euro as its currency in 2002. Before that, the franc had a long history that spanned more than 600 years, since its first use in 1360. France was a long-time supporter of monetary integration in the European Union, even before it adopted the euro. The euro has been a relatively stable currency since France began using it, with both inflation and GDP rising steadily over time.

https://www.investopedia.com/ask/answers/100214/can-you-buy-shares-dow-jones-industrial-average-djia.asp

Can You Buy Shares in the Dow Jones Industrial Average (DJIA)?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp">Dow Jones Industrial Average (DJIA)</a> is an index reflecting the average price of the 30 stocks included in the measurement. Therefore, as it is simply a calculated average, you cannot invest in the index itself.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> However, there are certain <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment-product.asp">investment products</a> available that yield similar results to the performance of the index. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>The Dow Jones Industrial Average (DJIA) is one of the largest stock indexes in the world; it represents the average price of the 30 big blue-chip stocks it includes.</li> <li>Because the DJIA is a measure and not a purchasable vehicle itself, it is not possible to own shares of it directly; rather, buying into it involves buying other investment vehicles that track it or its components.</li> <li>An investor can buy shares of the 30 individual stocks in the index, or buy index funds or ETFs that track the index; another strategy is to buy the so-called "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dogsofthedow.asp">Dogs of the Dow</a>," the 10 highest-yielding stocks on the index.</li> </ul></div></div></div> <span class="heading-toc" id="toc-individual-stocks-etfs-and-index-funds"></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"> Individual Stocks, ETFs and Index Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> You can purchase shares in each of the 30 companies currently included in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/who-or-what-is-dow-jones/">Dow Jones Industrial Average</a>. While seemingly simple, this can be costly, with the price per share over $100 for many of the component companies. Then, you need to sell companies as they are dropped from the index and buy the replacement companies, as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/what-moves-the-djia/">the Dow Jones changes periodically</a>. For most investors, this is not a plausible way to invest. </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"> Instead, look for <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> linked to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/10/introduction-to-the-dow.asp">Dow Jones</a> or exchange-traded funds (ETFs) that track the index. Investing in these funds requires a far smaller initial cash outlay while offering performance that mirrors that of the Dow Jones. </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"> For example, the SPDR Dow Jones Industrial Average ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=dia">DIA</a>), trades at roughly 1/100 of the Dow Jones index price. Your investment moves at a nearly identical percentage with the index, up or down.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="4"></span> Some funds even offer the opportunity to play the Dow Jones in a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bearmarket.asp">bear market</a>, like ProShares Short Dow 30 ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=dog">DOG</a>). This fund moves in the opposite direction from the Dow Jones, so in a bear market, you can buy shares of DOG and see your share value increase as the Dow Jones falls.<span class="ql-inline-citation" data-cite="5"></span> No matter which you choose for your portfolio, and regardless of the time in the market, these funds make owning a piece of the Dow Jones Industrial Average performance attainable. </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-advisorinsight" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_13-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Advisor Insight</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/russell-wayne-4692614">Russell Wayne, CFP®</a><br/>Sound Asset Management Inc., <em>Weston, CT</em></p> <p>You cannot buy shares in the Dow Jones Industrial Average (DJIA), but you can buy an exchange-traded fund that tracks the index and holds all 30 of the stocks in proportion to their weights in the DJIA.</p> <p>An interesting variation of this strategy is an ETF that follows the “Dogs of the Dow” strategy by concentrating on only the 10 highest-yielding stocks on the index, which are typically the most reasonably priced. Historically, this strategy has delivered impressive returns over time, but there have also been multi-year periods where it generated disappointing performance.</p> <p>Another ETF uses leverage (borrowing) to provide twice the daily performance of the DJIA, although this is very risky as it also has the possibility of yielding twice the loss.</p></div></div></div></div>

The [Dow Jones Industrial Average (DJIA)](https://www.investopedia.com/terms/d/djia.asp) is an index reflecting the average price of the 30 stocks included in the measurement. Therefore, as it is simply a calculated average, you cannot invest in the index itself. However, there are certain [investment products](https://www.investopedia.com/terms/i/investment-product.asp) available that yield similar results to the performance of the index. ### Key Takeaways * The Dow Jones Industrial Average (DJIA) is one of the largest stock indexes in the world; it represents the average price of the 30 big blue-chip stocks it includes. * Because the DJIA is a measure and not a purchasable vehicle itself, it is not possible to own shares of it directly; rather, buying into it involves buying other investment vehicles that track it or its components. * An investor can buy shares of the 30 individual stocks in the index, or buy index funds or ETFs that track the index; another strategy is to buy the so-called "[Dogs of the Dow](https://www.investopedia.com/terms/d/dogsofthedow.asp)," the 10 highest-yielding stocks on the index. ## Individual Stocks, ETFs and Index Funds You can purchase shares in each of the 30 companies currently included in the [Dow Jones Industrial Average](https://www.investopedia.com/ask/answers/who-or-what-is-dow-jones/). While seemingly simple, this can be costly, with the price per share over $100 for many of the component companies. Then, you need to sell companies as they are dropped from the index and buy the replacement companies, as [the Dow Jones changes periodically](https://www.investopedia.com/investing/what-moves-the-djia/). For most investors, this is not a plausible way to invest. Instead, look for [index funds](https://www.investopedia.com/terms/i/indexfund.asp) linked to the [Dow Jones](https://www.investopedia.com/articles/financial-theory/10/introduction-to-the-dow.asp) or exchange-traded funds (ETFs) that track the index. Investing in these funds requires a far smaller initial cash outlay while offering performance that mirrors that of the Dow Jones. For example, the SPDR Dow Jones Industrial Average ETF ([DIA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=dia)), trades at roughly 1/100 of the Dow Jones index price. Your investment moves at a nearly identical percentage with the index, up or down. Some funds even offer the opportunity to play the Dow Jones in a [bear market](https://www.investopedia.com/terms/b/bearmarket.asp), like ProShares Short Dow 30 ETF ([DOG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=dog)). This fund moves in the opposite direction from the Dow Jones, so in a bear market, you can buy shares of DOG and see your share value increase as the Dow Jones falls. No matter which you choose for your portfolio, and regardless of the time in the market, these funds make owning a piece of the Dow Jones Industrial Average performance attainable. ### Advisor Insight [Russell Wayne, CFP®](https://www.investopedia.com/russell-wayne-4692614) Sound Asset Management Inc., *Weston, CT* You cannot buy shares in the Dow Jones Industrial Average (DJIA), but you can buy an exchange-traded fund that tracks the index and holds all 30 of the stocks in proportion to their weights in the DJIA. An interesting variation of this strategy is an ETF that follows the “Dogs of the Dow” strategy by concentrating on only the 10 highest-yielding stocks on the index, which are typically the most reasonably priced. Historically, this strategy has delivered impressive returns over time, but there have also been multi-year periods where it generated disappointing performance. Another ETF uses leverage (borrowing) to provide twice the daily performance of the DJIA, although this is very risky as it also has the possibility of yielding twice the loss.

The Dow Jones Industrial Average (DJIA) is an index reflecting the average price of the 30 stocks included in the measurement. Therefore, as it is simply a calculated average, you cannot invest in the index itself. However, there are certain investment products available that yield similar results to the performance of the index. Key Takeaways The Dow Jones Industrial Average (DJIA) is one of the largest stock indexes in the world; it represents the average price of the 30 big blue-chip stocks it includes. Because the DJIA is a measure and not a purchasable vehicle itself, it is not possible to own shares of it directly; rather, buying into it involves buying other investment vehicles that track it or its components. An investor can buy shares of the 30 individual stocks in the index, or buy index funds or ETFs that track the index; another strategy is to buy the so-called "Dogs of the Dow," the 10 highest-yielding stocks on the index. Individual Stocks, ETFs and Index Funds You can purchase shares in each of the 30 companies currently included in the Dow Jones Industrial Average. While seemingly simple, this can be costly, with the price per share over $100 for many of the component companies. Then, you need to sell companies as they are dropped from the index and buy the replacement companies, as the Dow Jones changes periodically. For most investors, this is not a plausible way to invest. Instead, look for index funds linked to the Dow Jones or exchange-traded funds (ETFs) that track the index. Investing in these funds requires a far smaller initial cash outlay while offering performance that mirrors that of the Dow Jones. For example, the SPDR Dow Jones Industrial Average ETF (DIA), trades at roughly 1/100 of the Dow Jones index price. Your investment moves at a nearly identical percentage with the index, up or down. Some funds even offer the opportunity to play the Dow Jones in a bear market, like ProShares Short Dow 30 ETF (DOG). This fund moves in the opposite direction from the Dow Jones, so in a bear market, you can buy shares of DOG and see your share value increase as the Dow Jones falls. No matter which you choose for your portfolio, and regardless of the time in the market, these funds make owning a piece of the Dow Jones Industrial Average performance attainable. Advisor Insight Russell Wayne, CFP®Sound Asset Management Inc., Weston, CT You cannot buy shares in the Dow Jones Industrial Average (DJIA), but you can buy an exchange-traded fund that tracks the index and holds all 30 of the stocks in proportion to their weights in the DJIA. An interesting variation of this strategy is an ETF that follows the “Dogs of the Dow” strategy by concentrating on only the 10 highest-yielding stocks on the index, which are typically the most reasonably priced. Historically, this strategy has delivered impressive returns over time, but there have also been multi-year periods where it generated disappointing performance. Another ETF uses leverage (borrowing) to provide twice the daily performance of the DJIA, although this is very risky as it also has the possibility of yielding twice the loss.

https://www.investopedia.com/dow-jones-today-may-18-2023-7500172

Dow Jones Today: Intel Pushes Index Higher

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><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>Dow climbs 0.3%, notching its second straight day of gains.</li><li>Investors reward Intel after it lays out plans to gain market share.</li><li>Cisco and Walmart rise on earnings reports.</li><li>Walgreens Boots Alliance falls on opioid settlement and Procter &amp; Gamble drops on analyst downgrade. </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 Jones Industrial Average rallied to finish higher by 0.3%, or 115 points, after earlier falling almost 150 points in intraday trading, fueled partly by optimism that U.S. lawmakers will resolve the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/past-debt-limit-standoffs-ended-without-a-default-7499763">debt ceiling standoff</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"> The Dow climbed for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dow-jones-today-may-17-7499692">second straight day</a> after House Speaker Kevin McCarthy told reporters that the House of Representatives could consider legislation to extend the U.S. debt limit as early as next week, saying negotiations were in a “better place.” The Nasdaq moved up 1.5% to reach a 52-week high, while the S&amp;P 500 also moved higher. </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"> 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 led the Dow higher, rising 2.7% after the company unveiled new gaming microchip offerings and laid out for reporters a sales strategy it hopes will help it take market share. </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"> Investors ignored that Cisco System's (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO">CSCO</a>) orders plummeted 23% in the first quarter. Instead, they rewarded its 14% increase in revenue by pushing its stock up 1.2%. </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"> 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>) gained for the fourth straight day, rising 1.9% to notch a fresh 52-week high. </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"> Walmart (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT">WMT</a>) shares were up 1.3% on <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/walmart-boosts-outlook-as-profit-and-sales-rise-7500124">first-quarter earnings</a> that showed strong grocery and online sales. Same-store sales rose 7.4% and digital sales jumped 27%, exceeding analysts' expectations. The company also raised its full-year guidance. </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"> 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 rose 0.9% after it scrapped plans to build a new Florida campus amid the company’s feud with the state’s governor Ron DeSantis. About 2,000 employees located in California were to be required to relocate to the Florida facility, which now won’t be built. Disney also said it would close a Star Wars-themed hotel at its Florida theme park.  </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"> Walgreens Boots Alliance (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WBA">WBA</a>) was the Dow's worst performer, falling 1.8% after the company agreed to pay San Francisco a $280 million settlement over its role in the city's opioid epidemic. </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"> 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>) followed close behind, falling 1.7% after Truist lowered its rating on the maker of Tide, Bounty, and Pampers. Analysts praised the company overall, but questioned its current valuation and pointed to a dearth of “catalysts” likely to fuel growth.  </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"> UnitedHealth Group (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=UNH">UNH</a>) was down 1.2%, part of a healthcare sector that underperformed. Amgen (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMGN">AMGN</a>) and Merck &amp; Co. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MRK">MRK</a>) both fell 0.6%. <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 * Dow climbs 0.3%, notching its second straight day of gains. * Investors reward Intel after it lays out plans to gain market share. * Cisco and Walmart rise on earnings reports. * Walgreens Boots Alliance falls on opioid settlement and Procter & Gamble drops on analyst downgrade. The Dow Jones Industrial Average rallied to finish higher by 0.3%, or 115 points, after earlier falling almost 150 points in intraday trading, fueled partly by optimism that U.S. lawmakers will resolve the [debt ceiling standoff](https://www.investopedia.com/past-debt-limit-standoffs-ended-without-a-default-7499763). The Dow climbed for the [second straight day](https://www.investopedia.com/dow-jones-today-may-17-7499692) after House Speaker Kevin McCarthy told reporters that the House of Representatives could consider legislation to extend the U.S. debt limit as early as next week, saying negotiations were in a “better place.” The Nasdaq moved up 1.5% to reach a 52-week high, while the S&P 500 also moved higher. Intel ([INTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=INTC)) shares led the Dow higher, rising 2.7% after the company unveiled new gaming microchip offerings and laid out for reporters a sales strategy it hopes will help it take market share. Investors ignored that Cisco System's ([CSCO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO)) orders plummeted 23% in the first quarter. Instead, they rewarded its 14% increase in revenue by pushing its stock up 1.2%. Salesforce ([CRM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CRM)) gained for the fourth straight day, rising 1.9% to notch a fresh 52-week high. Walmart ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT)) shares were up 1.3% on [first-quarter earnings](https://www.investopedia.com/walmart-boosts-outlook-as-profit-and-sales-rise-7500124) that showed strong grocery and online sales. Same-store sales rose 7.4% and digital sales jumped 27%, exceeding analysts' expectations. The company also raised its full-year guidance. Walt Disney ([DIS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DIS)) shares rose 0.9% after it scrapped plans to build a new Florida campus amid the company’s feud with the state’s governor Ron DeSantis. About 2,000 employees located in California were to be required to relocate to the Florida facility, which now won’t be built. Disney also said it would close a Star Wars-themed hotel at its Florida theme park.  Walgreens Boots Alliance ([WBA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WBA)) was the Dow's worst performer, falling 1.8% after the company agreed to pay San Francisco a $280 million settlement over its role in the city's opioid epidemic. Procter & Gamble ([PG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PG)) followed close behind, falling 1.7% after Truist lowered its rating on the maker of Tide, Bounty, and Pampers. Analysts praised the company overall, but questioned its current valuation and pointed to a dearth of “catalysts” likely to fuel growth.  UnitedHealth Group ([UNH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=UNH)) was down 1.2%, part of a healthcare sector that underperformed. Amgen ([AMGN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMGN)) and Merck & Co. ([MRK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MRK)) both fell 0.6%.  Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Dow climbs 0.3%, notching its second straight day of gains.Investors reward Intel after it lays out plans to gain market share.Cisco and Walmart rise on earnings reports.Walgreens Boots Alliance falls on opioid settlement and Procter & Gamble drops on analyst downgrade. The Dow Jones Industrial Average rallied to finish higher by 0.3%, or 115 points, after earlier falling almost 150 points in intraday trading, fueled partly by optimism that U.S. lawmakers will resolve the debt ceiling standoff. The Dow climbed for the second straight day after House Speaker Kevin McCarthy told reporters that the House of Representatives could consider legislation to extend the U.S. debt limit as early as next week, saying negotiations were in a “better place.” The Nasdaq moved up 1.5% to reach a 52-week high, while the S&P 500 also moved higher. Intel (INTC) shares led the Dow higher, rising 2.7% after the company unveiled new gaming microchip offerings and laid out for reporters a sales strategy it hopes will help it take market share. Investors ignored that Cisco System's (CSCO) orders plummeted 23% in the first quarter. Instead, they rewarded its 14% increase in revenue by pushing its stock up 1.2%. Salesforce (CRM) gained for the fourth straight day, rising 1.9% to notch a fresh 52-week high. Walmart (WMT) shares were up 1.3% on first-quarter earnings that showed strong grocery and online sales. Same-store sales rose 7.4% and digital sales jumped 27%, exceeding analysts' expectations. The company also raised its full-year guidance. Walt Disney (DIS) shares rose 0.9% after it scrapped plans to build a new Florida campus amid the company’s feud with the state’s governor Ron DeSantis. About 2,000 employees located in California were to be required to relocate to the Florida facility, which now won’t be built. Disney also said it would close a Star Wars-themed hotel at its Florida theme park.  Walgreens Boots Alliance (WBA) was the Dow's worst performer, falling 1.8% after the company agreed to pay San Francisco a $280 million settlement over its role in the city's opioid epidemic. Procter & Gamble (PG) followed close behind, falling 1.7% after Truist lowered its rating on the maker of Tide, Bounty, and Pampers. Analysts praised the company overall, but questioned its current valuation and pointed to a dearth of “catalysts” likely to fuel growth.  UnitedHealth Group (UNH) was down 1.2%, part of a healthcare sector that underperformed. Amgen (AMGN) and Merck & Co. (MRK) both fell 0.6%.  Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/how-much-does-a-surrogate-cost-6752258

How Much Does a Surrogate Cost?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-how-much-does-a-surrogate-cost"></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"> How Much Does a Surrogate Cost? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The cost of a surrogate will depend on where you live and the scope of service you seek out. Generally speaking, a surrogate costs upwards of $100,000. The Fertility Center of Las Vegas estimates the cost of a surrogacy ranges from $110,000 to $170,000.<span class="ql-inline-citation" data-cite="24"></span> Meanwhile, West Coast Surrogacy estimates the cost between $190,000 and $230,000.<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_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Let's dig into why surrogacy costs so much and what these surrogacy costs go towards. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>In the United States, surrogacy can cost upwards of $100,000.</li> <li>Health insurance for the intended parents does not extend to a surrogate. Also, many health plans exclude coverage for gestational carriers.</li> <li>Fertility grants can help offset some of the costs associated with infertility and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-are-birth-mother-expenses-when-adopting-6752815">adoption</a>.</li> </ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-surrogacy-industry"></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 Surrogacy Industry </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Many individuals and families around the world use surrogacy to start a family. From 1999 to 2013, only 31,000 Americans had a baby through surrogacy.<span class="ql-inline-citation" data-cite="1"></span> Fast forward to 2022, the surrogacy industry was valued at $14 billion. According to Global Market Insights, the surrogacy industry is expected to grow nearly 25% each year from 2023 to 2032.<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_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> There are many reasons people choose surrogacy, including infertility, health complications, being in a same-sex relationship, or being single. In many cases, the cost of having a surrogate won't really be impacted by the reason behind wanting a child. </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-average-cost-of-having-a-baby-via-surrogacy"></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"> Average Cost of Having a Baby Via Surrogacy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> There are two types of surrogacy: traditional and gestational. A gestational carrier is not biologically related to the child; they carry the fetus through pregnancy and give birth to the baby for the intended parent(s). The gestational carrier is compensated by the intended parent(s) and does not have any parental rights to the child. A traditional surrogate contributes their own egg and, therefore, is considered one of the child’s biological parents. Traditional surrogacy is less common because of the legal and psychological complexities, but it can be less expensive.<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_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The average cost of having a baby via surrogate will vary widely based on a variety of factors like location, age, and insurance coverage. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The two types of surrogacy each require their own procedures that affect the overall cost. Egg retrieval and embryo transfer are required for gestational carriers but not traditional surrogacy. Traditional surrogacy, on the other hand, may require additional legal fees to make adoption and custody arrangements.<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_19-0"></div> <span class="heading-toc" id="toc-breakdown-of-typical-surrogacy-costs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Breakdown of Typical Surrogacy Costs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Medical expenses, compensation, and legal fees are all significant factors that affect the total cost of surrogacy. Many surrogacy processes begin with some form of egg or sperm <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-does-it-cost-to-freeze-eggs-6752386">freezing</a>, then in vitro fertilization (IVF). Some families require multiple rounds before they are successful in conceiving. These combined costs contribute to the overall price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-subheading__text"> Fertility Tests and Treatments </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Some surrogacies begin with a series of fertility tests for intended parents and health screenings for gestational carriers. Fertility tests and treatments for a surrogate serve the purpose of ensuring that the surrogate is physically capable of carrying a pregnancy to term and reducing the risk of complications during pregnancy. These tests typically involve assessing the surrogate's reproductive health, including hormone levels, ovarian function, and the condition of the uterus. These can vary widely depending on the tests you want to take, which can range into the thousands of dollars.<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"> Embryo Creation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> In surrogacy, eggs can be fertilized via IVF, mentioned above, or intrauterine insemination (IUI). Generally, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-does-iui-cost-6503322">IUI is significantly less expensive</a> than IVF, which is a complicated, resource-intensive procedure that involves several steps, like egg collection and fertilization in a laboratory, that IUI does not.<span class="ql-inline-citation" data-cite="3"></span> For that reason, one round of IUI costs $500 to $4,000, while IVF can cost $20,000.<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"> Intended parents pursuing traditional surrogacy can use either IUI or IVF. Gestational surrogacy, however, requires in vitro fertilization.<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_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"> Egg Donation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> If the intended parents need to also pay for egg donation, Hasenbush notes that part can cost more than $7,000. The Advanced Fertility Center of Chicago advertises an egg donor fee of $7,000 to $9,000, plus $400 for short-term health insurance for the donor.<span class="ql-inline-citation" data-cite="14"></span> On top of that, intended parents may need to pay storage fees until the eggs are used. Some companies will offer one year of free egg storage and charge up to $500 for every subsequent year.<span class="ql-inline-citation" data-cite="4"></span> Having family or friends donate eggs or sperm can help reduce these costs. </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"> Surrogate Compensation and Insurance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> This fee can also vary widely. According to Hasenbush: “Surrogate base compensation can vary from free, if they are a friend or family member, to upwards of $50,000 for an experienced surrogate.” Different regions across America have different compensation trends. In Hasenbush’s experience, “West Coast surrogates tend to have higher base compensations than those in the South or Midwest.” The hopeful parents may be asked to pay the surrogate’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-does-health-insurance-cost-4774184">insurance premiums</a>, which could run $500 to $1,000 a month. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_37-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_38-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Some states, like Michigan, expressly prohibit gestational surrogate compensation. Others, like Louisiana, do not explicitly prohibit compensation but enforce laws that make it impracticable.<span class="ql-inline-citation" data-cite="13"></span> Make sure to consult state laws before entering any surrogacy agreement.</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"> Agency Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Surrogacy agencies offer a variety of services. Agencies match surrogates to intended parents, offer screening services to ensure both parties are mentally, physically, and emotionally prepared for the process, and coordinate logistics between medical professionals and attorneys. While it is optional to work with a surrogacy agency, those who choose to use one should expect to spend $15,000 to $30,000, according to Hasenbush. </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"> Legal Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Attorneys draft the surrogacy contract, which outlines each party’s financial and behavioral obligations. For example, the contract may oblige intended parents to reimburse the surrogate for maternity wear or require that the surrogate abstains from cigarettes and alcohol for the duration of the pregnancy. Attorneys also arrange legal custody.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Legal fees vary based on the type of agreements needed, and each law practice can charge as much or as little as they like. Hasenbush says families should budget around $6,000 to $10,000 for legal fees, “depending on whether they need an egg donor agreement” and any state requirements. </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"> Labor and Delivery </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-does-it-cost-to-have-a-baby-in-america-6745508">average cost of childbirth</a> in a U.S. hospital is about $13,500.<span class="ql-inline-citation" data-cite="6"></span> If the surrogate has health insurance, much of that will be covered by the insurance company, but the intended parent(s) will typically pay deductibles, co-pays, and co-insurance. If the surrogate does not have insurance, the intended parents can purchase a maternity-only or short-term policy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_50-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_51-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Becoming pregnant is not a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/qualifying-event.asp">qualifying life event</a>, meaning that it will not make an uninsured surrogate eligible to enroll in coverage through the Health Insurance Marketplace outside of the annual open enrollment period.<span class="ql-inline-citation" data-cite="11"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-subheading__text"> Other Expenses </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> There are many other small factors to consider that can add up. Having <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/preparing-for-multiples-6363242">multiple children</a> like twins or triplets will increase costs significantly, as will a cesarean birth, hospitalization for the surrogate or infant, travel or transport, and any postpartum complications. Hasenbush adds that if the surrogate works, they may require compensation for lost wages and may ask the intended parents to pay for life insurance. </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-what-does-health-insurance-cover"></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 Does Health Insurance Cover? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Health insurance companies are starting to expand coverage to fertility treatments, but many require a physician’s confirmation that the insured is experiencing infertility. </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"> Some states require insurers to cover infertility treatment, and some states require insurers to offer coverage, though there’s no guarantee that the exact services you need will be covered, and your plan being subject to those laws depends on factors like the size of your employer and where your policy was written.<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_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Instead, health insurance plans may cover just one of the steps in the surrogacy process, such as fertility tests, egg or sperm freezing, implantation, or artificial insemination. These procedures, like any other medically necessary procedure, are subject to deductibles, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/insurance/120816/coinsurance-vs-copay-why-you-need-know-difference.asp">co-pays, and co-insurance</a>, and may be less expensive with an in-network provider. </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"> These days, an increasing number of employers are adding fertility coverage to their health plans. Fertility benefits are more common among large employers with 20,000 or more employees, and almost all plans impose caps like lifetime maximum dollar benefits or a limit on the number of covered IVF cycles.<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_63-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_64-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_65-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>A gestational carrier covered by Medicaid should be aware that their compensation may make them ineligible for subsidized insurance. However, if they do lose Medicaid coverage, they would qualify for an Affordable Care Act special enrollment period.<span class="ql-inline-citation" data-cite="11"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> To learn more about whether your insurance covers infertility treatments, contact your insurance provider’s Member Services. Note that even major insurance carriers have different websites based on the state and the plan, so look specifically for the websites that apply to your coverage. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> If the surrogate already has health insurance, their insurance may cover their own prenatal care and birth costs. However, some insurance providers exclude gestational surrogate charges, in which case the intended parents could provide the surrogate coverage.<span class="ql-inline-citation" data-cite="9"></span> According to ART Risk Solutions, intended parents could purchase a short-term policy for $2,400 to cover the surrogate until marketplace open enrollment, or a maternity-only policy that costs $25,000 to $35,000 for one baby and $40,000 to $50,000 for twins.<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_69-0"></div> <span class="heading-toc" id="toc-how-to-pay-for-a-surrogate"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_70-0"> <span class="mntl-sc-block-heading__text"> How to Pay for a Surrogate </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Many couples save for years before they feel financially fit to pay for surrogacy. Many surrogacy agents also have financial counselors who help parents weigh their options among savings, loans, and grants.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_73-0"><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_74-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_5-0">Fast Fact</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Surrogacy expenses are not eligible for reimbursement with a flexible spending arrangement (FSA) or a health savings account (HSA).<span class="ql-inline-citation" data-cite="18"></span><span class="ql-inline-citation" data-cite="17"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Despite hefty penalties, some people choose to dip into their retirement savings, like 401(k) plans or thrift savings plans (TSPs), to cover surrogacy costs. Others may choose to borrow against their home, either with a home equity line of credit (HELOC) or a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/home-equity-loan-suitability-5323164">home equity loan</a>. These options may be tempting because they seem to be less expensive than paying with a credit card, but they can jeopardize the financial security of both parent(s) and child. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> If borrowing is the only way to finance surrogacy, it is best to look for low-interest unsecured personal loans with a realistic repayment period. Fertility financing is available from a variety of lenders. </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"> Grants can also help people to expand their families by assisting with some surrogacy expenses. Fertility Within Reach has a comprehensive list of available grants.<span class="ql-inline-citation" data-cite="20"></span> For LGBTQIA+ couples and individuals, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.familyequality.org/resources/lgbtq-family-building-grants/">Family Equality</a> maintains a list of family-building grants that assist with the costs of adoption or assisted reproductive technology (ART).<span class="ql-inline-citation" data-cite="21"></span> And The Broken Brown Egg awards an annual $10,000 grant to defray the costs of adoption or fertility treatments for one Black, Indigenous, and people of color (BIPOC) couple or individual.<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_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-how-much-does-a-surrogate-cost"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Does a Surrogate Cost?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The cost of a surrogate will widely vary based on a number of variables including where you live and the service you procure. Most resources estimate the cost between $100,000 to $200,000.<span class="ql-inline-citation" data-cite="24"></span><span class="ql-inline-citation" data-cite="23"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-do-surrogates-get-paid-if-they-miscarry"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Surrogates Get Paid If They Miscarry?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In most cases, surrogates are paid as they reach certain milestones during the pregnancy. So if they miscarry at any point, they get paid up to that point.</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-do-surrogates-get-to-keep-the-baby"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Surrogates Get to Keep the Baby?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. The ability to keep a child born to a surrogate is not a right that a surrogate has. Once legal parenthood is established and the paperwork signed, the surrogate has no legal rights to the child and cannot claim it. Gestational surrogates especially have no claim, as they have no biological connection to the child.<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_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-how-can-i-lower-the-cost-of-surrogacy"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Lower the Cost of Surrogacy?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An international surrogacy can lower your cost by $50,000 or more. Or you can go with independent surrogacy, meaning you do not hire an agent to manage the process. That can reduce your costs by $10,000 to $25,000, but you will have to work with the surrogate directly.</p></div> </div> <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-bottom-line"></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 Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> The average cost of surrogacy in the U.S. is about $100,000, a total that includes the cost of fertility treatments, embryo creation, surrogate compensation, as well as legal and delivery fees. Fortunately, an increasing number of employers are including fertility benefits in their health plans, reducing the amount patients pay out-of-pocket for treatments like fertility tests and egg collection. </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"> Many fertility clinics and surrogacy agencies work with partner institutions to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-an-ivf-loan-7973244">offer patients agreeable loans</a> that allow them to finance their surrogacy without being penalized for dipping into retirement savings or taking on the risk of tapping into home equity. </p></div>

## How Much Does a Surrogate Cost? The cost of a surrogate will depend on where you live and the scope of service you seek out. Generally speaking, a surrogate costs upwards of $100,000. The Fertility Center of Las Vegas estimates the cost of a surrogacy ranges from $110,000 to $170,000. Meanwhile, West Coast Surrogacy estimates the cost between $190,000 and $230,000. Let's dig into why surrogacy costs so much and what these surrogacy costs go towards. ### Key Takeaways * In the United States, surrogacy can cost upwards of $100,000. * Health insurance for the intended parents does not extend to a surrogate. Also, many health plans exclude coverage for gestational carriers. * Fertility grants can help offset some of the costs associated with infertility and [adoption](https://www.investopedia.com/how-much-are-birth-mother-expenses-when-adopting-6752815). ## Understanding the Surrogacy Industry Many individuals and families around the world use surrogacy to start a family. From 1999 to 2013, only 31,000 Americans had a baby through surrogacy. Fast forward to 2022, the surrogacy industry was valued at $14 billion. According to Global Market Insights, the surrogacy industry is expected to grow nearly 25% each year from 2023 to 2032. There are many reasons people choose surrogacy, including infertility, health complications, being in a same-sex relationship, or being single. In many cases, the cost of having a surrogate won't really be impacted by the reason behind wanting a child. ## Average Cost of Having a Baby Via Surrogacy There are two types of surrogacy: traditional and gestational. A gestational carrier is not biologically related to the child; they carry the fetus through pregnancy and give birth to the baby for the intended parent(s). The gestational carrier is compensated by the intended parent(s) and does not have any parental rights to the child. A traditional surrogate contributes their own egg and, therefore, is considered one of the child’s biological parents. Traditional surrogacy is less common because of the legal and psychological complexities, but it can be less expensive. The average cost of having a baby via surrogate will vary widely based on a variety of factors like location, age, and insurance coverage. The two types of surrogacy each require their own procedures that affect the overall cost. Egg retrieval and embryo transfer are required for gestational carriers but not traditional surrogacy. Traditional surrogacy, on the other hand, may require additional legal fees to make adoption and custody arrangements. ## Breakdown of Typical Surrogacy Costs Medical expenses, compensation, and legal fees are all significant factors that affect the total cost of surrogacy. Many surrogacy processes begin with some form of egg or sperm [freezing](https://www.investopedia.com/how-much-does-it-cost-to-freeze-eggs-6752386), then in vitro fertilization (IVF). Some families require multiple rounds before they are successful in conceiving. These combined costs contribute to the overall price. ### Fertility Tests and Treatments Some surrogacies begin with a series of fertility tests for intended parents and health screenings for gestational carriers. Fertility tests and treatments for a surrogate serve the purpose of ensuring that the surrogate is physically capable of carrying a pregnancy to term and reducing the risk of complications during pregnancy. These tests typically involve assessing the surrogate's reproductive health, including hormone levels, ovarian function, and the condition of the uterus. These can vary widely depending on the tests you want to take, which can range into the thousands of dollars. ### Embryo Creation In surrogacy, eggs can be fertilized via IVF, mentioned above, or intrauterine insemination (IUI). Generally, [IUI is significantly less expensive](https://www.investopedia.com/how-much-does-iui-cost-6503322) than IVF, which is a complicated, resource-intensive procedure that involves several steps, like egg collection and fertilization in a laboratory, that IUI does not. For that reason, one round of IUI costs $500 to $4,000, while IVF can cost $20,000. Intended parents pursuing traditional surrogacy can use either IUI or IVF. Gestational surrogacy, however, requires in vitro fertilization. ### Egg Donation If the intended parents need to also pay for egg donation, Hasenbush notes that part can cost more than $7,000. The Advanced Fertility Center of Chicago advertises an egg donor fee of $7,000 to $9,000, plus $400 for short-term health insurance for the donor. On top of that, intended parents may need to pay storage fees until the eggs are used. Some companies will offer one year of free egg storage and charge up to $500 for every subsequent year. Having family or friends donate eggs or sperm can help reduce these costs. ### Surrogate Compensation and Insurance This fee can also vary widely. According to Hasenbush: “Surrogate base compensation can vary from free, if they are a friend or family member, to upwards of $50,000 for an experienced surrogate.” Different regions across America have different compensation trends. In Hasenbush’s experience, “West Coast surrogates tend to have higher base compensations than those in the South or Midwest.” The hopeful parents may be asked to pay the surrogate’s [insurance premiums](https://www.investopedia.com/how-much-does-health-insurance-cost-4774184), which could run $500 to $1,000 a month. ### Some states, like Michigan, expressly prohibit gestational surrogate compensation. Others, like Louisiana, do not explicitly prohibit compensation but enforce laws that make it impracticable. Make sure to consult state laws before entering any surrogacy agreement. ### Agency Fees Surrogacy agencies offer a variety of services. Agencies match surrogates to intended parents, offer screening services to ensure both parties are mentally, physically, and emotionally prepared for the process, and coordinate logistics between medical professionals and attorneys. While it is optional to work with a surrogacy agency, those who choose to use one should expect to spend $15,000 to $30,000, according to Hasenbush. ### Legal Fees Attorneys draft the surrogacy contract, which outlines each party’s financial and behavioral obligations. For example, the contract may oblige intended parents to reimburse the surrogate for maternity wear or require that the surrogate abstains from cigarettes and alcohol for the duration of the pregnancy. Attorneys also arrange legal custody. Legal fees vary based on the type of agreements needed, and each law practice can charge as much or as little as they like. Hasenbush says families should budget around $6,000 to $10,000 for legal fees, “depending on whether they need an egg donor agreement” and any state requirements. ### Labor and Delivery The [average cost of childbirth](https://www.investopedia.com/how-much-does-it-cost-to-have-a-baby-in-america-6745508) in a U.S. hospital is about $13,500. If the surrogate has health insurance, much of that will be covered by the insurance company, but the intended parent(s) will typically pay deductibles, co-pays, and co-insurance. If the surrogate does not have insurance, the intended parents can purchase a maternity-only or short-term policy. ### Becoming pregnant is not a [qualifying life event](https://www.investopedia.com/terms/q/qualifying-event.asp), meaning that it will not make an uninsured surrogate eligible to enroll in coverage through the Health Insurance Marketplace outside of the annual open enrollment period. ### Other Expenses There are many other small factors to consider that can add up. Having [multiple children](https://www.investopedia.com/preparing-for-multiples-6363242) like twins or triplets will increase costs significantly, as will a cesarean birth, hospitalization for the surrogate or infant, travel or transport, and any postpartum complications. Hasenbush adds that if the surrogate works, they may require compensation for lost wages and may ask the intended parents to pay for life insurance. ## What Does Health Insurance Cover? Health insurance companies are starting to expand coverage to fertility treatments, but many require a physician’s confirmation that the insured is experiencing infertility. Some states require insurers to cover infertility treatment, and some states require insurers to offer coverage, though there’s no guarantee that the exact services you need will be covered, and your plan being subject to those laws depends on factors like the size of your employer and where your policy was written. Instead, health insurance plans may cover just one of the steps in the surrogacy process, such as fertility tests, egg or sperm freezing, implantation, or artificial insemination. These procedures, like any other medically necessary procedure, are subject to deductibles, [co-pays, and co-insurance](https://www.investopedia.com/articles/insurance/120816/coinsurance-vs-copay-why-you-need-know-difference.asp), and may be less expensive with an in-network provider. These days, an increasing number of employers are adding fertility coverage to their health plans. Fertility benefits are more common among large employers with 20,000 or more employees, and almost all plans impose caps like lifetime maximum dollar benefits or a limit on the number of covered IVF cycles. ### A gestational carrier covered by Medicaid should be aware that their compensation may make them ineligible for subsidized insurance. However, if they do lose Medicaid coverage, they would qualify for an Affordable Care Act special enrollment period. To learn more about whether your insurance covers infertility treatments, contact your insurance provider’s Member Services. Note that even major insurance carriers have different websites based on the state and the plan, so look specifically for the websites that apply to your coverage. If the surrogate already has health insurance, their insurance may cover their own prenatal care and birth costs. However, some insurance providers exclude gestational surrogate charges, in which case the intended parents could provide the surrogate coverage. According to ART Risk Solutions, intended parents could purchase a short-term policy for $2,400 to cover the surrogate until marketplace open enrollment, or a maternity-only policy that costs $25,000 to $35,000 for one baby and $40,000 to $50,000 for twins. ## How to Pay for a Surrogate Many couples save for years before they feel financially fit to pay for surrogacy. Many surrogacy agents also have financial counselors who help parents weigh their options among savings, loans, and grants.  ### Fast Fact Surrogacy expenses are not eligible for reimbursement with a flexible spending arrangement (FSA) or a health savings account (HSA). Despite hefty penalties, some people choose to dip into their retirement savings, like 401(k) plans or thrift savings plans (TSPs), to cover surrogacy costs. Others may choose to borrow against their home, either with a home equity line of credit (HELOC) or a [home equity loan](https://www.investopedia.com/home-equity-loan-suitability-5323164). These options may be tempting because they seem to be less expensive than paying with a credit card, but they can jeopardize the financial security of both parent(s) and child. If borrowing is the only way to finance surrogacy, it is best to look for low-interest unsecured personal loans with a realistic repayment period. Fertility financing is available from a variety of lenders. Grants can also help people to expand their families by assisting with some surrogacy expenses. Fertility Within Reach has a comprehensive list of available grants. For LGBTQIA+ couples and individuals, [Family Equality](https://www.familyequality.org/resources/lgbtq-family-building-grants/) maintains a list of family-building grants that assist with the costs of adoption or assisted reproductive technology (ART). And The Broken Brown Egg awards an annual $10,000 grant to defray the costs of adoption or fertility treatments for one Black, Indigenous, and people of color (BIPOC) couple or individual. ## How Much Does a Surrogate Cost? The cost of a surrogate will widely vary based on a number of variables including where you live and the service you procure. Most resources estimate the cost between $100,000 to $200,000. ## Do Surrogates Get Paid If They Miscarry? In most cases, surrogates are paid as they reach certain milestones during the pregnancy. So if they miscarry at any point, they get paid up to that point. ## Do Surrogates Get to Keep the Baby? No. The ability to keep a child born to a surrogate is not a right that a surrogate has. Once legal parenthood is established and the paperwork signed, the surrogate has no legal rights to the child and cannot claim it. Gestational surrogates especially have no claim, as they have no biological connection to the child. ## How Can I Lower the Cost of Surrogacy? An international surrogacy can lower your cost by $50,000 or more. Or you can go with independent surrogacy, meaning you do not hire an agent to manage the process. That can reduce your costs by $10,000 to $25,000, but you will have to work with the surrogate directly. ## The Bottom Line The average cost of surrogacy in the U.S. is about $100,000, a total that includes the cost of fertility treatments, embryo creation, surrogate compensation, as well as legal and delivery fees. Fortunately, an increasing number of employers are including fertility benefits in their health plans, reducing the amount patients pay out-of-pocket for treatments like fertility tests and egg collection. Many fertility clinics and surrogacy agencies work with partner institutions to [offer patients agreeable loans](https://www.investopedia.com/how-to-get-an-ivf-loan-7973244) that allow them to finance their surrogacy without being penalized for dipping into retirement savings or taking on the risk of tapping into home equity.

How Much Does a Surrogate Cost? The cost of a surrogate will depend on where you live and the scope of service you seek out. Generally speaking, a surrogate costs upwards of $100,000. The Fertility Center of Las Vegas estimates the cost of a surrogacy ranges from $110,000 to $170,000. Meanwhile, West Coast Surrogacy estimates the cost between $190,000 and $230,000. Let's dig into why surrogacy costs so much and what these surrogacy costs go towards. Key Takeaways In the United States, surrogacy can cost upwards of $100,000. Health insurance for the intended parents does not extend to a surrogate. Also, many health plans exclude coverage for gestational carriers. Fertility grants can help offset some of the costs associated with infertility and adoption. Understanding the Surrogacy Industry Many individuals and families around the world use surrogacy to start a family. From 1999 to 2013, only 31,000 Americans had a baby through surrogacy. Fast forward to 2022, the surrogacy industry was valued at $14 billion. According to Global Market Insights, the surrogacy industry is expected to grow nearly 25% each year from 2023 to 2032. There are many reasons people choose surrogacy, including infertility, health complications, being in a same-sex relationship, or being single. In many cases, the cost of having a surrogate won't really be impacted by the reason behind wanting a child. Average Cost of Having a Baby Via Surrogacy There are two types of surrogacy: traditional and gestational. A gestational carrier is not biologically related to the child; they carry the fetus through pregnancy and give birth to the baby for the intended parent(s). The gestational carrier is compensated by the intended parent(s) and does not have any parental rights to the child. A traditional surrogate contributes their own egg and, therefore, is considered one of the child’s biological parents. Traditional surrogacy is less common because of the legal and psychological complexities, but it can be less expensive. The average cost of having a baby via surrogate will vary widely based on a variety of factors like location, age, and insurance coverage. The two types of surrogacy each require their own procedures that affect the overall cost. Egg retrieval and embryo transfer are required for gestational carriers but not traditional surrogacy. Traditional surrogacy, on the other hand, may require additional legal fees to make adoption and custody arrangements. Breakdown of Typical Surrogacy Costs Medical expenses, compensation, and legal fees are all significant factors that affect the total cost of surrogacy. Many surrogacy processes begin with some form of egg or sperm freezing, then in vitro fertilization (IVF). Some families require multiple rounds before they are successful in conceiving. These combined costs contribute to the overall price. Fertility Tests and Treatments Some surrogacies begin with a series of fertility tests for intended parents and health screenings for gestational carriers. Fertility tests and treatments for a surrogate serve the purpose of ensuring that the surrogate is physically capable of carrying a pregnancy to term and reducing the risk of complications during pregnancy. These tests typically involve assessing the surrogate's reproductive health, including hormone levels, ovarian function, and the condition of the uterus. These can vary widely depending on the tests you want to take, which can range into the thousands of dollars. Embryo Creation In surrogacy, eggs can be fertilized via IVF, mentioned above, or intrauterine insemination (IUI). Generally, IUI is significantly less expensive than IVF, which is a complicated, resource-intensive procedure that involves several steps, like egg collection and fertilization in a laboratory, that IUI does not. For that reason, one round of IUI costs $500 to $4,000, while IVF can cost $20,000. Intended parents pursuing traditional surrogacy can use either IUI or IVF. Gestational surrogacy, however, requires in vitro fertilization. Egg Donation If the intended parents need to also pay for egg donation, Hasenbush notes that part can cost more than $7,000. The Advanced Fertility Center of Chicago advertises an egg donor fee of $7,000 to $9,000, plus $400 for short-term health insurance for the donor. On top of that, intended parents may need to pay storage fees until the eggs are used. Some companies will offer one year of free egg storage and charge up to $500 for every subsequent year. Having family or friends donate eggs or sperm can help reduce these costs. Surrogate Compensation and Insurance This fee can also vary widely. According to Hasenbush: “Surrogate base compensation can vary from free, if they are a friend or family member, to upwards of $50,000 for an experienced surrogate.” Different regions across America have different compensation trends. In Hasenbush’s experience, “West Coast surrogates tend to have higher base compensations than those in the South or Midwest.” The hopeful parents may be asked to pay the surrogate’s insurance premiums, which could run $500 to $1,000 a month. Some states, like Michigan, expressly prohibit gestational surrogate compensation. Others, like Louisiana, do not explicitly prohibit compensation but enforce laws that make it impracticable. Make sure to consult state laws before entering any surrogacy agreement. Agency Fees Surrogacy agencies offer a variety of services. Agencies match surrogates to intended parents, offer screening services to ensure both parties are mentally, physically, and emotionally prepared for the process, and coordinate logistics between medical professionals and attorneys. While it is optional to work with a surrogacy agency, those who choose to use one should expect to spend $15,000 to $30,000, according to Hasenbush. Legal Fees Attorneys draft the surrogacy contract, which outlines each party’s financial and behavioral obligations. For example, the contract may oblige intended parents to reimburse the surrogate for maternity wear or require that the surrogate abstains from cigarettes and alcohol for the duration of the pregnancy. Attorneys also arrange legal custody. Legal fees vary based on the type of agreements needed, and each law practice can charge as much or as little as they like. Hasenbush says families should budget around $6,000 to $10,000 for legal fees, “depending on whether they need an egg donor agreement” and any state requirements. Labor and Delivery The average cost of childbirth in a U.S. hospital is about $13,500. If the surrogate has health insurance, much of that will be covered by the insurance company, but the intended parent(s) will typically pay deductibles, co-pays, and co-insurance. If the surrogate does not have insurance, the intended parents can purchase a maternity-only or short-term policy. Becoming pregnant is not a qualifying life event, meaning that it will not make an uninsured surrogate eligible to enroll in coverage through the Health Insurance Marketplace outside of the annual open enrollment period. Other Expenses There are many other small factors to consider that can add up. Having multiple children like twins or triplets will increase costs significantly, as will a cesarean birth, hospitalization for the surrogate or infant, travel or transport, and any postpartum complications. Hasenbush adds that if the surrogate works, they may require compensation for lost wages and may ask the intended parents to pay for life insurance. What Does Health Insurance Cover? Health insurance companies are starting to expand coverage to fertility treatments, but many require a physician’s confirmation that the insured is experiencing infertility. Some states require insurers to cover infertility treatment, and some states require insurers to offer coverage, though there’s no guarantee that the exact services you need will be covered, and your plan being subject to those laws depends on factors like the size of your employer and where your policy was written. Instead, health insurance plans may cover just one of the steps in the surrogacy process, such as fertility tests, egg or sperm freezing, implantation, or artificial insemination. These procedures, like any other medically necessary procedure, are subject to deductibles, co-pays, and co-insurance, and may be less expensive with an in-network provider. These days, an increasing number of employers are adding fertility coverage to their health plans. Fertility benefits are more common among large employers with 20,000 or more employees, and almost all plans impose caps like lifetime maximum dollar benefits or a limit on the number of covered IVF cycles. A gestational carrier covered by Medicaid should be aware that their compensation may make them ineligible for subsidized insurance. However, if they do lose Medicaid coverage, they would qualify for an Affordable Care Act special enrollment period. To learn more about whether your insurance covers infertility treatments, contact your insurance provider’s Member Services. Note that even major insurance carriers have different websites based on the state and the plan, so look specifically for the websites that apply to your coverage. If the surrogate already has health insurance, their insurance may cover their own prenatal care and birth costs. However, some insurance providers exclude gestational surrogate charges, in which case the intended parents could provide the surrogate coverage. According to ART Risk Solutions, intended parents could purchase a short-term policy for $2,400 to cover the surrogate until marketplace open enrollment, or a maternity-only policy that costs $25,000 to $35,000 for one baby and $40,000 to $50,000 for twins. How to Pay for a Surrogate Many couples save for years before they feel financially fit to pay for surrogacy. Many surrogacy agents also have financial counselors who help parents weigh their options among savings, loans, and grants.  Fast Fact Surrogacy expenses are not eligible for reimbursement with a flexible spending arrangement (FSA) or a health savings account (HSA). Despite hefty penalties, some people choose to dip into their retirement savings, like 401(k) plans or thrift savings plans (TSPs), to cover surrogacy costs. Others may choose to borrow against their home, either with a home equity line of credit (HELOC) or a home equity loan. These options may be tempting because they seem to be less expensive than paying with a credit card, but they can jeopardize the financial security of both parent(s) and child. If borrowing is the only way to finance surrogacy, it is best to look for low-interest unsecured personal loans with a realistic repayment period. Fertility financing is available from a variety of lenders. Grants can also help people to expand their families by assisting with some surrogacy expenses. Fertility Within Reach has a comprehensive list of available grants. For LGBTQIA+ couples and individuals, Family Equality maintains a list of family-building grants that assist with the costs of adoption or assisted reproductive technology (ART). And The Broken Brown Egg awards an annual $10,000 grant to defray the costs of adoption or fertility treatments for one Black, Indigenous, and people of color (BIPOC) couple or individual. How Much Does a Surrogate Cost? The cost of a surrogate will widely vary based on a number of variables including where you live and the service you procure. Most resources estimate the cost between $100,000 to $200,000. Do Surrogates Get Paid If They Miscarry? In most cases, surrogates are paid as they reach certain milestones during the pregnancy. So if they miscarry at any point, they get paid up to that point. Do Surrogates Get to Keep the Baby? No. The ability to keep a child born to a surrogate is not a right that a surrogate has. Once legal parenthood is established and the paperwork signed, the surrogate has no legal rights to the child and cannot claim it. Gestational surrogates especially have no claim, as they have no biological connection to the child. How Can I Lower the Cost of Surrogacy? An international surrogacy can lower your cost by $50,000 or more. Or you can go with independent surrogacy, meaning you do not hire an agent to manage the process. That can reduce your costs by $10,000 to $25,000, but you will have to work with the surrogate directly. The Bottom Line The average cost of surrogacy in the U.S. is about $100,000, a total that includes the cost of fertility treatments, embryo creation, surrogate compensation, as well as legal and delivery fees. Fortunately, an increasing number of employers are including fertility benefits in their health plans, reducing the amount patients pay out-of-pocket for treatments like fertility tests and egg collection. Many fertility clinics and surrogacy agencies work with partner institutions to offer patients agreeable loans that allow them to finance their surrogacy without being penalized for dipping into retirement savings or taking on the risk of tapping into home equity.

https://www.investopedia.com/articles/investing/030217/best-strategy-shortterm-savings-goals.asp

Best Strategy for Short-Term Savings Goals

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Because everyone knows how critical it is to save up for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retirement.asp">retirement</a>, most investors are laser-focused on contributing to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">IRAs,</a> <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k)s</a>, and other “<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nestegg.asp">nest egg</a>” investments. But what about shorter-term savings goals? Perhaps you want to create a <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/home-equity-loan-fund-vacation-5270452">travel fund</a> or save up enough cash to buy a boat or vacation home within the next few years. Or maybe you are just concerned about building a liquid savings portfolio as an emergency fund. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> If you have plans to make a large purchase within three to five years or you are looking to build a fund for emergency or luxury purposes, you’ll want to come up with a short-term savings strategy to meet that goal. Here are a few things to keep in mind as you devise your plan. </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-first-consider-risk"></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"> First, Consider Risk </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Liquid savings portfolios seek to identify the lowest risk, highest-return investments in the marketplace. Thus, when it comes to short-term savings, you have to approach things a little differently than you would for long-term retirement and investment goals. </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"> For example, let’s say you plan to retire in 10 to 15 years. In this case, your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-advisor.asp">financial advisor</a> will likely recommend a diverse retirement <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a> consisting of at least 60% stocks. With such a large window of time, if the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockmarket.asp">stock market</a> takes a hit, there’s plenty of time for your portfolio to bounce back. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> On the other hand, if you’re looking to save up for something in the not-so-distant future, you should steer clear of high-risk investments like stocks. Why? Because one dip in the stock market could wipe out your savings, and three to five years probably won’t be long enough for your investment to recover from the downturn. That means you’d have to kiss that trip to Europe or your beach house goodbye. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> While low-risk investments, generally considered safe havens, will usually have steady rates of predictable returns on a monthly basis this can fluctuate somewhat. As such, short term, liquidity seeking investors may want to overweight more heavily in risk-off markets where savings rates are higher fueled by Federal Reserve interest rate policy. </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-savings-accounts"></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"> Savings Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Most consumers are familiar with checking and savings accounts from standard banks. However, going beyond these initial platforms can be a great first step for newly inspired short-term investors. Doing a little research to identify the best savings accounts in your area can turn up <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yield.asp">yields</a> of 2% to 5% on standard savings account products. Many local banks offer high yield savings deals. There are also many online options. These platforms tend to offer money market accounts and high yield certificates of deposit, also often associated with high yield savings as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-the-benefits-of-bonds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> The Benefits of Bonds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> To achieve a short-term savings goal, you might want to take a look at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bonds</a>. Bonds generally follow high yield savings as the next step in low-risk short term investing, with Treasury bonds being the safest. A bond is a debt investment in which you’re essentially loaning money to the government, a government agency, or a corporate entity. Bonds are used by companies, states, and cities to raise money for a variety of projects and initiatives. During a specified period of time, you’ll earn a variable or fixed interest rate on a bond. In individual bond investing, you can hold your bonds to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp">maturity</a> or often sell them on open market exchanges. </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"> One of the major benefits of bonds is that interest earnings are generally higher than those from a savings account. Plus, you can handpick bonds that will mature and be available by a set date in the near future. This offers a great deal of security without the risk associated with stocks. Many investors may also choose to invest in managed bond funds, which can be segmented into many different risk classes and maturity segments. </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"> Bonds, however, come with their own caveats specifically in high rate or risk-off markets where yields are rising. When yields on new issuances increase, prices on existing bonds fall, decreasing the secondary market trading value of bonds. In managed funds, this effect can be magnified as managers hold a diversified portfolio of bonds with closely correlated volatility. Thus, bonds are especially important for the short-term investor to follow in risk-off markets in order to optimize short term returns. </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-product-selection"></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"> Product Selection </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Across the market, there are several investment products targeting short term or liquidity driven investors. Fixed income investments will generally be some of the best product options because they offer an income with low risk. Investing for income in stocks may also be an option for short term investors willing to make some higher wager bets. Large-cap value income investments are often the next tier of low-risk options with income, helping to support many investors’ short-term liquidity goals. </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-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> As you are looking to save up for short-term goals, it’s important to choose your investments wisely and stay abreast of market changes in the low risk investing segment of the market. If you want to have access to the money within three to five years, high yield, low-risk investments are your best bet, and most stock investments will be too risky. However, managing a short term portfolio with a select few stock investments, specifically in the large-cap value income category, can be one way to boost some return. </p></div>

Because everyone knows how critical it is to save up for [retirement](https://www.investopedia.com/terms/r/retirement.asp), most investors are laser-focused on contributing to [IRAs,](https://www.investopedia.com/terms/i/ira.asp) [401(k)s](https://www.investopedia.com/terms/1/401kplan.asp), and other “[nest egg](https://www.investopedia.com/terms/n/nestegg.asp)” investments. But what about shorter-term savings goals? Perhaps you want to create a [travel fund](https://www.investopedia.com/home-equity-loan-fund-vacation-5270452) or save up enough cash to buy a boat or vacation home within the next few years. Or maybe you are just concerned about building a liquid savings portfolio as an emergency fund. If you have plans to make a large purchase within three to five years or you are looking to build a fund for emergency or luxury purposes, you’ll want to come up with a short-term savings strategy to meet that goal. Here are a few things to keep in mind as you devise your plan. ## First, Consider Risk Liquid savings portfolios seek to identify the lowest risk, highest-return investments in the marketplace. Thus, when it comes to short-term savings, you have to approach things a little differently than you would for long-term retirement and investment goals. For example, let’s say you plan to retire in 10 to 15 years. In this case, your [financial advisor](https://www.investopedia.com/terms/f/financial-advisor.asp) will likely recommend a diverse retirement [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) consisting of at least 60% stocks. With such a large window of time, if the [stock market](https://www.investopedia.com/terms/s/stockmarket.asp) takes a hit, there’s plenty of time for your portfolio to bounce back. On the other hand, if you’re looking to save up for something in the not-so-distant future, you should steer clear of high-risk investments like stocks. Why? Because one dip in the stock market could wipe out your savings, and three to five years probably won’t be long enough for your investment to recover from the downturn. That means you’d have to kiss that trip to Europe or your beach house goodbye. While low-risk investments, generally considered safe havens, will usually have steady rates of predictable returns on a monthly basis this can fluctuate somewhat. As such, short term, liquidity seeking investors may want to overweight more heavily in risk-off markets where savings rates are higher fueled by Federal Reserve interest rate policy. ## Savings Accounts Most consumers are familiar with checking and savings accounts from standard banks. However, going beyond these initial platforms can be a great first step for newly inspired short-term investors. Doing a little research to identify the best savings accounts in your area can turn up [yields](https://www.investopedia.com/terms/y/yield.asp) of 2% to 5% on standard savings account products. Many local banks offer high yield savings deals. There are also many online options. These platforms tend to offer money market accounts and high yield certificates of deposit, also often associated with high yield savings as well. ## The Benefits of Bonds To achieve a short-term savings goal, you might want to take a look at [bonds](https://www.investopedia.com/terms/b/bond.asp). Bonds generally follow high yield savings as the next step in low-risk short term investing, with Treasury bonds being the safest. A bond is a debt investment in which you’re essentially loaning money to the government, a government agency, or a corporate entity. Bonds are used by companies, states, and cities to raise money for a variety of projects and initiatives. During a specified period of time, you’ll earn a variable or fixed interest rate on a bond. In individual bond investing, you can hold your bonds to [maturity](https://www.investopedia.com/terms/m/maturity.asp) or often sell them on open market exchanges. One of the major benefits of bonds is that interest earnings are generally higher than those from a savings account. Plus, you can handpick bonds that will mature and be available by a set date in the near future. This offers a great deal of security without the risk associated with stocks. Many investors may also choose to invest in managed bond funds, which can be segmented into many different risk classes and maturity segments. Bonds, however, come with their own caveats specifically in high rate or risk-off markets where yields are rising. When yields on new issuances increase, prices on existing bonds fall, decreasing the secondary market trading value of bonds. In managed funds, this effect can be magnified as managers hold a diversified portfolio of bonds with closely correlated volatility. Thus, bonds are especially important for the short-term investor to follow in risk-off markets in order to optimize short term returns. ## Product Selection Across the market, there are several investment products targeting short term or liquidity driven investors. Fixed income investments will generally be some of the best product options because they offer an income with low risk. Investing for income in stocks may also be an option for short term investors willing to make some higher wager bets. Large-cap value income investments are often the next tier of low-risk options with income, helping to support many investors’ short-term liquidity goals. ## The Bottom Line As you are looking to save up for short-term goals, it’s important to choose your investments wisely and stay abreast of market changes in the low risk investing segment of the market. If you want to have access to the money within three to five years, high yield, low-risk investments are your best bet, and most stock investments will be too risky. However, managing a short term portfolio with a select few stock investments, specifically in the large-cap value income category, can be one way to boost some return.

Because everyone knows how critical it is to save up for retirement, most investors are laser-focused on contributing to IRAs, 401(k)s, and other “nest egg” investments. But what about shorter-term savings goals? Perhaps you want to create a travel fund or save up enough cash to buy a boat or vacation home within the next few years. Or maybe you are just concerned about building a liquid savings portfolio as an emergency fund. If you have plans to make a large purchase within three to five years or you are looking to build a fund for emergency or luxury purposes, you’ll want to come up with a short-term savings strategy to meet that goal. Here are a few things to keep in mind as you devise your plan. First, Consider Risk Liquid savings portfolios seek to identify the lowest risk, highest-return investments in the marketplace. Thus, when it comes to short-term savings, you have to approach things a little differently than you would for long-term retirement and investment goals. For example, let’s say you plan to retire in 10 to 15 years. In this case, your financial advisor will likely recommend a diverse retirement portfolio consisting of at least 60% stocks. With such a large window of time, if the stock market takes a hit, there’s plenty of time for your portfolio to bounce back. On the other hand, if you’re looking to save up for something in the not-so-distant future, you should steer clear of high-risk investments like stocks. Why? Because one dip in the stock market could wipe out your savings, and three to five years probably won’t be long enough for your investment to recover from the downturn. That means you’d have to kiss that trip to Europe or your beach house goodbye. While low-risk investments, generally considered safe havens, will usually have steady rates of predictable returns on a monthly basis this can fluctuate somewhat. As such, short term, liquidity seeking investors may want to overweight more heavily in risk-off markets where savings rates are higher fueled by Federal Reserve interest rate policy. Savings Accounts Most consumers are familiar with checking and savings accounts from standard banks. However, going beyond these initial platforms can be a great first step for newly inspired short-term investors. Doing a little research to identify the best savings accounts in your area can turn up yields of 2% to 5% on standard savings account products. Many local banks offer high yield savings deals. There are also many online options. These platforms tend to offer money market accounts and high yield certificates of deposit, also often associated with high yield savings as well. The Benefits of Bonds To achieve a short-term savings goal, you might want to take a look at bonds. Bonds generally follow high yield savings as the next step in low-risk short term investing, with Treasury bonds being the safest. A bond is a debt investment in which you’re essentially loaning money to the government, a government agency, or a corporate entity. Bonds are used by companies, states, and cities to raise money for a variety of projects and initiatives. During a specified period of time, you’ll earn a variable or fixed interest rate on a bond. In individual bond investing, you can hold your bonds to maturity or often sell them on open market exchanges. One of the major benefits of bonds is that interest earnings are generally higher than those from a savings account. Plus, you can handpick bonds that will mature and be available by a set date in the near future. This offers a great deal of security without the risk associated with stocks. Many investors may also choose to invest in managed bond funds, which can be segmented into many different risk classes and maturity segments. Bonds, however, come with their own caveats specifically in high rate or risk-off markets where yields are rising. When yields on new issuances increase, prices on existing bonds fall, decreasing the secondary market trading value of bonds. In managed funds, this effect can be magnified as managers hold a diversified portfolio of bonds with closely correlated volatility. Thus, bonds are especially important for the short-term investor to follow in risk-off markets in order to optimize short term returns. Product Selection Across the market, there are several investment products targeting short term or liquidity driven investors. Fixed income investments will generally be some of the best product options because they offer an income with low risk. Investing for income in stocks may also be an option for short term investors willing to make some higher wager bets. Large-cap value income investments are often the next tier of low-risk options with income, helping to support many investors’ short-term liquidity goals. The Bottom Line As you are looking to save up for short-term goals, it’s important to choose your investments wisely and stay abreast of market changes in the low risk investing segment of the market. If you want to have access to the money within three to five years, high yield, low-risk investments are your best bet, and most stock investments will be too risky. However, managing a short term portfolio with a select few stock investments, specifically in the large-cap value income category, can be one way to boost some return.

https://www.investopedia.com/articles/active-trading/022715/20-rules-followed-professional-traders.asp

20 Rules Followed by Professional Traders

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Booking reliable profits in <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> is harder than it looks at first glance. In fact, unofficial estimates suggest that more than 80% of would-be traders eventually fail, wash out, and turn to safer hobbies.<span class="ql-inline-citation" data-cite="2"></span> But the brokerage industry rarely publishes client failure rates because they're likely concerned the truth will scare off new accounts. In reality, the washout rate could be much higher than 80%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Indeed, success in trading is difficult and the consistently profitable traders share specific rare characteristics. These 20 rules are tips that long-time pros use to stay in the winner’s circle. </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>Profitable trading is difficult and successful traders share specific rare characteristics.</li><li>It is estimated that more than 80% of traders fail and quit.</li><li>One key to success is to identify strategies that win more money than they lose.</li><li>Many traders fail because strategies fail to adapt to changing market conditions.</li><li>Classic rules from pro traders can help keep a sharp focus on profitability.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-road-to-long-term-profitability"></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 Road to Long-Term Profitability </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Long-term profitability requires two related skill sets. The first is to identify a set of strategies that make more money than they lose and then to use the strategies as part of a trading plan. Second, the strategies must perform well while the market experiences both <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bull.asp">bull</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bear.asp">bear</a> impulses. In other words, while many traders know how to make money in specific markets, like a strong <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/uptrend.asp">uptrend</a>, they fail in the long run because their strategies don't adapt to inevitable changes in market conditions. </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"> Can you break away from the pack and join the professional minority with an approach that increases odds for long-term prosperity? Can you separate from the herd of wannabe traders and achieve <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading-4427765">trading</a> success? Start with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/010815/what-it-takes-become-elite-trader.asp">clear and concise plan</a> with proven strategies and then leverage the 20 rules that follow. </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-1-stick-to-your-discipline"></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"> 1. Stick to Your Discipline </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Discipline can’t be taught in a seminar or found in expensive <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trading-software.asp">trading software</a>. Traders spend thousands of dollars trying to compensate for their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/02/110502.asp">lack of self-control</a> but few realize that a long look in the mirror accomplishes the same task at a much lower price. The important lesson is that, once a trader has confidence in their trading plan, they must have the discipline to stay the course, even when there are the inevitable losing streaks. </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-2-lose-the-crowd"></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"> 2. Lose the Crowd </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Long-term profitability requires positioning ahead of or behind the crowd, but never in the crowd because that’s where <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/04/011404.asp">predatory strategies target</a>. Stay away from stock boards and chat rooms, where people are less than serious and many of them have ulterior motives. </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-3-engage-your-trading-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"> 3. Engage Your Trading Plan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Update your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trading-plan.asp">trading plan</a> weekly or monthly to include new ideas and eliminate bad ones. Go back and read the plan whenever you fall in a hole and are looking for a way to get out. </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>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-4-dont-cut-corners"></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"> 4. Don’t Cut Corners </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Your competition spends hundreds of hours perfecting strategies and you’re in for a rude awakening if you expect to throw a few darts and walk away with a profit. The only way to achieve long-term success is with hard work and discipline. </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-5-avoid-the-obvious"></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"> 5. Avoid the Obvious </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Profits rarely come from following the majority or the crowd. When you see a perfect trade setup, it’s likely that everyone else sees it as well, planting you in the crowd, and setting you up for failure. </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-6-dont-break-your-rules"></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"> 6. Don’t Break Your Rules </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> You create trading rules to get you out of trouble when positions go badly. If you don’t allow them to do their job, you’ve lost your discipline and opened the door to even greater losses. </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-7-avoid-market-gurus"></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"> 7. Avoid Market Gurus </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> It’s your money at stake, not theirs. Keep in mind that the guru might be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pumpanddump.asp">talking up their own positions</a><em>, </em>hoping the excited chatter will increase their profits, not yours. </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-8-use-your-intuition"></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"> 8. Use Your Intuition </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Trading uses the mathematical and artistic sides of your brain so you need to cultivate both to succeed in the long run. Once you're comfortable with math, you might want to try to enhance results with meditation, a few yoga postures, or a quiet walk in the park. </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-9-dont-fall-in-love"></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"> 9. Don’t Fall in Love </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> If you're too in love with your trading <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentvehicle.asp">vehicle</a> or investment, you give way to flawed decision-making. It’s your job to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalize.asp">capitalize</a> on inefficiency, making money while everyone else is leaning the wrong way. </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-10-organize-your-personal-life"></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"> 10. Organize Your Personal Life </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Whatever is wrong in your life will eventually carry over into your trading performance. This is especially dangerous if you haven’t made peace with money, wealth, and the magnetic polarity of abundance and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/scarcity.asp">scarcity</a>. Keep your trading needs separate from your personal needs, and take care of both. </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-11-dont-try-to-get-even"></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"> 11. Don’t Try to Get Even </span> </h2> <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/d/drawdown.asp">Drawdowns</a> are a natural part of the trader’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lifecycle.asp">life cycle</a>. Accept them gracefully and stick to the time-tested strategies you know will eventually get your performance back on track. Don't try to make up for a losing trade by trading more. Revenge trading is a recipe for disaster. </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-12-watch-for-warnings"></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"> 12. Watch for Warnings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Big losses rarely occur without multiple technical warnings. Traders routinely ignore those <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trade-signal.asp">signals</a> and allow hope to replace thoughtful discipline, setting themselves up for pain. In short, keep an eye out for early signs that market conditions are changing and creating risks to your positions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <span class="heading-toc" id="toc-13-tools-dont-think"></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"> 13. Tools Don't Think </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Some traders try to make up for insufficient skills with expensive software, prepackaged with all sorts of proprietary buy and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sell-signal.asp">sell signals</a>. These tools can interfere with valuable experience when you think the software is smarter than you are. Use tools that fit well with your trading plan, but remember that, ultimately, you are the one calling the shots. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <span class="heading-toc" id="toc-14-use-your-head"></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"> 14. Use Your Head </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> It’s natural for traders to emulate their financial heroes, but it’s also a perfect way to lose money. Learn what you can from others, then back off and establish your own market identity, based on your unique skills and <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>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <span class="heading-toc" id="toc-15-forget-the-holy-grail"></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"> 15. Forget the Holy Grail </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Losing traders fantasize about the secret formula that will magically improve their results. In reality, there are no secrets because the road to success always passes through careful choice, effective <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskmanagement.asp">risk management</a>, and skilled <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profittaking.asp">profit-taking</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <span class="heading-toc" id="toc-16-ditch-the-paycheck-mentality"></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"> 16. Ditch the Paycheck Mentality </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> We’re taught to grind through the work week for a paycheck. This pay-for-effort reward mentality is at odds with the natural flow of trading wins and losses during the course of a year. In fact, statistics indicate that most annual profits are booked on just a handful of trading days. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_62-0"><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_63-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_3-0">252</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The number of actual trading days during a typical calendar year, as most markets are closed for holidays and weekends.</p></div></div></div> <span class="heading-toc" id="toc-17-dont-count-your-chickens"></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"> 17. Don’t Count Your Chickens </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> It is okay to feel good about a trade that’s going your way, but the money isn’t yours until you close out or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cover.asp">cover the position</a>. Lock in what you can as early as you can, with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trailingstop.asp">trailing stops</a> or partial profits, so the hidden hands of the market can't pickpocket your gains at the last minute. </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-18-embrace-simplicity"></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"> 18. Embrace Simplicity </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> Focus on <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>, understanding that everything else is secondary. Go ahead and build complex <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalindicator.asp">technical indicators</a>, while keeping in mind that their primary function is to confirm or refute what your eye already sees. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <span class="heading-toc" id="toc-19-make-peace-with-losses"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_70-0"> <span class="mntl-sc-block-heading__text"> 19. Make Peace With Losses </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Trading is one of the few professions where losing money every day is a natural path to success. Every trading loss comes with an important market lesson if you’re open to the message. Also, know when to quit and take a break from trading. Accept the losses, take time to regroup, and then come back to the market with a new perspective. </p> <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-20-beware-of-reinforcement"></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"> 20. Beware of Reinforcement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> Active trading releases adrenaline and endorphins. These chemicals can produce feelings of euphoria even when you’re losing money. In turn, this encourages addictive personalities to take bad positions, just to get the rush. If you're trading to achieve a rush and excitement, you are probably trading for the wrong reasons. </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-do-most-novice-traders-fail"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Most Novice Traders Fail?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes. In fact, a great majority of day traders and novices fail after a relatively short period of time.<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_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-can-investors-beat-the-market-by-picking-stocks"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Investors Beat the Market by Picking Stocks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>On average, the answer seems to be no. Over the long run, active investment strategies (i.e. stock picking) tend to underperform the broader market, especially after taking into account transaction costs and taxes. Indeed, a passive index strategy seems to be best for most long-term buy-and-hold investors.<span class="ql-inline-citation" data-cite="3"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_80-0"><span class="heading-toc" id="toc-what-are-some-behavioral-biases-that-harm-traders-success"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Some Behavioral Biases That Harm Traders' Success?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Behavioral finance has uncovered several psychological biases and cognitive errors that can hurt a trader's performance. One such bias is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loss-psychology.asp">loss aversion</a>, where the fear of locking in a loss actually causes traders to take greater risks when in the red, causing them to hold on to losers for too long and sell winners too early. Another is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/recency-availability-bias-5206686">recency bias</a>, whereby more recent information or news is given greater weight, even if it is not characteristic of longer-term trends.</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"> Most traders fail to tap their full potential, eventually cashing in their chips and finding more traditional ways to make money. Become a proud member of the professional minority by following classic rules designed to keep a razor-sharp focus on profitability. </p></div>

Booking reliable profits in [financial markets](https://www.investopedia.com/terms/f/financial-market.asp) is harder than it looks at first glance. In fact, unofficial estimates suggest that more than 80% of would-be traders eventually fail, wash out, and turn to safer hobbies. But the brokerage industry rarely publishes client failure rates because they're likely concerned the truth will scare off new accounts. In reality, the washout rate could be much higher than 80%. Indeed, success in trading is difficult and the consistently profitable traders share specific rare characteristics. These 20 rules are tips that long-time pros use to stay in the winner’s circle. ### Key Takeaways * Profitable trading is difficult and successful traders share specific rare characteristics. * It is estimated that more than 80% of traders fail and quit. * One key to success is to identify strategies that win more money than they lose. * Many traders fail because strategies fail to adapt to changing market conditions. * Classic rules from pro traders can help keep a sharp focus on profitability. ## The Road to Long-Term Profitability Long-term profitability requires two related skill sets. The first is to identify a set of strategies that make more money than they lose and then to use the strategies as part of a trading plan. Second, the strategies must perform well while the market experiences both [bull](https://www.investopedia.com/terms/b/bull.asp) and [bear](https://www.investopedia.com/terms/b/bear.asp) impulses. In other words, while many traders know how to make money in specific markets, like a strong [uptrend](https://www.investopedia.com/terms/u/uptrend.asp), they fail in the long run because their strategies don't adapt to inevitable changes in market conditions. Can you break away from the pack and join the professional minority with an approach that increases odds for long-term prosperity? Can you separate from the herd of wannabe traders and achieve [trading](https://www.investopedia.com/trading-4427765) success? Start with a [clear and concise plan](https://www.investopedia.com/articles/active-trading/010815/what-it-takes-become-elite-trader.asp) with proven strategies and then leverage the 20 rules that follow. ## 1. Stick to Your Discipline Discipline can’t be taught in a seminar or found in expensive [trading software](https://www.investopedia.com/terms/t/trading-software.asp). Traders spend thousands of dollars trying to compensate for their [lack of self-control](https://www.investopedia.com/articles/trading/02/110502.asp) but few realize that a long look in the mirror accomplishes the same task at a much lower price. The important lesson is that, once a trader has confidence in their trading plan, they must have the discipline to stay the course, even when there are the inevitable losing streaks. ## 2. Lose the Crowd Long-term profitability requires positioning ahead of or behind the crowd, but never in the crowd because that’s where [predatory strategies target](https://www.investopedia.com/articles/trading/04/011404.asp). Stay away from stock boards and chat rooms, where people are less than serious and many of them have ulterior motives. ## 3. Engage Your Trading Plan Update your [trading plan](https://www.investopedia.com/terms/t/trading-plan.asp) weekly or monthly to include new ideas and eliminate bad ones. Go back and read the plan whenever you fall in a hole and are looking for a way to get out. ### 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. ## 4. Don’t Cut Corners Your competition spends hundreds of hours perfecting strategies and you’re in for a rude awakening if you expect to throw a few darts and walk away with a profit. The only way to achieve long-term success is with hard work and discipline. ## 5. Avoid the Obvious Profits rarely come from following the majority or the crowd. When you see a perfect trade setup, it’s likely that everyone else sees it as well, planting you in the crowd, and setting you up for failure. ## 6. Don’t Break Your Rules You create trading rules to get you out of trouble when positions go badly. If you don’t allow them to do their job, you’ve lost your discipline and opened the door to even greater losses. ## 7. Avoid Market Gurus It’s your money at stake, not theirs. Keep in mind that the guru might be [talking up their own positions](https://www.investopedia.com/terms/p/pumpanddump.asp)*,* hoping the excited chatter will increase their profits, not yours. ## 8. Use Your Intuition Trading uses the mathematical and artistic sides of your brain so you need to cultivate both to succeed in the long run. Once you're comfortable with math, you might want to try to enhance results with meditation, a few yoga postures, or a quiet walk in the park. ## 9. Don’t Fall in Love If you're too in love with your trading [vehicle](https://www.investopedia.com/terms/i/investmentvehicle.asp) or investment, you give way to flawed decision-making. It’s your job to [capitalize](https://www.investopedia.com/terms/c/capitalize.asp) on inefficiency, making money while everyone else is leaning the wrong way. ## 10. Organize Your Personal Life Whatever is wrong in your life will eventually carry over into your trading performance. This is especially dangerous if you haven’t made peace with money, wealth, and the magnetic polarity of abundance and [scarcity](https://www.investopedia.com/terms/s/scarcity.asp). Keep your trading needs separate from your personal needs, and take care of both. ## 11. Don’t Try to Get Even [Drawdowns](https://www.investopedia.com/terms/d/drawdown.asp) are a natural part of the trader’s [life cycle](https://www.investopedia.com/terms/l/lifecycle.asp). Accept them gracefully and stick to the time-tested strategies you know will eventually get your performance back on track. Don't try to make up for a losing trade by trading more. Revenge trading is a recipe for disaster. ## 12. Watch for Warnings Big losses rarely occur without multiple technical warnings. Traders routinely ignore those [signals](https://www.investopedia.com/terms/t/trade-signal.asp) and allow hope to replace thoughtful discipline, setting themselves up for pain. In short, keep an eye out for early signs that market conditions are changing and creating risks to your positions. ## 13. Tools Don't Think Some traders try to make up for insufficient skills with expensive software, prepackaged with all sorts of proprietary buy and [sell signals](https://www.investopedia.com/terms/s/sell-signal.asp). These tools can interfere with valuable experience when you think the software is smarter than you are. Use tools that fit well with your trading plan, but remember that, ultimately, you are the one calling the shots. ## 14. Use Your Head It’s natural for traders to emulate their financial heroes, but it’s also a perfect way to lose money. Learn what you can from others, then back off and establish your own market identity, based on your unique skills and [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp). ## 15. Forget the Holy Grail Losing traders fantasize about the secret formula that will magically improve their results. In reality, there are no secrets because the road to success always passes through careful choice, effective [risk management](https://www.investopedia.com/terms/r/riskmanagement.asp), and skilled [profit-taking](https://www.investopedia.com/terms/p/profittaking.asp). ## 16. Ditch the Paycheck Mentality We’re taught to grind through the work week for a paycheck. This pay-for-effort reward mentality is at odds with the natural flow of trading wins and losses during the course of a year. In fact, statistics indicate that most annual profits are booked on just a handful of trading days. ### 252 The number of actual trading days during a typical calendar year, as most markets are closed for holidays and weekends. ## 17. Don’t Count Your Chickens It is okay to feel good about a trade that’s going your way, but the money isn’t yours until you close out or [cover the position](https://www.investopedia.com/terms/c/cover.asp). Lock in what you can as early as you can, with [trailing stops](https://www.investopedia.com/terms/t/trailingstop.asp) or partial profits, so the hidden hands of the market can't pickpocket your gains at the last minute. ## 18. Embrace Simplicity Focus on [price action](https://www.investopedia.com/terms/p/price-action.asp), understanding that everything else is secondary. Go ahead and build complex [technical indicators](https://www.investopedia.com/terms/t/technicalindicator.asp), while keeping in mind that their primary function is to confirm or refute what your eye already sees. ## 19. Make Peace With Losses Trading is one of the few professions where losing money every day is a natural path to success. Every trading loss comes with an important market lesson if you’re open to the message. Also, know when to quit and take a break from trading. Accept the losses, take time to regroup, and then come back to the market with a new perspective. ## 20. Beware of Reinforcement Active trading releases adrenaline and endorphins. These chemicals can produce feelings of euphoria even when you’re losing money. In turn, this encourages addictive personalities to take bad positions, just to get the rush. If you're trading to achieve a rush and excitement, you are probably trading for the wrong reasons. ## Do Most Novice Traders Fail? Yes. In fact, a great majority of day traders and novices fail after a relatively short period of time. ## Can Investors Beat the Market by Picking Stocks? On average, the answer seems to be no. Over the long run, active investment strategies (i.e. stock picking) tend to underperform the broader market, especially after taking into account transaction costs and taxes. Indeed, a passive index strategy seems to be best for most long-term buy-and-hold investors. ## What Are Some Behavioral Biases That Harm Traders' Success? Behavioral finance has uncovered several psychological biases and cognitive errors that can hurt a trader's performance. One such bias is [loss aversion](https://www.investopedia.com/terms/l/loss-psychology.asp), where the fear of locking in a loss actually causes traders to take greater risks when in the red, causing them to hold on to losers for too long and sell winners too early. Another is [recency bias](https://www.investopedia.com/recency-availability-bias-5206686), whereby more recent information or news is given greater weight, even if it is not characteristic of longer-term trends. ## The Bottom Line Most traders fail to tap their full potential, eventually cashing in their chips and finding more traditional ways to make money. Become a proud member of the professional minority by following classic rules designed to keep a razor-sharp focus on profitability.

Booking reliable profits in financial markets is harder than it looks at first glance. In fact, unofficial estimates suggest that more than 80% of would-be traders eventually fail, wash out, and turn to safer hobbies. But the brokerage industry rarely publishes client failure rates because they're likely concerned the truth will scare off new accounts. In reality, the washout rate could be much higher than 80%. Indeed, success in trading is difficult and the consistently profitable traders share specific rare characteristics. These 20 rules are tips that long-time pros use to stay in the winner’s circle. Key Takeaways Profitable trading is difficult and successful traders share specific rare characteristics.It is estimated that more than 80% of traders fail and quit.One key to success is to identify strategies that win more money than they lose.Many traders fail because strategies fail to adapt to changing market conditions.Classic rules from pro traders can help keep a sharp focus on profitability. The Road to Long-Term Profitability Long-term profitability requires two related skill sets. The first is to identify a set of strategies that make more money than they lose and then to use the strategies as part of a trading plan. Second, the strategies must perform well while the market experiences both bull and bear impulses. In other words, while many traders know how to make money in specific markets, like a strong uptrend, they fail in the long run because their strategies don't adapt to inevitable changes in market conditions. Can you break away from the pack and join the professional minority with an approach that increases odds for long-term prosperity? Can you separate from the herd of wannabe traders and achieve trading success? Start with a clear and concise plan with proven strategies and then leverage the 20 rules that follow. 1. Stick to Your Discipline Discipline can’t be taught in a seminar or found in expensive trading software. Traders spend thousands of dollars trying to compensate for their lack of self-control but few realize that a long look in the mirror accomplishes the same task at a much lower price. The important lesson is that, once a trader has confidence in their trading plan, they must have the discipline to stay the course, even when there are the inevitable losing streaks. 2. Lose the Crowd Long-term profitability requires positioning ahead of or behind the crowd, but never in the crowd because that’s where predatory strategies target. Stay away from stock boards and chat rooms, where people are less than serious and many of them have ulterior motives. 3. Engage Your Trading Plan Update your trading plan weekly or monthly to include new ideas and eliminate bad ones. Go back and read the plan whenever you fall in a hole and are looking for a way to get out. Read about Investopedia's 10 Rules of Investing by picking up a copy of our special issue print edition. 4. Don’t Cut Corners Your competition spends hundreds of hours perfecting strategies and you’re in for a rude awakening if you expect to throw a few darts and walk away with a profit. The only way to achieve long-term success is with hard work and discipline. 5. Avoid the Obvious Profits rarely come from following the majority or the crowd. When you see a perfect trade setup, it’s likely that everyone else sees it as well, planting you in the crowd, and setting you up for failure. 6. Don’t Break Your Rules You create trading rules to get you out of trouble when positions go badly. If you don’t allow them to do their job, you’ve lost your discipline and opened the door to even greater losses. 7. Avoid Market Gurus It’s your money at stake, not theirs. Keep in mind that the guru might be talking up their own positions, hoping the excited chatter will increase their profits, not yours. 8. Use Your Intuition Trading uses the mathematical and artistic sides of your brain so you need to cultivate both to succeed in the long run. Once you're comfortable with math, you might want to try to enhance results with meditation, a few yoga postures, or a quiet walk in the park. 9. Don’t Fall in Love If you're too in love with your trading vehicle or investment, you give way to flawed decision-making. It’s your job to capitalize on inefficiency, making money while everyone else is leaning the wrong way. 10. Organize Your Personal Life Whatever is wrong in your life will eventually carry over into your trading performance. This is especially dangerous if you haven’t made peace with money, wealth, and the magnetic polarity of abundance and scarcity. Keep your trading needs separate from your personal needs, and take care of both. 11. Don’t Try to Get Even Drawdowns are a natural part of the trader’s life cycle. Accept them gracefully and stick to the time-tested strategies you know will eventually get your performance back on track. Don't try to make up for a losing trade by trading more. Revenge trading is a recipe for disaster. 12. Watch for Warnings Big losses rarely occur without multiple technical warnings. Traders routinely ignore those signals and allow hope to replace thoughtful discipline, setting themselves up for pain. In short, keep an eye out for early signs that market conditions are changing and creating risks to your positions. 13. Tools Don't Think Some traders try to make up for insufficient skills with expensive software, prepackaged with all sorts of proprietary buy and sell signals. These tools can interfere with valuable experience when you think the software is smarter than you are. Use tools that fit well with your trading plan, but remember that, ultimately, you are the one calling the shots. 14. Use Your Head It’s natural for traders to emulate their financial heroes, but it’s also a perfect way to lose money. Learn what you can from others, then back off and establish your own market identity, based on your unique skills and risk tolerance. 15. Forget the Holy Grail Losing traders fantasize about the secret formula that will magically improve their results. In reality, there are no secrets because the road to success always passes through careful choice, effective risk management, and skilled profit-taking. 16. Ditch the Paycheck Mentality We’re taught to grind through the work week for a paycheck. This pay-for-effort reward mentality is at odds with the natural flow of trading wins and losses during the course of a year. In fact, statistics indicate that most annual profits are booked on just a handful of trading days. 252 The number of actual trading days during a typical calendar year, as most markets are closed for holidays and weekends. 17. Don’t Count Your Chickens It is okay to feel good about a trade that’s going your way, but the money isn’t yours until you close out or cover the position. Lock in what you can as early as you can, with trailing stops or partial profits, so the hidden hands of the market can't pickpocket your gains at the last minute. 18. Embrace Simplicity Focus on price action, understanding that everything else is secondary. Go ahead and build complex technical indicators, while keeping in mind that their primary function is to confirm or refute what your eye already sees. 19. Make Peace With Losses Trading is one of the few professions where losing money every day is a natural path to success. Every trading loss comes with an important market lesson if you’re open to the message. Also, know when to quit and take a break from trading. Accept the losses, take time to regroup, and then come back to the market with a new perspective. 20. Beware of Reinforcement Active trading releases adrenaline and endorphins. These chemicals can produce feelings of euphoria even when you’re losing money. In turn, this encourages addictive personalities to take bad positions, just to get the rush. If you're trading to achieve a rush and excitement, you are probably trading for the wrong reasons. Do Most Novice Traders Fail? Yes. In fact, a great majority of day traders and novices fail after a relatively short period of time. Can Investors Beat the Market by Picking Stocks? On average, the answer seems to be no. Over the long run, active investment strategies (i.e. stock picking) tend to underperform the broader market, especially after taking into account transaction costs and taxes. Indeed, a passive index strategy seems to be best for most long-term buy-and-hold investors. What Are Some Behavioral Biases That Harm Traders' Success? Behavioral finance has uncovered several psychological biases and cognitive errors that can hurt a trader's performance. One such bias is loss aversion, where the fear of locking in a loss actually causes traders to take greater risks when in the red, causing them to hold on to losers for too long and sell winners too early. Another is recency bias, whereby more recent information or news is given greater weight, even if it is not characteristic of longer-term trends. The Bottom Line Most traders fail to tap their full potential, eventually cashing in their chips and finding more traditional ways to make money. Become a proud member of the professional minority by following classic rules designed to keep a razor-sharp focus on profitability.

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

What Is a Credit Score? Definition, Factors, and Ways to Raise 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-a-credit-score"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Credit Score? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A credit score is a three-digit number that rates your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-worthiness.asp">creditworthiness</a>. FICO scores range from 300 to 850. The higher the score, the more likely you are to get approved for loans and for better rates.<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_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> A credit score is based on your credit history, which includes information like the number accounts, total levels of debt, repayment history, and other factors. Lenders use credit scores to evaluate your credit worthiness, or the likelihood that you will repay loans in a timely manner. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> There are three major credit bureaus in the U.S.: Equifax, Experian, and TransUnion. This trio dominates the market for collecting, analyzing, and disbursing information about consumers in the credit markets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_9-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A credit score is a number that depicts a consumer’s creditworthiness. FICO scores range from 300 to 850.</li><li>Factors used to calculate your credit score include repayment history, types of loans, length of credit history, debt utilization, and whether you've applied for new accounts.</li><li>A credit score plays a key role in a lender’s decision to offer credit and for what terms.</li><li>The three main U.S. credit bureaus (Equifax, Experian, and TransUnion) may each calculate your FICO score differently.<br/></li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The credit score model was created by the Fair Isaac Corp., now known as <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</a>, and is used by financial institutions. While <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fico-score-vs-credit-score-5214435">other credit scoring systems</a> exist, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp">FICO Score</a> is by far the most commonly used.<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_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> There are a number factors that go into calculating your FICO credit score, including your repayment history, your debt utilization, the length of your credit history, your credit mix, and any new account openings.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Lenders use your credit score to determines whether to approve you for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/082416/how-find-mortgage-lenders-use-vantagescore.asp">products like mortgages</a>, personal loans, and credit cards, and what interest rates you will pay. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Prospective employers may also check it to see whether you're a reliable person. Service providers and utility companies may check it to decide whether you are required to make a deposit.</p></div></div></div> <span class="heading-toc" id="toc-how-credit-scores-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> How Credit Scores Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> A credit score can significantly affect your financial life. It plays a key role in a lender’s decision to offer you credit. Lenders are more likely to approve you for loans when you have a higher credit score, and are more likely to decline your loan applications when you have lower scores. You can also get better interest rates when you have a higher credit score, which can save you money in the long-term. </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"> Conversely, a credit score of 700 or higher is generally viewed positively by lenders, and may result in a lower interest rate. Scores greater than 800 are considered excellent. Every creditor defines its own ranges for credit scores and its own criteria for lending. Here are the general ranges for how credit scores are categorized.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <li>Excellent: 800–850</li><li>Very Good: 740–799</li><li>Good: 670–739</li><li>Fair: 580–669</li><li>Poor: 300–579</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-callout mntl-block" id="mntl-sc-block_25-0"><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_26-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_3-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Your credit score also may determine the size of deposit required to get a smartphone, cable service, or utilities, or to rent an apartment.</p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-inlinevideo mntl-sc-block-inlinevideo mntl-block inline-video" id="mntl-sc-block_27-0"><div class="comp mntl-sc-block-inlinevideo__video-container mntl-block" id="mntl-sc-block-inlinevideo__video-container_1-0"><div class="comp mntl-sc-block-inlinevideo__video mntl-jwplayer mm-video lazyload aspectratio-16:9" data-bgset="https://cdn.jwplayer.com/v2/media/5lOZ1kYW/poster.jpg?width=720" data-sizes="auto" id="mntl-sc-block-inlinevideo__video_1-0"></div></div> <h4 class="comp mntl-sc-block-inlinevideo__title mntl-text-block" id="mntl-sc-block-inlinevideo__title_1-0">What Is A Credit Score?</h4></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_29-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_30-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Order your copy of Investopedia's <a data-component="amazon" data-ordinal="1" data-source="affiliate" data-type="externalLink" href="https://www.amazon.com/dp/1547862912/ref=sr_1_7?keywords=investopedia&amp;qid=1684168403&amp;sr=8-7" rel="sponsored nofollow">What To Do With $10,000 magazine</a> for more tips about managing debt and building credit.</p></div></div></div> <span class="heading-toc" id="toc-how-your-credit-score-is-calculated"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> How Your Credit Score Is Calculated </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The three major credit reporting agencies in the U.S. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/experian-vs-equifax/">Equifax, Experian</a>, and TransUnion) report, update, and store consumers’ credit histories. While there can be differences in the information collected by the three credit bureaus, five main factors are evaluated when calculating a credit score:<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_33-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <li>Payment history (35%)</li><li>Amounts owed (30%)</li><li>Length of credit history (15%)</li><li>Types of credit (10%)</li><li>New credit (10%)</li> </ol> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <li><strong>Payment history</strong>: Your payment history includes whether you've paid your bills on time. It takes into account how many late payments you've had, and how late they were.</li> <li><strong>Amounts owed</strong>: Amounts owed is the percentage of credit you've used compared to the credit available to you, which is known as <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>.</li> <li><strong>Length of credit history</strong>: Longer credit histories are considered less risky, as there is more data to determine payment history.</li> <li><strong>Credit mix</strong>: A variety of credit types shows lenders you can manage various types of credit. It can include installment credit, such as car loans or mortgage loans, and revolving credit, such as credit cards.</li> <li><strong>New credit</strong>: Lenders view new credit as a potential sign you may be desperate for credit. Too many recent applications for credit can negatively affect your credit score.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_38-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Factors That Impact Your Credit Score" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/IMb28ebzsYD4DykSckacOL222Nc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/credit_score.asp_final2-3f545dab2a8240298052c6a80225e78b.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/IMb28ebzsYD4DykSckacOL222Nc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/credit_score.asp_final2-3f545dab2a8240298052c6a80225e78b.png" data-srcset="https://www.investopedia.com/thmb/iIH766am4nPNM9zhrYzv2OgokFw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/credit_score.asp_final2-3f545dab2a8240298052c6a80225e78b.png 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Factors That Impact Your Credit Score" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/IMb28ebzsYD4DykSckacOL222Nc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/credit_score.asp_final2-3f545dab2a8240298052c6a80225e78b.png" srcset="https://www.investopedia.com/thmb/iIH766am4nPNM9zhrYzv2OgokFw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/credit_score.asp_final2-3f545dab2a8240298052c6a80225e78b.png 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Ellen Lindner / Investopedia</p></span> </figcaption></figure> <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-advisorinsight" 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_5-0">Advisor Insight</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/kathryn-hauer-4692609">Kathryn Hauer, CFP, Enrolled Agent</a><br/>Wilson David Investment Advisors, Aiken<em>, </em>S.C.</p> <p>If you have many credit cards and want to close some that you do not use, closing credit cards can indeed lower your score.</p> <p>Instead of closing accounts, gather up the cards you don’t use. Keep them in a safe place in separate, labeled envelopes. Go online to access and check each of your cards. For each, ensure that there is no balance and that your address, email address, and other contact info are correct. Also, make sure that you don’t have autopay set up on any of them. In the section where you can have alerts, make sure you have your email address or phone in there. Make it a point to regularly check that no fraudulent activity occurs on them, since you aren’t going to be using them. Set yourself a reminder to check them all every six months or every year to make sure there have been no charges on them and that nothing unusual has happened.</p></div></div></div> <span class="heading-toc" id="toc-vantagescore"></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"> VantageScore </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> VantageScore is a consumer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrating.asp">credit rating</a> product developed by the Equifax, Experian, and TransUnion credit bureaus as an alternative to the FICO Score.<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_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> FICO creates a single bureau-specific score for each of the three credit bureaus, using only information from that bureau. As a result, the FICO is actually three scores, not one, and they can vary slightly as each bureau will have different calculation methods. A VantageScore is a single, tri-bureau score, combining information from all three credit bureaus and used by each of them the same.<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_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-note" 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 with-title" id="mntl-sc-block-callout-heading_6-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_6-0"><p>FICO score is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fico-credit-scores-explained-5072985">most popular credit score</a>, used by about 90% of lenders.<span class="ql-inline-citation" data-cite="6"></span><br/></p></div></div></div> <span class="heading-toc" id="toc-how-to-improve-your-credit-score"></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"> How to Improve Your Credit Score </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> When information is updated on a borrower’s credit report, their credit score changes and can rise or fall based on new information. Here are some ways that your can <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">improve your credit score</a>: </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><strong>Pay your bills on time</strong>: Six months of on-time payments are required to see a noticeable difference in your score. </li> <li><strong>Increase your credit line</strong>: If you have credit card accounts, call and inquire about a credit increase. If your account is in good standing, you should be granted an increase in your credit limit. However, it is important not to spend this amount so that you maintain a lower credit utilization rate. Meanwhile, try to pay down your debt.</li> <li><strong>Don’t close a credit card account</strong>: If you are not using a certain credit card, it is best to stop using it instead of closing the account. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/average-credit-scores-by-age-5214511">Depending on the age</a> and credit limit of a card, it can hurt your credit score if you close the account.</li> <li><strong>Work with one a credit repair companies</strong>: If you don’t have the time to improve your credit score, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-repair-companies-4843898">credit repair companies</a> can negotiate with your creditors and the three credit agencies on your behalf, in exchange for a monthly fee.</li> <li><strong>Correct any errors on your credit report</strong>: You are entitled to one free credit report per year from each of the main credit bureaus. You can get your report through <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.annualcreditreport.com/index.action" rel="sponsored nofollow">AnnualCreditReport.com</a>. You can also hire a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-monitoring-services-4846982">monitoring service</a> to help keep your information secure.</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-is-a-good-credit-score-to-have"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is a Good Credit Score to Have?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>What a good credit score is will ultimately be determined by the lenders. Ranges vary depending on the credit scoring model. Generally, credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and higher are considered excellent.<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_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-who-calculates-credit-scores"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Calculates Credit Scores?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are three major credit bureaus in the United States: Equifax, Experian, and TransUnion. They each calculate your FICO score in different ways using the same information. Credit bureaus collect, analyze, and disburse information about consumers in the credit markets.</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-can-i-raise-my-credit-score-quickly"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Raise My Credit Score Quickly?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>To raise your credit score quickly, you can enroll in a service that includes other payment information such as your rent payments and utilities payments that are not typically included in your credit score. If you have had a good track record with these kinds of bills, enrolling in a service like Experian Boost could raise your credit score quickly.<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_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"> Your credit score is a number that can have a significant impact on your financial life. If you have a good credit score, you are more likely to qualify for loans and to receive better terms that can save you money. Learning what your credit score is and what goes into calculating your credit score can help you take steps to improve it. </p></div>

## What Is a Credit Score? A credit score is a three-digit number that rates your [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp). FICO scores range from 300 to 850. The higher the score, the more likely you are to get approved for loans and for better rates. A credit score is based on your credit history, which includes information like the number accounts, total levels of debt, repayment history, and other factors. Lenders use credit scores to evaluate your credit worthiness, or the likelihood that you will repay loans in a timely manner. There are three major credit bureaus in the U.S.: Equifax, Experian, and TransUnion. This trio dominates the market for collecting, analyzing, and disbursing information about consumers in the credit markets. ### Key Takeaways * A credit score is a number that depicts a consumer’s creditworthiness. FICO scores range from 300 to 850. * Factors used to calculate your credit score include repayment history, types of loans, length of credit history, debt utilization, and whether you've applied for new accounts. * A credit score plays a key role in a lender’s decision to offer credit and for what terms. * The three main U.S. credit bureaus (Equifax, Experian, and TransUnion) may each calculate your FICO score differently. The credit score model was created by the Fair Isaac Corp., now known as [FICO](https://www.investopedia.com/terms/f/fico-fair-isaac.asp), and is used by financial institutions. While [other credit scoring systems](https://www.investopedia.com/fico-score-vs-credit-score-5214435) exist, the [FICO Score](https://www.investopedia.com/terms/f/ficoscore.asp) is by far the most commonly used. There are a number factors that go into calculating your FICO credit score, including your repayment history, your debt utilization, the length of your credit history, your credit mix, and any new account openings. Lenders use your credit score to determines whether to approve you for [products like mortgages](https://www.investopedia.com/ask/answers/082416/how-find-mortgage-lenders-use-vantagescore.asp), personal loans, and credit cards, and what interest rates you will pay. ### Note Prospective employers may also check it to see whether you're a reliable person. Service providers and utility companies may check it to decide whether you are required to make a deposit. ## How Credit Scores Work A credit score can significantly affect your financial life. It plays a key role in a lender’s decision to offer you credit. Lenders are more likely to approve you for loans when you have a higher credit score, and are more likely to decline your loan applications when you have lower scores. You can also get better interest rates when you have a higher credit score, which can save you money in the long-term. Conversely, a credit score of 700 or higher is generally viewed positively by lenders, and may result in a lower interest rate. Scores greater than 800 are considered excellent. Every creditor defines its own ranges for credit scores and its own criteria for lending. Here are the general ranges for how credit scores are categorized. * Excellent: 800–850 * Very Good: 740–799 * Good: 670–739 * Fair: 580–669 * Poor: 300–579 ### Note Your credit score also may determine the size of deposit required to get a smartphone, cable service, or utilities, or to rent an apartment. #### What Is A Credit Score? ### Tip Order your copy of Investopedia's [What To Do With $10,000 magazine](https://www.amazon.com/dp/1547862912/ref=sr_1_7?keywords=investopedia&qid=1684168403&sr=8-7) for more tips about managing debt and building credit. ## How Your Credit Score Is Calculated The three major credit reporting agencies in the U.S. ([Equifax, Experian](https://www.investopedia.com/investing/experian-vs-equifax/), and TransUnion) report, update, and store consumers’ credit histories. While there can be differences in the information collected by the three credit bureaus, five main factors are evaluated when calculating a credit score: 1. Payment history (35%) 2. Amounts owed (30%) 3. Length of credit history (15%) 4. Types of credit (10%) 5. New credit (10%) * **Payment history**: Your payment history includes whether you've paid your bills on time. It takes into account how many late payments you've had, and how late they were. * **Amounts owed**: Amounts owed is the percentage of credit you've used compared to the credit available to you, which is known as [credit utilization](https://www.investopedia.com/terms/c/credit-utilization-rate.asp). * **Length of credit history**: Longer credit histories are considered less risky, as there is more data to determine payment history. * **Credit mix**: A variety of credit types shows lenders you can manage various types of credit. It can include installment credit, such as car loans or mortgage loans, and revolving credit, such as credit cards. * **New credit**: Lenders view new credit as a potential sign you may be desperate for credit. Too many recent applications for credit can negatively affect your credit score. ![Factors That Impact Your Credit Score]() :max_bytes(150000):strip_icc()/credit_score.asp_final2-3f545dab2a8240298052c6a80225e78b.png) Ellen Lindner / Investopedia ### Advisor Insight [Kathryn Hauer, CFP, Enrolled Agent](https://www.investopedia.com/kathryn-hauer-4692609) Wilson David Investment Advisors, Aiken*,* S.C. If you have many credit cards and want to close some that you do not use, closing credit cards can indeed lower your score. Instead of closing accounts, gather up the cards you don’t use. Keep them in a safe place in separate, labeled envelopes. Go online to access and check each of your cards. For each, ensure that there is no balance and that your address, email address, and other contact info are correct. Also, make sure that you don’t have autopay set up on any of them. In the section where you can have alerts, make sure you have your email address or phone in there. Make it a point to regularly check that no fraudulent activity occurs on them, since you aren’t going to be using them. Set yourself a reminder to check them all every six months or every year to make sure there have been no charges on them and that nothing unusual has happened. ## VantageScore VantageScore is a consumer [credit rating](https://www.investopedia.com/terms/c/creditrating.asp) product developed by the Equifax, Experian, and TransUnion credit bureaus as an alternative to the FICO Score. FICO creates a single bureau-specific score for each of the three credit bureaus, using only information from that bureau. As a result, the FICO is actually three scores, not one, and they can vary slightly as each bureau will have different calculation methods. A VantageScore is a single, tri-bureau score, combining information from all three credit bureaus and used by each of them the same. ### Note FICO score is the [most popular credit score](https://www.investopedia.com/fico-credit-scores-explained-5072985), used by about 90% of lenders. ## How to Improve Your Credit Score When information is updated on a borrower’s credit report, their credit score changes and can rise or fall based on new information. Here are some ways that your can [improve your credit score](https://www.investopedia.com/how-to-improve-your-credit-score-4590097): * **Pay your bills on time**: Six months of on-time payments are required to see a noticeable difference in your score. * **Increase your credit line**: If you have credit card accounts, call and inquire about a credit increase. If your account is in good standing, you should be granted an increase in your credit limit. However, it is important not to spend this amount so that you maintain a lower credit utilization rate. Meanwhile, try to pay down your debt. * **Don’t close a credit card account**: If you are not using a certain credit card, it is best to stop using it instead of closing the account. [Depending on the age](https://www.investopedia.com/average-credit-scores-by-age-5214511) and credit limit of a card, it can hurt your credit score if you close the account. * **Work with one a credit repair companies**: If you don’t have the time to improve your credit score, [credit repair companies](https://www.investopedia.com/best-credit-repair-companies-4843898) can negotiate with your creditors and the three credit agencies on your behalf, in exchange for a monthly fee. * **Correct any errors on your credit report**: You are entitled to one free credit report per year from each of the main credit bureaus. You can get your report through [AnnualCreditReport.com](https://www.annualcreditreport.com/index.action). You can also hire a [monitoring service](https://www.investopedia.com/best-credit-monitoring-services-4846982) to help keep your information secure. ## What is a Good Credit Score to Have? What a good credit score is will ultimately be determined by the lenders. Ranges vary depending on the credit scoring model. Generally, credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and higher are considered excellent. ## Who Calculates Credit Scores? There are three major credit bureaus in the United States: Equifax, Experian, and TransUnion. They each calculate your FICO score in different ways using the same information. Credit bureaus collect, analyze, and disburse information about consumers in the credit markets. ## How Can I Raise My Credit Score Quickly? To raise your credit score quickly, you can enroll in a service that includes other payment information such as your rent payments and utilities payments that are not typically included in your credit score. If you have had a good track record with these kinds of bills, enrolling in a service like Experian Boost could raise your credit score quickly. ## The Bottom Line Your credit score is a number that can have a significant impact on your financial life. If you have a good credit score, you are more likely to qualify for loans and to receive better terms that can save you money. Learning what your credit score is and what goes into calculating your credit score can help you take steps to improve it.

What Is a Credit Score? A credit score is a three-digit number that rates your creditworthiness. FICO scores range from 300 to 850. The higher the score, the more likely you are to get approved for loans and for better rates. A credit score is based on your credit history, which includes information like the number accounts, total levels of debt, repayment history, and other factors. Lenders use credit scores to evaluate your credit worthiness, or the likelihood that you will repay loans in a timely manner. There are three major credit bureaus in the U.S.: Equifax, Experian, and TransUnion. This trio dominates the market for collecting, analyzing, and disbursing information about consumers in the credit markets. Key Takeaways A credit score is a number that depicts a consumer’s creditworthiness. FICO scores range from 300 to 850.Factors used to calculate your credit score include repayment history, types of loans, length of credit history, debt utilization, and whether you've applied for new accounts.A credit score plays a key role in a lender’s decision to offer credit and for what terms.The three main U.S. credit bureaus (Equifax, Experian, and TransUnion) may each calculate your FICO score differently. The credit score model was created by the Fair Isaac Corp., now known as FICO, and is used by financial institutions. While other credit scoring systems exist, the FICO Score is by far the most commonly used. There are a number factors that go into calculating your FICO credit score, including your repayment history, your debt utilization, the length of your credit history, your credit mix, and any new account openings. Lenders use your credit score to determines whether to approve you for products like mortgages, personal loans, and credit cards, and what interest rates you will pay. Note Prospective employers may also check it to see whether you're a reliable person. Service providers and utility companies may check it to decide whether you are required to make a deposit. How Credit Scores Work A credit score can significantly affect your financial life. It plays a key role in a lender’s decision to offer you credit. Lenders are more likely to approve you for loans when you have a higher credit score, and are more likely to decline your loan applications when you have lower scores. You can also get better interest rates when you have a higher credit score, which can save you money in the long-term. Conversely, a credit score of 700 or higher is generally viewed positively by lenders, and may result in a lower interest rate. Scores greater than 800 are considered excellent. Every creditor defines its own ranges for credit scores and its own criteria for lending. Here are the general ranges for how credit scores are categorized. Excellent: 800–850Very Good: 740–799Good: 670–739Fair: 580–669Poor: 300–579 Note Your credit score also may determine the size of deposit required to get a smartphone, cable service, or utilities, or to rent an apartment. What Is A Credit Score? Tip Order your copy of Investopedia's What To Do With $10,000 magazine for more tips about managing debt and building credit. How Your Credit Score Is Calculated The three major credit reporting agencies in the U.S. (Equifax, Experian, and TransUnion) report, update, and store consumers’ credit histories. While there can be differences in the information collected by the three credit bureaus, five main factors are evaluated when calculating a credit score: Payment history (35%)Amounts owed (30%)Length of credit history (15%)Types of credit (10%)New credit (10%) Payment history: Your payment history includes whether you've paid your bills on time. It takes into account how many late payments you've had, and how late they were. Amounts owed: Amounts owed is the percentage of credit you've used compared to the credit available to you, which is known as credit utilization. Length of credit history: Longer credit histories are considered less risky, as there is more data to determine payment history. Credit mix: A variety of credit types shows lenders you can manage various types of credit. It can include installment credit, such as car loans or mortgage loans, and revolving credit, such as credit cards. New credit: Lenders view new credit as a potential sign you may be desperate for credit. Too many recent applications for credit can negatively affect your credit score. Ellen Lindner / Investopedia Advisor Insight Kathryn Hauer, CFP, Enrolled AgentWilson David Investment Advisors, Aiken, S.C. If you have many credit cards and want to close some that you do not use, closing credit cards can indeed lower your score. Instead of closing accounts, gather up the cards you don’t use. Keep them in a safe place in separate, labeled envelopes. Go online to access and check each of your cards. For each, ensure that there is no balance and that your address, email address, and other contact info are correct. Also, make sure that you don’t have autopay set up on any of them. In the section where you can have alerts, make sure you have your email address or phone in there. Make it a point to regularly check that no fraudulent activity occurs on them, since you aren’t going to be using them. Set yourself a reminder to check them all every six months or every year to make sure there have been no charges on them and that nothing unusual has happened. VantageScore VantageScore is a consumer credit rating product developed by the Equifax, Experian, and TransUnion credit bureaus as an alternative to the FICO Score. FICO creates a single bureau-specific score for each of the three credit bureaus, using only information from that bureau. As a result, the FICO is actually three scores, not one, and they can vary slightly as each bureau will have different calculation methods. A VantageScore is a single, tri-bureau score, combining information from all three credit bureaus and used by each of them the same. Note FICO score is the most popular credit score, used by about 90% of lenders. How to Improve Your Credit Score When information is updated on a borrower’s credit report, their credit score changes and can rise or fall based on new information. Here are some ways that your can improve your credit score: Pay your bills on time: Six months of on-time payments are required to see a noticeable difference in your score.  Increase your credit line: If you have credit card accounts, call and inquire about a credit increase. If your account is in good standing, you should be granted an increase in your credit limit. However, it is important not to spend this amount so that you maintain a lower credit utilization rate. Meanwhile, try to pay down your debt. Don’t close a credit card account: If you are not using a certain credit card, it is best to stop using it instead of closing the account. Depending on the age and credit limit of a card, it can hurt your credit score if you close the account. Work with one a credit repair companies: If you don’t have the time to improve your credit score, credit repair companies can negotiate with your creditors and the three credit agencies on your behalf, in exchange for a monthly fee. Correct any errors on your credit report: You are entitled to one free credit report per year from each of the main credit bureaus. You can get your report through AnnualCreditReport.com. You can also hire a monitoring service to help keep your information secure. What is a Good Credit Score to Have? What a good credit score is will ultimately be determined by the lenders. Ranges vary depending on the credit scoring model. Generally, credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and higher are considered excellent. Who Calculates Credit Scores? There are three major credit bureaus in the United States: Equifax, Experian, and TransUnion. They each calculate your FICO score in different ways using the same information. Credit bureaus collect, analyze, and disburse information about consumers in the credit markets. How Can I Raise My Credit Score Quickly? To raise your credit score quickly, you can enroll in a service that includes other payment information such as your rent payments and utilities payments that are not typically included in your credit score. If you have had a good track record with these kinds of bills, enrolling in a service like Experian Boost could raise your credit score quickly. The Bottom Line Your credit score is a number that can have a significant impact on your financial life. If you have a good credit score, you are more likely to qualify for loans and to receive better terms that can save you money. Learning what your credit score is and what goes into calculating your credit score can help you take steps to improve it.

https://www.investopedia.com/investing/benefits-living-nj-while-working-nyc/

Benefits of Living in NJ While Working in NYC

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Living in New Jersey while working in New York City has its advantages. Among them are affordable housing, reliable transportation options into Manhattan, and easier access to parking for car owners. </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"> Read below to learn more about the reasons why commuters might want to settle in New Jersey. </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>New York City may offer more job opportunities in a wider range of industries than New Jersey.</li><li>In terms of real estate, New York City is one of the most expensive cities in the world.</li><li>Certain cities and towns in New Jersey may be more affordable if you don't mind paying for the commute into Manhattan.</li></ul></div></div></div> <span class="heading-toc" id="toc-housing-is-cheaper"></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"> Housing Is Cheaper </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/080916/top-10-most-expensive-cities-us.asp">New York City</a> has some of the highest housing costs in the country. As of May 2024, the average value of a residential house has risen to $1,140,709—a 6.1% decrease from 2023 levels.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> In New Jersey, the average cost is less than half that, at $522,643, and prices rose 9.8% over the past year.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> You can get more house or apartment for a much lower price by heading to New Jersey, according to those figures. </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-you-can-take-a-train-to-work"></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"> You Can Take a Train to Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> It might seem odd to commute to work from another state, but if you live in the northern or north-central portions of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/011316/new-jerseys-economy-9-industries-driving-gdp-growth.asp">New Jersey</a>, work is only 30 minutes to an hour away. You can take a ferry across the Hudson River or transit trains into midtown's Penn Station, and you can get some work done on the commute. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> If you would prefer to live further out and drive into the city, you may look at commute times of an hour to two hours or more. For example, Princeton, N.J., is about an hour and a half from Manhattan, which isn’t so bad. You could spend nearly that long on subways and buses getting to work from Queens or Brooklyn. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you decide to commute, you need to factor in the cost of each weekday ride, but some employers offer a pretax way of paying these amounts.<span class="ql-inline-citation" data-cite="14"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> But don't be fooled—there are downsides to a Jersey commute. For example, during spring 2017, there was an unusual number of signal problems, derailments, and other issues, creating a number of massive delays in Penn Station that turned commuting into a nightmare.<span class="ql-inline-citation" data-cite="5"></span> And in early 2020 several power outages forced one tunnel under the Hudson River out of commission, reducing the rush hour service by more than half.<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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> And if Manhattan's plan for congestion pricing goes into effect (New Jersey has filed a lawsuit to block it, with a ruling expected in June 2024), anyone driving into the central business district below 60th Street will be charged a $15 toll, which will raise the cost of a commute.<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_24-0"></div> <span class="heading-toc" id="toc-its-easier-to-have-a-car"></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"> It's Easier to Have a Car </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Having a car in New York City is expensive. Just parking your car in a municipal garage could run between $250 and $500 or more monthly.<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"> Add about $80 for insurance and gas and you could easily pay $700 or more per month, and congestion pricing in midtown, set to begin June 30, 2024, will add to the cost.<strong><span class="ql-inline-citation" data-cite="19"></span> </strong>In addition, getting around New York City by car can be daunting and finding a parking spot can be difficult. Traffic and a shortage of street parking are just two of the problems. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Many parts of New Jersey have more of a suburban feel. Depending on where you live, you can park your car in your driveway or apartment parking lot for free, head to the grocery store, or take the kids to baseball practice. </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-lower-taxes"></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"> Lower Taxes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Did you know that, in addition to New York state taxes, New York City levies a city tax? The lowest tax rate is 3.078%, and it goes up to 3.876% if you earn more than $50,000 per year.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Living in New Jersey eliminates that city tax for most employees, but the state tax can be expensive. The New York state tax starts at 4% and goes as high as 10.90%, while in New Jersey rates start at 1.4%, though they go as high as 10.75% if you make more than $1,000,000.<span class="ql-inline-citation" data-cite="9"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Notably, <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> in New York City is 8.875%, while in New Jersey the statewide retail sales tax is 6.625%.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> In East Orange, N.J., the sales tax is only 3.3125%.<span class="ql-inline-citation" data-cite="16"></span><span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <span class="heading-toc" id="toc-more-public-school-choices"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-heading__text"> More Public School Choices </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> If you have kids, you want them to attend the best schools. New Jersey has the second-highest high school graduation rate. In the 2018–19 school year, the most recent year for which data is available, 90.6% of public high school students in New Jersey graduated.<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_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Although New York City is home to many superior public schools, placement into them depends on a myriad of factors, from high test scores to a student's location. </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-plenty-of-scenery"></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"> Plenty of Scenery </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> New York City has Central Park, architectural gems like the High Line walkway and the Empire State Building, and plenty of other attractions, but New Jersey has a diverse portfolio of beautiful places as well. </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"> There are some heavily industrialized areas that aren't so scenic, but with 127 miles of ocean coastline, plenty of scenic driving routes, state parks with hiking trails, and a stunning view of New York City from across the Hudson River, there’s a lot to see in New Jersey if you’re looking for natural beauty. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-is-it-cheaper-to-live-in-new-jersey-or-new-york"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is It Cheaper to Live in New Jersey or New York?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most cost of living points—housing, food, taxes, and most utilities—are cheaper in New Jersey than in New York City.</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-is-income-tax-higher-in-new-jersey-or-new-york"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Income Tax Higher in New Jersey or New York?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Income taxes are higher in New York City than in New Jersey. Even though New York's state income tax rate isn't much higher than New Jersey's (New York state income taxes range from 4% to 10.90%; New Jersey's range from 1.4% to 10.75%), New York City comes out higher, as the city levies a city income tax that ranges between 3.078% and 3.876%.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="7"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-do-you-pay-double-taxes-if-you-work-in-new-york-and-live-in-new-jersey"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do You Pay Double Taxes If You Work in New York and Live in New Jersey?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In general, you do not pay double taxes if you work in New York City and live in New Jersey. While you are required to file a non-resident tax return in New York and also a resident tax return in New Jersey, you will receive a New Jersey tax credit for, generally, the same amount you paid in New York taxes. As a New Jersey commuter, you are also exempt, in most cases, from paying New York City income tax.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Commuting to New Jersey is something to consider if you want to pay less for housing and have more space. The state itself offers a lot of natural beauty as well as smaller cities that may appeal to urbanites. </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"> Like other states, there are downsides to living in New Jersey—the cost of commuting and higher property taxes—but New York's neighboring state has a lot to offer. </p></div>

Living in New Jersey while working in New York City has its advantages. Among them are affordable housing, reliable transportation options into Manhattan, and easier access to parking for car owners. Read below to learn more about the reasons why commuters might want to settle in New Jersey. ### Key Takeaways * New York City may offer more job opportunities in a wider range of industries than New Jersey. * In terms of real estate, New York City is one of the most expensive cities in the world. * Certain cities and towns in New Jersey may be more affordable if you don't mind paying for the commute into Manhattan. ## Housing Is Cheaper [New York City](https://www.investopedia.com/articles/personal-finance/080916/top-10-most-expensive-cities-us.asp) has some of the highest housing costs in the country. As of May 2024, the average value of a residential house has risen to $1,140,709—a 6.1% decrease from 2023 levels. In New Jersey, the average cost is less than half that, at $522,643, and prices rose 9.8% over the past year. You can get more house or apartment for a much lower price by heading to New Jersey, according to those figures. ## You Can Take a Train to Work It might seem odd to commute to work from another state, but if you live in the northern or north-central portions of [New Jersey](https://www.investopedia.com/articles/investing/011316/new-jerseys-economy-9-industries-driving-gdp-growth.asp), work is only 30 minutes to an hour away. You can take a ferry across the Hudson River or transit trains into midtown's Penn Station, and you can get some work done on the commute. If you would prefer to live further out and drive into the city, you may look at commute times of an hour to two hours or more. For example, Princeton, N.J., is about an hour and a half from Manhattan, which isn’t so bad. You could spend nearly that long on subways and buses getting to work from Queens or Brooklyn. ### If you decide to commute, you need to factor in the cost of each weekday ride, but some employers offer a pretax way of paying these amounts. But don't be fooled—there are downsides to a Jersey commute. For example, during spring 2017, there was an unusual number of signal problems, derailments, and other issues, creating a number of massive delays in Penn Station that turned commuting into a nightmare. And in early 2020 several power outages forced one tunnel under the Hudson River out of commission, reducing the rush hour service by more than half. And if Manhattan's plan for congestion pricing goes into effect (New Jersey has filed a lawsuit to block it, with a ruling expected in June 2024), anyone driving into the central business district below 60th Street will be charged a $15 toll, which will raise the cost of a commute. ## It's Easier to Have a Car Having a car in New York City is expensive. Just parking your car in a municipal garage could run between $250 and $500 or more monthly. Add about $80 for insurance and gas and you could easily pay $700 or more per month, and congestion pricing in midtown, set to begin June 30, 2024, will add to the cost.In addition, getting around New York City by car can be daunting and finding a parking spot can be difficult. Traffic and a shortage of street parking are just two of the problems. Many parts of New Jersey have more of a suburban feel. Depending on where you live, you can park your car in your driveway or apartment parking lot for free, head to the grocery store, or take the kids to baseball practice. ## Lower Taxes Did you know that, in addition to New York state taxes, New York City levies a city tax? The lowest tax rate is 3.078%, and it goes up to 3.876% if you earn more than $50,000 per year. Living in New Jersey eliminates that city tax for most employees, but the state tax can be expensive. The New York state tax starts at 4% and goes as high as 10.90%, while in New Jersey rates start at 1.4%, though they go as high as 10.75% if you make more than $1,000,000.  Notably, [sales tax](https://www.investopedia.com/terms/s/salestax.asp) in New York City is 8.875%, while in New Jersey the statewide retail sales tax is 6.625%. In East Orange, N.J., the sales tax is only 3.3125%. ## More Public School Choices If you have kids, you want them to attend the best schools. New Jersey has the second-highest high school graduation rate. In the 2018–19 school year, the most recent year for which data is available, 90.6% of public high school students in New Jersey graduated. Although New York City is home to many superior public schools, placement into them depends on a myriad of factors, from high test scores to a student's location. ## Plenty of Scenery New York City has Central Park, architectural gems like the High Line walkway and the Empire State Building, and plenty of other attractions, but New Jersey has a diverse portfolio of beautiful places as well. There are some heavily industrialized areas that aren't so scenic, but with 127 miles of ocean coastline, plenty of scenic driving routes, state parks with hiking trails, and a stunning view of New York City from across the Hudson River, there’s a lot to see in New Jersey if you’re looking for natural beauty. ## Is It Cheaper to Live in New Jersey or New York? Most cost of living points—housing, food, taxes, and most utilities—are cheaper in New Jersey than in New York City. ## Is Income Tax Higher in New Jersey or New York? Income taxes are higher in New York City than in New Jersey. Even though New York's state income tax rate isn't much higher than New Jersey's (New York state income taxes range from 4% to 10.90%; New Jersey's range from 1.4% to 10.75%), New York City comes out higher, as the city levies a city income tax that ranges between 3.078% and 3.876%. ## Do You Pay Double Taxes If You Work in New York and Live in New Jersey? In general, you do not pay double taxes if you work in New York City and live in New Jersey. While you are required to file a non-resident tax return in New York and also a resident tax return in New Jersey, you will receive a New Jersey tax credit for, generally, the same amount you paid in New York taxes. As a New Jersey commuter, you are also exempt, in most cases, from paying New York City income tax. ## The Bottom Line Commuting to New Jersey is something to consider if you want to pay less for housing and have more space. The state itself offers a lot of natural beauty as well as smaller cities that may appeal to urbanites. Like other states, there are downsides to living in New Jersey—the cost of commuting and higher property taxes—but New York's neighboring state has a lot to offer.

Living in New Jersey while working in New York City has its advantages. Among them are affordable housing, reliable transportation options into Manhattan, and easier access to parking for car owners. Read below to learn more about the reasons why commuters might want to settle in New Jersey. Key Takeaways New York City may offer more job opportunities in a wider range of industries than New Jersey.In terms of real estate, New York City is one of the most expensive cities in the world.Certain cities and towns in New Jersey may be more affordable if you don't mind paying for the commute into Manhattan. Housing Is Cheaper New York City has some of the highest housing costs in the country. As of May 2024, the average value of a residential house has risen to $1,140,709—a 6.1% decrease from 2023 levels. In New Jersey, the average cost is less than half that, at $522,643, and prices rose 9.8% over the past year. You can get more house or apartment for a much lower price by heading to New Jersey, according to those figures. You Can Take a Train to Work It might seem odd to commute to work from another state, but if you live in the northern or north-central portions of New Jersey, work is only 30 minutes to an hour away. You can take a ferry across the Hudson River or transit trains into midtown's Penn Station, and you can get some work done on the commute. If you would prefer to live further out and drive into the city, you may look at commute times of an hour to two hours or more. For example, Princeton, N.J., is about an hour and a half from Manhattan, which isn’t so bad. You could spend nearly that long on subways and buses getting to work from Queens or Brooklyn. If you decide to commute, you need to factor in the cost of each weekday ride, but some employers offer a pretax way of paying these amounts. But don't be fooled—there are downsides to a Jersey commute. For example, during spring 2017, there was an unusual number of signal problems, derailments, and other issues, creating a number of massive delays in Penn Station that turned commuting into a nightmare. And in early 2020 several power outages forced one tunnel under the Hudson River out of commission, reducing the rush hour service by more than half. And if Manhattan's plan for congestion pricing goes into effect (New Jersey has filed a lawsuit to block it, with a ruling expected in June 2024), anyone driving into the central business district below 60th Street will be charged a $15 toll, which will raise the cost of a commute. It's Easier to Have a Car Having a car in New York City is expensive. Just parking your car in a municipal garage could run between $250 and $500 or more monthly. Add about $80 for insurance and gas and you could easily pay $700 or more per month, and congestion pricing in midtown, set to begin June 30, 2024, will add to the cost. In addition, getting around New York City by car can be daunting and finding a parking spot can be difficult. Traffic and a shortage of street parking are just two of the problems. Many parts of New Jersey have more of a suburban feel. Depending on where you live, you can park your car in your driveway or apartment parking lot for free, head to the grocery store, or take the kids to baseball practice. Lower Taxes Did you know that, in addition to New York state taxes, New York City levies a city tax? The lowest tax rate is 3.078%, and it goes up to 3.876% if you earn more than $50,000 per year. Living in New Jersey eliminates that city tax for most employees, but the state tax can be expensive. The New York state tax starts at 4% and goes as high as 10.90%, while in New Jersey rates start at 1.4%, though they go as high as 10.75% if you make more than $1,000,000.  Notably, sales tax in New York City is 8.875%, while in New Jersey the statewide retail sales tax is 6.625%. In East Orange, N.J., the sales tax is only 3.3125%. More Public School Choices If you have kids, you want them to attend the best schools. New Jersey has the second-highest high school graduation rate. In the 2018–19 school year, the most recent year for which data is available, 90.6% of public high school students in New Jersey graduated. Although New York City is home to many superior public schools, placement into them depends on a myriad of factors, from high test scores to a student's location. Plenty of Scenery New York City has Central Park, architectural gems like the High Line walkway and the Empire State Building, and plenty of other attractions, but New Jersey has a diverse portfolio of beautiful places as well. There are some heavily industrialized areas that aren't so scenic, but with 127 miles of ocean coastline, plenty of scenic driving routes, state parks with hiking trails, and a stunning view of New York City from across the Hudson River, there’s a lot to see in New Jersey if you’re looking for natural beauty. Is It Cheaper to Live in New Jersey or New York? Most cost of living points—housing, food, taxes, and most utilities—are cheaper in New Jersey than in New York City. Is Income Tax Higher in New Jersey or New York? Income taxes are higher in New York City than in New Jersey. Even though New York's state income tax rate isn't much higher than New Jersey's (New York state income taxes range from 4% to 10.90%; New Jersey's range from 1.4% to 10.75%), New York City comes out higher, as the city levies a city income tax that ranges between 3.078% and 3.876%. Do You Pay Double Taxes If You Work in New York and Live in New Jersey? In general, you do not pay double taxes if you work in New York City and live in New Jersey. While you are required to file a non-resident tax return in New York and also a resident tax return in New Jersey, you will receive a New Jersey tax credit for, generally, the same amount you paid in New York taxes. As a New Jersey commuter, you are also exempt, in most cases, from paying New York City income tax. The Bottom Line Commuting to New Jersey is something to consider if you want to pay less for housing and have more space. The state itself offers a lot of natural beauty as well as smaller cities that may appeal to urbanites. Like other states, there are downsides to living in New Jersey—the cost of commuting and higher property taxes—but New York's neighboring state has a lot to offer.

https://www.investopedia.com/s-and-p-500-gains-and-losses-today-paramount-global-sinks-as-sony-reconsiders-bid-8648562

S&P 500 Gains and Losses Today: Paramount Global Sinks as Sony Reconsiders Bid

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The S&amp;P 500 added 0.5% on Tuesday, May 14, 2024, boosted by an afternoon rally ahead of Wednesday's eagerly awaited Consumer Price Index (CPI) report.</li><li>Shares of Insulet moved higher, marking a reversal from last week's post-earnings downturn, amid strong growth expectations for its Omnipod insulin pump. </li><li>Paramount Global shares plunged following reports that Sony Pictures was reconsidering its offer to purchase the media giant.</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"> Major U.S. equities indexes hovered close to their flatlines for most of the session before rallying in the afternoon to end Tuesday higher. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> A report released in the morning showed a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wholesale-inflation-jump-raises-worries-over-upcoming-cpi-reading-8648227">greater-than-expected jump in wholesale inflation</a> in April, perhaps keeping a lid on stock gains for much of the day. But more inflation data is on the way Wednesday morning with the release of the latest <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumerpriceindex.asp">Consumer Price Index (CPI)</a> figures, which could tip the scale as the Federal Reserve weighs possible interest rate cuts. </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 S&amp;P 500 gained 0.5%. The Nasdaq was up 0.8%, bolstered by outperformance from the tech sector, while the Dow advanced 0.3%. </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"> Shares of Insulet (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=podd">PODD</a>) led the S&amp;P 500 higher on Tuesday, jumping 7.0%. The gains marked a reversal from heavy losses posted last week when the manufacturer of insulin management systems for patients with diabetes released mixed quarterly results. Although profits fell short of expectations, Insulet beat sales estimates and boosted its full-year revenue forecast, highlighting its Omnipod insulin pump as a growth driver. </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"> Enphase Energy (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=enph">ENPH</a>) shares added 5.7%, and other solar stocks also moved higher, after President Joe Biden <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/biden-levies-sweeping-tariffs-on-chinese-chips-solar-cells-evs-8648008">imposed sweeping tariffs</a> on a variety of imports from China, including solar cells, semiconductors, steel, and electric vehicles (EVs). Shares of EV maker Tesla (<a class="pseudoStyle" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsla">TSLA</a>) were up 3.3% following the tariff announcement. </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 server and data storage provider 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>) posted gains of 5.0%. Supermicro stock has cooled down since soaring above $1,000 per share in March, but the company remains well positioned to benefit from major tech firms increasing their spending on artificial intelligence (AI) infrastructure. </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"> Paramount Global (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=para">PARA</a>) shares suffered the S&amp;P 500's steepest decline, plunging 5.2% amid reports that Sony Pictures could be having second thoughts about its offer to acquire the media giant. Sony and private equity firm Apollo Global Management expressed interest earlier this month in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/paramount-soars-as-sony-apollo-reportedly-set-to-make-a-joint-bid-for-the-media-giant-8635917">purchasing Paramount for $26 billion</a> in cash. </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"> Shares of agribusiness Bunge Global (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=bg">BG</a>), the world's largest soybean producer, dropped 3.9%. The company recently announced it would temporarily suspend activities at its soybean crushing and port facility in Rio Grande, Brazil, as devastating floods in the region threaten supplies. </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"> FedEx (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=fdx">FDX</a>) shares lost 3.0% on Tuesday. Although successful cost-cutting initiatives helped the logistics and package delivery company beat profit estimates in its most recently reported quarter, FedEx faces a tough competitive environment, and its business remains dependent on global economic growth. </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"> Shares of Marathon Petroleum (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=mpc">MPC</a>) slipped 1.9% as the integrated energy firm announced changes to its management team. President Maryann Mannen is set to take over as chief executive officer from Michael Hennigan starting Aug. 1. Hennigan will stay on as executive chair following his departure from the CEO position. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * The S&P 500 added 0.5% on Tuesday, May 14, 2024, boosted by an afternoon rally ahead of Wednesday's eagerly awaited Consumer Price Index (CPI) report. * Shares of Insulet moved higher, marking a reversal from last week's post-earnings downturn, amid strong growth expectations for its Omnipod insulin pump. * Paramount Global shares plunged following reports that Sony Pictures was reconsidering its offer to purchase the media giant. Major U.S. equities indexes hovered close to their flatlines for most of the session before rallying in the afternoon to end Tuesday higher. A report released in the morning showed a [greater-than-expected jump in wholesale inflation](https://www.investopedia.com/wholesale-inflation-jump-raises-worries-over-upcoming-cpi-reading-8648227) in April, perhaps keeping a lid on stock gains for much of the day. But more inflation data is on the way Wednesday morning with the release of the latest [Consumer Price Index (CPI)](https://www.investopedia.com/terms/c/consumerpriceindex.asp) figures, which could tip the scale as the Federal Reserve weighs possible interest rate cuts. The S&P 500 gained 0.5%. The Nasdaq was up 0.8%, bolstered by outperformance from the tech sector, while the Dow advanced 0.3%. Shares of Insulet ([PODD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=podd)) led the S&P 500 higher on Tuesday, jumping 7.0%. The gains marked a reversal from heavy losses posted last week when the manufacturer of insulin management systems for patients with diabetes released mixed quarterly results. Although profits fell short of expectations, Insulet beat sales estimates and boosted its full-year revenue forecast, highlighting its Omnipod insulin pump as a growth driver. Enphase Energy ([ENPH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=enph)) shares added 5.7%, and other solar stocks also moved higher, after President Joe Biden [imposed sweeping tariffs](https://www.investopedia.com/biden-levies-sweeping-tariffs-on-chinese-chips-solar-cells-evs-8648008) on a variety of imports from China, including solar cells, semiconductors, steel, and electric vehicles (EVs). Shares of EV maker Tesla ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsla)) were up 3.3% following the tariff announcement. Shares of server and data storage provider Super Micro Computer ([SMCI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=smci)) posted gains of 5.0%. Supermicro stock has cooled down since soaring above $1,000 per share in March, but the company remains well positioned to benefit from major tech firms increasing their spending on artificial intelligence (AI) infrastructure. Paramount Global ([PARA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=para)) shares suffered the S&P 500's steepest decline, plunging 5.2% amid reports that Sony Pictures could be having second thoughts about its offer to acquire the media giant. Sony and private equity firm Apollo Global Management expressed interest earlier this month in [purchasing Paramount for $26 billion](https://www.investopedia.com/paramount-soars-as-sony-apollo-reportedly-set-to-make-a-joint-bid-for-the-media-giant-8635917) in cash. Shares of agribusiness Bunge Global ([BG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=bg)), the world's largest soybean producer, dropped 3.9%. The company recently announced it would temporarily suspend activities at its soybean crushing and port facility in Rio Grande, Brazil, as devastating floods in the region threaten supplies. FedEx ([FDX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=fdx)) shares lost 3.0% on Tuesday. Although successful cost-cutting initiatives helped the logistics and package delivery company beat profit estimates in its most recently reported quarter, FedEx faces a tough competitive environment, and its business remains dependent on global economic growth. Shares of Marathon Petroleum ([MPC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=mpc)) slipped 1.9% as the integrated energy firm announced changes to its management team. President Maryann Mannen is set to take over as chief executive officer from Michael Hennigan starting Aug. 1. Hennigan will stay on as executive chair following his departure from the CEO position. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways The S&P 500 added 0.5% on Tuesday, May 14, 2024, boosted by an afternoon rally ahead of Wednesday's eagerly awaited Consumer Price Index (CPI) report.Shares of Insulet moved higher, marking a reversal from last week's post-earnings downturn, amid strong growth expectations for its Omnipod insulin pump. Paramount Global shares plunged following reports that Sony Pictures was reconsidering its offer to purchase the media giant. Major U.S. equities indexes hovered close to their flatlines for most of the session before rallying in the afternoon to end Tuesday higher. A report released in the morning showed a greater-than-expected jump in wholesale inflation in April, perhaps keeping a lid on stock gains for much of the day. But more inflation data is on the way Wednesday morning with the release of the latest Consumer Price Index (CPI) figures, which could tip the scale as the Federal Reserve weighs possible interest rate cuts. The S&P 500 gained 0.5%. The Nasdaq was up 0.8%, bolstered by outperformance from the tech sector, while the Dow advanced 0.3%. Shares of Insulet (PODD) led the S&P 500 higher on Tuesday, jumping 7.0%. The gains marked a reversal from heavy losses posted last week when the manufacturer of insulin management systems for patients with diabetes released mixed quarterly results. Although profits fell short of expectations, Insulet beat sales estimates and boosted its full-year revenue forecast, highlighting its Omnipod insulin pump as a growth driver. Enphase Energy (ENPH) shares added 5.7%, and other solar stocks also moved higher, after President Joe Biden imposed sweeping tariffs on a variety of imports from China, including solar cells, semiconductors, steel, and electric vehicles (EVs). Shares of EV maker Tesla (TSLA) were up 3.3% following the tariff announcement. Shares of server and data storage provider Super Micro Computer (SMCI) posted gains of 5.0%. Supermicro stock has cooled down since soaring above $1,000 per share in March, but the company remains well positioned to benefit from major tech firms increasing their spending on artificial intelligence (AI) infrastructure. Paramount Global (PARA) shares suffered the S&P 500's steepest decline, plunging 5.2% amid reports that Sony Pictures could be having second thoughts about its offer to acquire the media giant. Sony and private equity firm Apollo Global Management expressed interest earlier this month in purchasing Paramount for $26 billion in cash. Shares of agribusiness Bunge Global (BG), the world's largest soybean producer, dropped 3.9%. The company recently announced it would temporarily suspend activities at its soybean crushing and port facility in Rio Grande, Brazil, as devastating floods in the region threaten supplies. FedEx (FDX) shares lost 3.0% on Tuesday. Although successful cost-cutting initiatives helped the logistics and package delivery company beat profit estimates in its most recently reported quarter, FedEx faces a tough competitive environment, and its business remains dependent on global economic growth. Shares of Marathon Petroleum (MPC) slipped 1.9% as the integrated energy firm announced changes to its management team. President Maryann Mannen is set to take over as chief executive officer from Michael Hennigan starting Aug. 1. Hennigan will stay on as executive chair following his departure from the CEO position. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/articles/personal-finance/101514/power-attorney-do-you-need-one.asp

Power of Attorney: When You Need One

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A power of attorney (POA) is a legal document in which the principal (you) designates another person (called the agent or attorney-in-fact) to act on your behalf. The document authorizes the agent to make either a limited or broader set of decisions. The term "power of attorney" can also refer to the individual designated to act in this way. </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 power of attorney (POA) is a legal document that gives an individual, called the agent or attorney-in-fact, the authority to take action on behalf of someone else, called the principal.</li><li>The agent can have either extensive or limited authority to make legal decisions about the principal's property, finances, or healthcare, depending on the terms of the POA.</li><li>Types of POA include <em>conventional</em>, also known as a limited power of attorney, <em>durable</em>, which lasts for a lifetime unless you cancel it, <em>springing</em>, which only comes into play for specific events, and <em>medical</em>, also known as a durable power of attorney for healthcare.<span class="ql-inline-citation" data-cite="3"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-power-of-attorney-poa-works"></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 a Power of Attorney (POA) Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Certain circumstances may trigger the desire for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/powerofattorney.asp" rel="noopener noreferrer">power of attorney (POA)</a> for someone over the age of 18. For example, someone in the military might create a POA before deploying overseas so that another person can act on their behalf should they become incapacitated. </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"> Incapacity isn't the only reason someone might need a POA, though. Expatriates workers and families need to set a POA for their affairs in America while doing their work overseas. Younger people who travel a great deal might set up a POA so that someone can handle their affairs in their absence, especially if they have no spouse to do so. However, POAs are most commonly established when someone is elderly or if they face a serious, more long-term health crisis. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> If you have a POA and become unable to act on your own behalf due to mental or physical incapacity, your agent or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/attorneyinfact.asp" rel="noopener noreferrer">attorney-in-fact</a> may be called upon to make financial decisions to ensure your well-being and care. For example, they may need to pay bills, sell assets to pay for medical expenses, and take steps for Medicaid planning for you. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Other important tasks a POA can authorize someone to carry out are banking transactions, real estate decisions, dealing with government or retirement benefits, and healthcare billing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-how-to-get-a-power-of-attorney-poa"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> How to Get a Power of Attorney (POA) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The first thing to do if you want a power of attorney is to select someone you trust to handle your affairs if and when you cannot. Then you must decide what the agent can do on your behalf, and in what circumstances. For example, you could establish a POA that only happens when you are no longer capable of handling your affairs yourself—or one that goes into effect immediately so your agent can act for you in your absence. </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"> Some powers of attorney are limited. For instance, the POA could merely empower someone to represent you at a real estate closing in another city. Also, note that even when a general POA contains no such limiting language, it usually only operates while the person conveying the power, called “the principal,” has full capacity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you have property that is only in your name, your spouse would need a power of attorney to take legal or financial actions related to that property (like selling it).</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Anyone can set up a POA. One way is to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-legal-services-5113087">find a template online</a> that satisfies the requirements of the state in which you live, and execute it according to your state's guidelines (it may need to be <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/notarize.asp">notarized</a> and require witnesses). </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"> POAs differ depending on when you want the authority to start and end, how much responsibility you want to give your agent, and the laws in the state where you live. There is no uniform POA common to every state. States have different requirements for establishing a power of attorney—Pennsylvania’s statute, for instance, makes the legal assumption that a power of attorney is durable.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Using an attorney to draw up the POA will help ensure that it conforms with state requirements. Since a POA may be questioned if an agent needs to invoke it with a bank or financial services company, you should ask an attorney about prior experience in drafting such powers. You want to select someone not only familiar with state requirements, but also with the issues that can arise when a power is invoked. This way, the attorney can use language that will make clear the full extent of the responsibilities that you wish to convey. </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"> To set up a legally binding POA, the principal must have sufficient mental capacity when the document is drawn up. This means that they must fully understand the nature and effect of the document. It also means that if you have an ill parent who is already incapacitated, you won't be able to get a power of attorney to act on their behalf. </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 POA can be canceled or revoked at any time simply by destroying the original document and preparing a new one, or by preparing a formal revocation document informing all concerned that the POA is no longer a valid instrument. </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-what-happens-if-you-lack-a-power-of-attorney-poa"></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"> What Happens If You Lack a Power of Attorney (POA) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> POAs are not just reassuring; they may become the instruments that protect your financial and real estate interests, your health, and even your manner of dying. If you are incapacitated and have no POA designated to take the wheel, your family will likely be forced into costly and time-consuming delays. </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"> Principals have to set up POAs for themselves. A family can't "get" a POA when they suddenly realize that an elderly relative is no longer able to manage their affairs. In this situation, a court would have to appoint a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/guardian.asp" rel="noopener noreferrer">guardian</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conservatorship.asp" rel="noopener noreferrer">conservator</a>, and neither the individual nor their family would have any control over the appointee. In some states, the guardian is required to post a bond and file a detailed inventory and accounting of the person's relevant assets. The entire affair is more complicated, more costly—and more public —when a POA is not already in place. </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-four-types-of-poas"></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"> Four Types of POAs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> There are several types of POAs, as well as various degrees of responsibility that you can delegate.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <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"> General POA </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> This starts when it is signed and continues in force <em>until</em> you become mentally unable to make coherent decisions. It is important to state exactly what authority you are giving your agent. It could be something very specific, like giving your attorney the power to sign a deed of sale for your house while you're on a trip around the world. </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"> This is called a "limited power of attorney" and it can be quite common in everyday life. One common use of it is what is called discretionary money management, or what gives money managers the authority to buy and sell investments on their client's behalf based on their own decisions not their client's. Or you could specify a much broader range of powers, such as access to your bank accounts (what's known as a "general power of attorney"). </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"> Durable POA </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> A durable POA begins when it is signed but stays in effect for a <em>lifetime</em> unless you initiate the cancellation. Words in the document should specify that your agent's power should stay in effect even if you become incapacitated. Durable POAs are popular because the agent can manage affairs easily and inexpensively. </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"> Springing POA </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> This POA comes into play only when a specific event occurs—your incapacitation, for instance. A springing power of attorney must be very carefully crafted to avoid any problems in identifying precisely when the triggering event has happened. </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"> Medical POA </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> A medical POA, or durable power of attorney for healthcare decisions, or health care proxy,<strong> </strong>is both a durable and a springing POA. The springing aspect means that the POA takes effect only if specific conditions take place. As long as the principal is conscious, and of sound mind and body, the medical POA will not be triggered. Some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/managing-wealth/042216/medical-vs-financial-power-attorney-reasons-separate-them.asp" rel="noopener noreferrer">medical POAs</a> are written to end when the principal recovers from the incapacitating condition. You can have different POAs for different situations and appoint different agents to hold them as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <span class="heading-toc" id="toc-a-will-is-not-a-poa"></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"> A Will Is Not a POA </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Do not expect your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/will.asp" rel="noopener noreferrer">will</a> to serve as a substitute for a power of attorney. A will designates the distribution of your property after death, while a POA is related to decisions made during your life. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> However, you can have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/livingwill.asp" rel="noopener noreferrer">living will</a> in addition to a healthcare POA. A living will usually addresses specific issues and wishes related to medical treatment if you have a terminal condition, or related to dying (such as the extent to which lifesaving measures should be used). </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"> A living will does not always deal with other important medical issues, however, such as whether you would decline dialysis or a blood transfusion. These are the kinds of concerns that can be directly articulated in a durable power of attorney for healthcare decisions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <span class="heading-toc" id="toc-who-should-be-your-attorney-in-fact"></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"> Who Should Be Your Attorney-in-Fact? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> The person you choose as your agent must be someone you trust without hesitation. Depending on how you've worded your POA, the person you select will have access to and be able to make decisions about your health, home, business affairs, personal property, and financial accounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> It is useful to contact each institution you do business with to be certain that your POA authority will be honored. Some banks and financial institutions have their own forms to complete. </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 may name more than one person to act as your agent and ask that they work together. However, bear in mind that they may not always have the same view of what needs to be done. You should also appoint a successor agent, in the event that the agent you originally chose cannot serve in that capacity when the need arises.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_67-0"><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_68-0"><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>Signing a POA does not deprive you of control over your personal affairs. It is a contingency document that becomes a powerful instrument only when it is needed.</p></div></div></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"> Choosing someone to hold your power of attorney and specifying that it will operate even if you lose capacity ensures that you have a plan in place for administering your financial and personal affairs if you are ever unable to do so. </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"> This gives you more control over how that process will be handled should the need ever arise. If you move to another state, your power of attorney should remain effective; however, the American Bar Association recommends that you use such a move to update your power of attorney.<span class="ql-inline-citation" data-cite="2"></span> The power expires upon your death. </p></div>

A power of attorney (POA) is a legal document in which the principal (you) designates another person (called the agent or attorney-in-fact) to act on your behalf. The document authorizes the agent to make either a limited or broader set of decisions. The term "power of attorney" can also refer to the individual designated to act in this way. ### Key Takeaways * A power of attorney (POA) is a legal document that gives an individual, called the agent or attorney-in-fact, the authority to take action on behalf of someone else, called the principal. * The agent can have either extensive or limited authority to make legal decisions about the principal's property, finances, or healthcare, depending on the terms of the POA. * Types of POA include *conventional*, also known as a limited power of attorney, *durable*, which lasts for a lifetime unless you cancel it, *springing*, which only comes into play for specific events, and *medical*, also known as a durable power of attorney for healthcare. ## How a Power of Attorney (POA) Works Certain circumstances may trigger the desire for a [power of attorney (POA)](https://www.investopedia.com/terms/p/powerofattorney.asp) for someone over the age of 18. For example, someone in the military might create a POA before deploying overseas so that another person can act on their behalf should they become incapacitated. Incapacity isn't the only reason someone might need a POA, though. Expatriates workers and families need to set a POA for their affairs in America while doing their work overseas. Younger people who travel a great deal might set up a POA so that someone can handle their affairs in their absence, especially if they have no spouse to do so. However, POAs are most commonly established when someone is elderly or if they face a serious, more long-term health crisis. If you have a POA and become unable to act on your own behalf due to mental or physical incapacity, your agent or [attorney-in-fact](https://www.investopedia.com/terms/a/attorneyinfact.asp) may be called upon to make financial decisions to ensure your well-being and care. For example, they may need to pay bills, sell assets to pay for medical expenses, and take steps for Medicaid planning for you. Other important tasks a POA can authorize someone to carry out are banking transactions, real estate decisions, dealing with government or retirement benefits, and healthcare billing. ## How to Get a Power of Attorney (POA) The first thing to do if you want a power of attorney is to select someone you trust to handle your affairs if and when you cannot. Then you must decide what the agent can do on your behalf, and in what circumstances. For example, you could establish a POA that only happens when you are no longer capable of handling your affairs yourself—or one that goes into effect immediately so your agent can act for you in your absence. Some powers of attorney are limited. For instance, the POA could merely empower someone to represent you at a real estate closing in another city. Also, note that even when a general POA contains no such limiting language, it usually only operates while the person conveying the power, called “the principal,” has full capacity. ### If you have property that is only in your name, your spouse would need a power of attorney to take legal or financial actions related to that property (like selling it). Anyone can set up a POA. One way is to [find a template online](https://www.investopedia.com/best-online-legal-services-5113087) that satisfies the requirements of the state in which you live, and execute it according to your state's guidelines (it may need to be [notarized](https://www.investopedia.com/terms/n/notarize.asp) and require witnesses). POAs differ depending on when you want the authority to start and end, how much responsibility you want to give your agent, and the laws in the state where you live. There is no uniform POA common to every state. States have different requirements for establishing a power of attorney—Pennsylvania’s statute, for instance, makes the legal assumption that a power of attorney is durable. Using an attorney to draw up the POA will help ensure that it conforms with state requirements. Since a POA may be questioned if an agent needs to invoke it with a bank or financial services company, you should ask an attorney about prior experience in drafting such powers. You want to select someone not only familiar with state requirements, but also with the issues that can arise when a power is invoked. This way, the attorney can use language that will make clear the full extent of the responsibilities that you wish to convey. To set up a legally binding POA, the principal must have sufficient mental capacity when the document is drawn up. This means that they must fully understand the nature and effect of the document. It also means that if you have an ill parent who is already incapacitated, you won't be able to get a power of attorney to act on their behalf. The POA can be canceled or revoked at any time simply by destroying the original document and preparing a new one, or by preparing a formal revocation document informing all concerned that the POA is no longer a valid instrument. ## What Happens If You Lack a Power of Attorney (POA) POAs are not just reassuring; they may become the instruments that protect your financial and real estate interests, your health, and even your manner of dying. If you are incapacitated and have no POA designated to take the wheel, your family will likely be forced into costly and time-consuming delays. Principals have to set up POAs for themselves. A family can't "get" a POA when they suddenly realize that an elderly relative is no longer able to manage their affairs. In this situation, a court would have to appoint a [guardian](https://www.investopedia.com/terms/g/guardian.asp) or [conservator](https://www.investopedia.com/terms/c/conservatorship.asp), and neither the individual nor their family would have any control over the appointee. In some states, the guardian is required to post a bond and file a detailed inventory and accounting of the person's relevant assets. The entire affair is more complicated, more costly—and more public —when a POA is not already in place. ## Four Types of POAs There are several types of POAs, as well as various degrees of responsibility that you can delegate. ### General POA This starts when it is signed and continues in force *until* you become mentally unable to make coherent decisions. It is important to state exactly what authority you are giving your agent. It could be something very specific, like giving your attorney the power to sign a deed of sale for your house while you're on a trip around the world. This is called a "limited power of attorney" and it can be quite common in everyday life. One common use of it is what is called discretionary money management, or what gives money managers the authority to buy and sell investments on their client's behalf based on their own decisions not their client's. Or you could specify a much broader range of powers, such as access to your bank accounts (what's known as a "general power of attorney"). ### Durable POA A durable POA begins when it is signed but stays in effect for a *lifetime* unless you initiate the cancellation. Words in the document should specify that your agent's power should stay in effect even if you become incapacitated. Durable POAs are popular because the agent can manage affairs easily and inexpensively. ### Springing POA This POA comes into play only when a specific event occurs—your incapacitation, for instance. A springing power of attorney must be very carefully crafted to avoid any problems in identifying precisely when the triggering event has happened. ### Medical POA A medical POA, or durable power of attorney for healthcare decisions, or health care proxy,is both a durable and a springing POA. The springing aspect means that the POA takes effect only if specific conditions take place. As long as the principal is conscious, and of sound mind and body, the medical POA will not be triggered. Some [medical POAs](https://www.investopedia.com/articles/managing-wealth/042216/medical-vs-financial-power-attorney-reasons-separate-them.asp) are written to end when the principal recovers from the incapacitating condition. You can have different POAs for different situations and appoint different agents to hold them as well. ## A Will Is Not a POA Do not expect your [will](https://www.investopedia.com/terms/w/will.asp) to serve as a substitute for a power of attorney. A will designates the distribution of your property after death, while a POA is related to decisions made during your life. However, you can have a [living will](https://www.investopedia.com/terms/l/livingwill.asp) in addition to a healthcare POA. A living will usually addresses specific issues and wishes related to medical treatment if you have a terminal condition, or related to dying (such as the extent to which lifesaving measures should be used). A living will does not always deal with other important medical issues, however, such as whether you would decline dialysis or a blood transfusion. These are the kinds of concerns that can be directly articulated in a durable power of attorney for healthcare decisions. ## Who Should Be Your Attorney-in-Fact? The person you choose as your agent must be someone you trust without hesitation. Depending on how you've worded your POA, the person you select will have access to and be able to make decisions about your health, home, business affairs, personal property, and financial accounts. It is useful to contact each institution you do business with to be certain that your POA authority will be honored. Some banks and financial institutions have their own forms to complete. You may name more than one person to act as your agent and ask that they work together. However, bear in mind that they may not always have the same view of what needs to be done. You should also appoint a successor agent, in the event that the agent you originally chose cannot serve in that capacity when the need arises.  ### Signing a POA does not deprive you of control over your personal affairs. It is a contingency document that becomes a powerful instrument only when it is needed. ## The Bottom Line Choosing someone to hold your power of attorney and specifying that it will operate even if you lose capacity ensures that you have a plan in place for administering your financial and personal affairs if you are ever unable to do so. This gives you more control over how that process will be handled should the need ever arise. If you move to another state, your power of attorney should remain effective; however, the American Bar Association recommends that you use such a move to update your power of attorney. The power expires upon your death.

A power of attorney (POA) is a legal document in which the principal (you) designates another person (called the agent or attorney-in-fact) to act on your behalf. The document authorizes the agent to make either a limited or broader set of decisions. The term "power of attorney" can also refer to the individual designated to act in this way. Key Takeaways A power of attorney (POA) is a legal document that gives an individual, called the agent or attorney-in-fact, the authority to take action on behalf of someone else, called the principal.The agent can have either extensive or limited authority to make legal decisions about the principal's property, finances, or healthcare, depending on the terms of the POA.Types of POA include conventional, also known as a limited power of attorney, durable, which lasts for a lifetime unless you cancel it, springing, which only comes into play for specific events, and medical, also known as a durable power of attorney for healthcare. How a Power of Attorney (POA) Works Certain circumstances may trigger the desire for a power of attorney (POA) for someone over the age of 18. For example, someone in the military might create a POA before deploying overseas so that another person can act on their behalf should they become incapacitated. Incapacity isn't the only reason someone might need a POA, though. Expatriates workers and families need to set a POA for their affairs in America while doing their work overseas. Younger people who travel a great deal might set up a POA so that someone can handle their affairs in their absence, especially if they have no spouse to do so. However, POAs are most commonly established when someone is elderly or if they face a serious, more long-term health crisis. If you have a POA and become unable to act on your own behalf due to mental or physical incapacity, your agent or attorney-in-fact may be called upon to make financial decisions to ensure your well-being and care. For example, they may need to pay bills, sell assets to pay for medical expenses, and take steps for Medicaid planning for you. Other important tasks a POA can authorize someone to carry out are banking transactions, real estate decisions, dealing with government or retirement benefits, and healthcare billing. How to Get a Power of Attorney (POA) The first thing to do if you want a power of attorney is to select someone you trust to handle your affairs if and when you cannot. Then you must decide what the agent can do on your behalf, and in what circumstances. For example, you could establish a POA that only happens when you are no longer capable of handling your affairs yourself—or one that goes into effect immediately so your agent can act for you in your absence. Some powers of attorney are limited. For instance, the POA could merely empower someone to represent you at a real estate closing in another city. Also, note that even when a general POA contains no such limiting language, it usually only operates while the person conveying the power, called “the principal,” has full capacity. If you have property that is only in your name, your spouse would need a power of attorney to take legal or financial actions related to that property (like selling it). Anyone can set up a POA. One way is to find a template online that satisfies the requirements of the state in which you live, and execute it according to your state's guidelines (it may need to be notarized and require witnesses). POAs differ depending on when you want the authority to start and end, how much responsibility you want to give your agent, and the laws in the state where you live. There is no uniform POA common to every state. States have different requirements for establishing a power of attorney—Pennsylvania’s statute, for instance, makes the legal assumption that a power of attorney is durable. Using an attorney to draw up the POA will help ensure that it conforms with state requirements. Since a POA may be questioned if an agent needs to invoke it with a bank or financial services company, you should ask an attorney about prior experience in drafting such powers. You want to select someone not only familiar with state requirements, but also with the issues that can arise when a power is invoked. This way, the attorney can use language that will make clear the full extent of the responsibilities that you wish to convey. To set up a legally binding POA, the principal must have sufficient mental capacity when the document is drawn up. This means that they must fully understand the nature and effect of the document. It also means that if you have an ill parent who is already incapacitated, you won't be able to get a power of attorney to act on their behalf. The POA can be canceled or revoked at any time simply by destroying the original document and preparing a new one, or by preparing a formal revocation document informing all concerned that the POA is no longer a valid instrument. What Happens If You Lack a Power of Attorney (POA) POAs are not just reassuring; they may become the instruments that protect your financial and real estate interests, your health, and even your manner of dying. If you are incapacitated and have no POA designated to take the wheel, your family will likely be forced into costly and time-consuming delays. Principals have to set up POAs for themselves. A family can't "get" a POA when they suddenly realize that an elderly relative is no longer able to manage their affairs. In this situation, a court would have to appoint a guardian or conservator, and neither the individual nor their family would have any control over the appointee. In some states, the guardian is required to post a bond and file a detailed inventory and accounting of the person's relevant assets. The entire affair is more complicated, more costly—and more public —when a POA is not already in place. Four Types of POAs There are several types of POAs, as well as various degrees of responsibility that you can delegate. General POA This starts when it is signed and continues in force until you become mentally unable to make coherent decisions. It is important to state exactly what authority you are giving your agent. It could be something very specific, like giving your attorney the power to sign a deed of sale for your house while you're on a trip around the world. This is called a "limited power of attorney" and it can be quite common in everyday life. One common use of it is what is called discretionary money management, or what gives money managers the authority to buy and sell investments on their client's behalf based on their own decisions not their client's. Or you could specify a much broader range of powers, such as access to your bank accounts (what's known as a "general power of attorney"). Durable POA A durable POA begins when it is signed but stays in effect for a lifetime unless you initiate the cancellation. Words in the document should specify that your agent's power should stay in effect even if you become incapacitated. Durable POAs are popular because the agent can manage affairs easily and inexpensively. Springing POA This POA comes into play only when a specific event occurs—your incapacitation, for instance. A springing power of attorney must be very carefully crafted to avoid any problems in identifying precisely when the triggering event has happened. Medical POA A medical POA, or durable power of attorney for healthcare decisions, or health care proxy, is both a durable and a springing POA. The springing aspect means that the POA takes effect only if specific conditions take place. As long as the principal is conscious, and of sound mind and body, the medical POA will not be triggered. Some medical POAs are written to end when the principal recovers from the incapacitating condition. You can have different POAs for different situations and appoint different agents to hold them as well. A Will Is Not a POA Do not expect your will to serve as a substitute for a power of attorney. A will designates the distribution of your property after death, while a POA is related to decisions made during your life. However, you can have a living will in addition to a healthcare POA. A living will usually addresses specific issues and wishes related to medical treatment if you have a terminal condition, or related to dying (such as the extent to which lifesaving measures should be used). A living will does not always deal with other important medical issues, however, such as whether you would decline dialysis or a blood transfusion. These are the kinds of concerns that can be directly articulated in a durable power of attorney for healthcare decisions. Who Should Be Your Attorney-in-Fact? The person you choose as your agent must be someone you trust without hesitation. Depending on how you've worded your POA, the person you select will have access to and be able to make decisions about your health, home, business affairs, personal property, and financial accounts. It is useful to contact each institution you do business with to be certain that your POA authority will be honored. Some banks and financial institutions have their own forms to complete. You may name more than one person to act as your agent and ask that they work together. However, bear in mind that they may not always have the same view of what needs to be done. You should also appoint a successor agent, in the event that the agent you originally chose cannot serve in that capacity when the need arises.  Signing a POA does not deprive you of control over your personal affairs. It is a contingency document that becomes a powerful instrument only when it is needed. The Bottom Line Choosing someone to hold your power of attorney and specifying that it will operate even if you lose capacity ensures that you have a plan in place for administering your financial and personal affairs if you are ever unable to do so. This gives you more control over how that process will be handled should the need ever arise. If you move to another state, your power of attorney should remain effective; however, the American Bar Association recommends that you use such a move to update your power of attorney. The power expires upon your death.

https://www.investopedia.com/terms/a/association-of-british-insurers.asp

Association of British Insurers (ABI): 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-the-association-of-british-insurers-abi"></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 Association of British Insurers (ABI)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Association of British Insurers is a trade association based in London that represents more than 200 insurance companies. The association is a voice for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/051915/how-does-insurance-sector-work.asp">insurance industry</a> in the United Kingdom, which employs more than 350,000 people and manages more than £1.6 trillion in investments.<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_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 Association of British Insurers is a trade association that represents more than 200 insurance companies in the United Kingdom.</li><li>The U.K. insurance industry employs more than 350,000 people, manages more than £1.6 trillion in investments, and pays over £17.2 billion in taxes.</li><li>Membership benefits include access to industry data and statistics, networking opportunities, and the chance to meet and talk directly with government regulators and decision-makers.</li><li>The goal of the Association of British Insurers is to promote the products and companies in the industry, act as the voice of the industry, and engage with policymakers and regulators.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-association-of-british-insurers-abi"></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 Association of British Insurers (ABI) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The Association of British Insurers (ABI) is the advocacy organization for the U.K.'s world-leading insurance and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/longterminvestments.asp">long-term savings</a> industry. The insurance industry in the U.K. is the largest in Europe and the fourth-largest in the world.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A key benefit of ABI membership is staying abreast of coming changes in regulation and policymaking. The ABI collects extensive data from insurers and long-term savings providers, covering everything from motor and property insurance to life assurance and pensions. </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 data is available to ABI members for free as a benefit of membership, and non-members can access the data upon payment of a subscription fee. </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 ABI is a significant contributor to the British economy. ABI members are major tax contributors, paying over £17.2 billion to the government. All members agree to mandatory <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/code-of-ethics.asp">codes of conduct</a>.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-abi-events-and-programs"></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"> ABI Events and Programs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The ABI holds a range of events from member-only technical briefings to flagship strategy conferences with influential keynote speakers and attendees, who include a mix of members and external <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stakeholder.asp">stakeholders</a>. The ABI facilitates networking opportunities, offering members the chance to talk directly with regulators and decision makers at the heart of government. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The ABI also has a one-year Future Leaders Program, designed to provide career development pathways for promising senior leaders and to encourage diversity within the industry.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The ABI produces public-awareness campaigns in support of the insurance industry and works with media outlets to encourage a greater understanding of the insurance industry and its many benefits. The ABI also provides conference facilities to its members in the heart of London. </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-key-facts"></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"> Key Facts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The Association of British Insurers publishes reports with statistics and data that are available to its members or on a subscription service. These reports provide data and insights about the insurance industry in the U.K. and its contribution to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economy.asp">economy</a>. Some key facts from 2022 with information as of Feb. 2020 are as follows: </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>68% of adults in the U.K. have motor insurance.</li><li>61% of adults in the U.K. have building insurance.</li><li>14% of adults in the U.K. have private medical insurance.</li><li>69% of adults in the U.K. have contents insurance.<span class="ql-inline-citation" data-cite="9"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-does-the-association-of-british-insurers-do"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does the Association of British Insurers Do?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Association of British Insurers puts together people in the insurance and long-term savings industries in order to inform public policy and engage with politicians, policymakers, and regulators. The ABI looks to be the voice of the industry and support the companies and products in the industry.<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_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-which-insurers-are-members-of-abi"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Insurers Are Members of ABI?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>ABI members include AA Underwriting, Admiral Insurance, BlackRock Life, British Reserve Insurance, Churchill Insurance, Chubb European, CIGNA Life Insurance, Fairmead Insurance, First Central Insurance, WDP Insurance, Vanguard Asset Management, Vitality Life, UBS Asset Management Life, Travelers Insurance, and more.<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_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-who-regulates-british-insurance-companies"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Regulates British Insurance Companies?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Financial Conduct Authority (FCA) regulates British insurance companies. It is responsible for regulating the entire financial services industry by protecting consumers and keeping the industry stable. It also works to promote healthy competition between companies in the financial services industry.<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_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"> The Association of British Insurers in the U.K. supports the U.K. insurance industry by providing members with statistics and data, putting people together to inform public policy, engaging with politicians, policymakers, and regulators, hosting events, and offering programs. </p></div>

## What Is the Association of British Insurers (ABI)? The Association of British Insurers is a trade association based in London that represents more than 200 insurance companies. The association is a voice for the [insurance industry](https://www.investopedia.com/ask/answers/051915/how-does-insurance-sector-work.asp) in the United Kingdom, which employs more than 350,000 people and manages more than £1.6 trillion in investments. ### Key Takeaways * The Association of British Insurers is a trade association that represents more than 200 insurance companies in the United Kingdom. * The U.K. insurance industry employs more than 350,000 people, manages more than £1.6 trillion in investments, and pays over £17.2 billion in taxes. * Membership benefits include access to industry data and statistics, networking opportunities, and the chance to meet and talk directly with government regulators and decision-makers. * The goal of the Association of British Insurers is to promote the products and companies in the industry, act as the voice of the industry, and engage with policymakers and regulators. ## Understanding the Association of British Insurers (ABI) The Association of British Insurers (ABI) is the advocacy organization for the U.K.'s world-leading insurance and [long-term savings](https://www.investopedia.com/terms/l/longterminvestments.asp) industry. The insurance industry in the U.K. is the largest in Europe and the fourth-largest in the world. A key benefit of ABI membership is staying abreast of coming changes in regulation and policymaking. The ABI collects extensive data from insurers and long-term savings providers, covering everything from motor and property insurance to life assurance and pensions. The data is available to ABI members for free as a benefit of membership, and non-members can access the data upon payment of a subscription fee. The ABI is a significant contributor to the British economy. ABI members are major tax contributors, paying over £17.2 billion to the government. All members agree to mandatory [codes of conduct](https://www.investopedia.com/terms/c/code-of-ethics.asp). ## ABI Events and Programs The ABI holds a range of events from member-only technical briefings to flagship strategy conferences with influential keynote speakers and attendees, who include a mix of members and external [stakeholders](https://www.investopedia.com/terms/s/stakeholder.asp). The ABI facilitates networking opportunities, offering members the chance to talk directly with regulators and decision makers at the heart of government. The ABI also has a one-year Future Leaders Program, designed to provide career development pathways for promising senior leaders and to encourage diversity within the industry. The ABI produces public-awareness campaigns in support of the insurance industry and works with media outlets to encourage a greater understanding of the insurance industry and its many benefits. The ABI also provides conference facilities to its members in the heart of London. ## Key Facts The Association of British Insurers publishes reports with statistics and data that are available to its members or on a subscription service. These reports provide data and insights about the insurance industry in the U.K. and its contribution to the [economy](https://www.investopedia.com/terms/e/economy.asp). Some key facts from 2022 with information as of Feb. 2020 are as follows: * 68% of adults in the U.K. have motor insurance. * 61% of adults in the U.K. have building insurance. * 14% of adults in the U.K. have private medical insurance. * 69% of adults in the U.K. have contents insurance. ## What Does the Association of British Insurers Do? The Association of British Insurers puts together people in the insurance and long-term savings industries in order to inform public policy and engage with politicians, policymakers, and regulators. The ABI looks to be the voice of the industry and support the companies and products in the industry. ## Which Insurers Are Members of ABI? ABI members include AA Underwriting, Admiral Insurance, BlackRock Life, British Reserve Insurance, Churchill Insurance, Chubb European, CIGNA Life Insurance, Fairmead Insurance, First Central Insurance, WDP Insurance, Vanguard Asset Management, Vitality Life, UBS Asset Management Life, Travelers Insurance, and more. ## Who Regulates British Insurance Companies? The Financial Conduct Authority (FCA) regulates British insurance companies. It is responsible for regulating the entire financial services industry by protecting consumers and keeping the industry stable. It also works to promote healthy competition between companies in the financial services industry. ## The Bottom Line The Association of British Insurers in the U.K. supports the U.K. insurance industry by providing members with statistics and data, putting people together to inform public policy, engaging with politicians, policymakers, and regulators, hosting events, and offering programs.

What Is the Association of British Insurers (ABI)? The Association of British Insurers is a trade association based in London that represents more than 200 insurance companies. The association is a voice for the insurance industry in the United Kingdom, which employs more than 350,000 people and manages more than £1.6 trillion in investments. Key Takeaways The Association of British Insurers is a trade association that represents more than 200 insurance companies in the United Kingdom.The U.K. insurance industry employs more than 350,000 people, manages more than £1.6 trillion in investments, and pays over £17.2 billion in taxes.Membership benefits include access to industry data and statistics, networking opportunities, and the chance to meet and talk directly with government regulators and decision-makers.The goal of the Association of British Insurers is to promote the products and companies in the industry, act as the voice of the industry, and engage with policymakers and regulators. Understanding the Association of British Insurers (ABI) The Association of British Insurers (ABI) is the advocacy organization for the U.K.'s world-leading insurance and long-term savings industry. The insurance industry in the U.K. is the largest in Europe and the fourth-largest in the world. A key benefit of ABI membership is staying abreast of coming changes in regulation and policymaking. The ABI collects extensive data from insurers and long-term savings providers, covering everything from motor and property insurance to life assurance and pensions. The data is available to ABI members for free as a benefit of membership, and non-members can access the data upon payment of a subscription fee. The ABI is a significant contributor to the British economy. ABI members are major tax contributors, paying over £17.2 billion to the government. All members agree to mandatory codes of conduct. ABI Events and Programs The ABI holds a range of events from member-only technical briefings to flagship strategy conferences with influential keynote speakers and attendees, who include a mix of members and external stakeholders. The ABI facilitates networking opportunities, offering members the chance to talk directly with regulators and decision makers at the heart of government. The ABI also has a one-year Future Leaders Program, designed to provide career development pathways for promising senior leaders and to encourage diversity within the industry. The ABI produces public-awareness campaigns in support of the insurance industry and works with media outlets to encourage a greater understanding of the insurance industry and its many benefits. The ABI also provides conference facilities to its members in the heart of London. Key Facts The Association of British Insurers publishes reports with statistics and data that are available to its members or on a subscription service. These reports provide data and insights about the insurance industry in the U.K. and its contribution to the economy. Some key facts from 2022 with information as of Feb. 2020 are as follows: 68% of adults in the U.K. have motor insurance.61% of adults in the U.K. have building insurance.14% of adults in the U.K. have private medical insurance.69% of adults in the U.K. have contents insurance. What Does the Association of British Insurers Do? The Association of British Insurers puts together people in the insurance and long-term savings industries in order to inform public policy and engage with politicians, policymakers, and regulators. The ABI looks to be the voice of the industry and support the companies and products in the industry. Which Insurers Are Members of ABI? ABI members include AA Underwriting, Admiral Insurance, BlackRock Life, British Reserve Insurance, Churchill Insurance, Chubb European, CIGNA Life Insurance, Fairmead Insurance, First Central Insurance, WDP Insurance, Vanguard Asset Management, Vitality Life, UBS Asset Management Life, Travelers Insurance, and more. Who Regulates British Insurance Companies? The Financial Conduct Authority (FCA) regulates British insurance companies. It is responsible for regulating the entire financial services industry by protecting consumers and keeping the industry stable. It also works to promote healthy competition between companies in the financial services industry. The Bottom Line The Association of British Insurers in the U.K. supports the U.K. insurance industry by providing members with statistics and data, putting people together to inform public policy, engaging with politicians, policymakers, and regulators, hosting events, and offering programs.

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

Banknet: What It Means 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-banknet"></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 Banknet? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Banknet is a global payments network operated by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mastercard-card.asp" rel="noopener noreferrer">MasterCard</a> that facilitates authorization of credit card transactions from almost any point in the world. Banknet is one of the world's largest global telecommunications networks and links all MasterCard members and data processing centers into a single financial network. </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>Banknet is MasterCard's proprietary payments network, linking all MasterCard merchants and credit &amp; debit card users.</li><li>The system relies on a distributed virtual private network, with more than 1,000 nodes located throughout the world.</li><li>The system is robust and capable of handling millions of transactions each hour and with a latency as low as around 200 milliseconds.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-banknet"></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 Banknet </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Bankent launched in 1997. Today, MasterCard runs on of the world’s largest credit and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp" rel="noopener noreferrer">debit card</a> networks. The company holds over 20 percent of the global market share within its industry, with more that 190 million cards in circulation throughout the world. </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"> Banknet enables MasterCard's side of an authorization transaction to be performed within seconds. Before Banknet arrived, a payment through MasterCard took approximately 650 milliseconds to process. Banknet has since cut down that time to just 210 milliseconds. </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 network's hub is located in MasterCard's Global Technology and Operations headquarters in St. Louis, Missouri. According to MasterCard, the network’s hub and data warehouse are considered, “one of the most robust data centers in the world.” The St. Louis facility houses 80 terabytes of data on past transactions. Whenever the system undergoes a change or upgrade, the company tests the new system on 30 million practice transactions before implementing the change. </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-how-banknet-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> How Banknet Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Banknet operates as a virtual private network, or VPN that all of its nodes are linked into. In this way, the network is capable of completing over two million transaction per hour while keeping both parties’ information secure. The network relies on over 1,000 data centers located throughout the world that function as endpoints or nodes in the network. Each of these data centers is furthermore equipped with dual router technology. The redundancy of this technology provides automatic backups of transaction in the event that a shutdown occurs. </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"> Banknet’s technology uses asynchronous data transfer for transactions, allowing the network to regulate the use of its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bandwidth.asp" rel="noopener noreferrer">bandwidth</a> to match demand at any given time. This function allows the system to function optimally when demand is highest. For this communication technology, Banknet primarily partners with AT&amp;T. </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-visa-vs-mastercard-payments-network"></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"> Visa vs. MasterCard Payments Network </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Unlike Banknet’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peertopeer-p2p-service.asp" rel="noopener noreferrer">peer-to-peer</a> (P2P) network, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/visa-card.asp" rel="noopener noreferrer">Visa</a> handles transactions through a centralized, or “star-based/hub &amp; spoke” system. This type of network connects its many endpoints to only a few main data centers. In this way, Banknet functions more efficiently, with greater flexibility and less risk of failure. If one of Banknet’s data centers fails, there remain many others still online and functional, taking over the functionality of the crippled node. If, however, one of the data centers on Visa’s network fails, a larger portion of its transactions will be adversely affected. This can create bottlenecks for incoming data and difficulty in isolating the point of the failure. </p></div>

## What Is Banknet? Banknet is a global payments network operated by [MasterCard](https://www.investopedia.com/terms/m/mastercard-card.asp) that facilitates authorization of credit card transactions from almost any point in the world. Banknet is one of the world's largest global telecommunications networks and links all MasterCard members and data processing centers into a single financial network. ### Key Takeaways * Banknet is MasterCard's proprietary payments network, linking all MasterCard merchants and credit & debit card users. * The system relies on a distributed virtual private network, with more than 1,000 nodes located throughout the world. * The system is robust and capable of handling millions of transactions each hour and with a latency as low as around 200 milliseconds. ## Understanding Banknet Bankent launched in 1997. Today, MasterCard runs on of the world’s largest credit and [debit card](https://www.investopedia.com/terms/d/debitcard.asp) networks. The company holds over 20 percent of the global market share within its industry, with more that 190 million cards in circulation throughout the world. Banknet enables MasterCard's side of an authorization transaction to be performed within seconds. Before Banknet arrived, a payment through MasterCard took approximately 650 milliseconds to process. Banknet has since cut down that time to just 210 milliseconds. The network's hub is located in MasterCard's Global Technology and Operations headquarters in St. Louis, Missouri. According to MasterCard, the network’s hub and data warehouse are considered, “one of the most robust data centers in the world.” The St. Louis facility houses 80 terabytes of data on past transactions. Whenever the system undergoes a change or upgrade, the company tests the new system on 30 million practice transactions before implementing the change. ## How Banknet Works Banknet operates as a virtual private network, or VPN that all of its nodes are linked into. In this way, the network is capable of completing over two million transaction per hour while keeping both parties’ information secure. The network relies on over 1,000 data centers located throughout the world that function as endpoints or nodes in the network. Each of these data centers is furthermore equipped with dual router technology. The redundancy of this technology provides automatic backups of transaction in the event that a shutdown occurs. Banknet’s technology uses asynchronous data transfer for transactions, allowing the network to regulate the use of its [bandwidth](https://www.investopedia.com/terms/b/bandwidth.asp) to match demand at any given time. This function allows the system to function optimally when demand is highest. For this communication technology, Banknet primarily partners with AT&T. ## Visa vs. MasterCard Payments Network Unlike Banknet’s [peer-to-peer](https://www.investopedia.com/terms/p/peertopeer-p2p-service.asp) (P2P) network, [Visa](https://www.investopedia.com/terms/v/visa-card.asp) handles transactions through a centralized, or “star-based/hub & spoke” system. This type of network connects its many endpoints to only a few main data centers. In this way, Banknet functions more efficiently, with greater flexibility and less risk of failure. If one of Banknet’s data centers fails, there remain many others still online and functional, taking over the functionality of the crippled node. If, however, one of the data centers on Visa’s network fails, a larger portion of its transactions will be adversely affected. This can create bottlenecks for incoming data and difficulty in isolating the point of the failure.

What Is Banknet? Banknet is a global payments network operated by MasterCard that facilitates authorization of credit card transactions from almost any point in the world. Banknet is one of the world's largest global telecommunications networks and links all MasterCard members and data processing centers into a single financial network. Key Takeaways Banknet is MasterCard's proprietary payments network, linking all MasterCard merchants and credit & debit card users.The system relies on a distributed virtual private network, with more than 1,000 nodes located throughout the world.The system is robust and capable of handling millions of transactions each hour and with a latency as low as around 200 milliseconds. Understanding Banknet Bankent launched in 1997. Today, MasterCard runs on of the world’s largest credit and debit card networks. The company holds over 20 percent of the global market share within its industry, with more that 190 million cards in circulation throughout the world. Banknet enables MasterCard's side of an authorization transaction to be performed within seconds. Before Banknet arrived, a payment through MasterCard took approximately 650 milliseconds to process. Banknet has since cut down that time to just 210 milliseconds. The network's hub is located in MasterCard's Global Technology and Operations headquarters in St. Louis, Missouri. According to MasterCard, the network’s hub and data warehouse are considered, “one of the most robust data centers in the world.” The St. Louis facility houses 80 terabytes of data on past transactions. Whenever the system undergoes a change or upgrade, the company tests the new system on 30 million practice transactions before implementing the change. How Banknet Works Banknet operates as a virtual private network, or VPN that all of its nodes are linked into. In this way, the network is capable of completing over two million transaction per hour while keeping both parties’ information secure. The network relies on over 1,000 data centers located throughout the world that function as endpoints or nodes in the network. Each of these data centers is furthermore equipped with dual router technology. The redundancy of this technology provides automatic backups of transaction in the event that a shutdown occurs. Banknet’s technology uses asynchronous data transfer for transactions, allowing the network to regulate the use of its bandwidth to match demand at any given time. This function allows the system to function optimally when demand is highest. For this communication technology, Banknet primarily partners with AT&T. Visa vs. MasterCard Payments Network Unlike Banknet’s peer-to-peer (P2P) network, Visa handles transactions through a centralized, or “star-based/hub & spoke” system. This type of network connects its many endpoints to only a few main data centers. In this way, Banknet functions more efficiently, with greater flexibility and less risk of failure. If one of Banknet’s data centers fails, there remain many others still online and functional, taking over the functionality of the crippled node. If, however, one of the data centers on Visa’s network fails, a larger portion of its transactions will be adversely affected. This can create bottlenecks for incoming data and difficulty in isolating the point of the failure.

https://www.investopedia.com/top-cd-rates-today-may-16-2024-national-leader-offers-5-65-8649831

Top CD Rates Today, May 16, 2024 - National Leader Offers 5.65%

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Nation-leading <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&amp;lender=MutualOne%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">MutualOne Bank</a> is holding firm with its 3-month CD rate of 5.65% APY. That's the highest rate you can earn on a nationally available certificate of any length.</li> <li>Offering a slightly longer 6-month rate lock, runner-up <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> is paying 5.55% APY.</li> <li>The best CD rates for terms of 1 to 3 years range from 5.25% to 5.40%, while the top 4-year and 5-year CD returns are in upper-4% territory.</li> <li>Today's <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> are slightly below their historic peak of last fall, inching down in anticipation of Fed rate cuts. But recent inflation readings suggest it could be a while before the Fed lowers rates.</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_5-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <span class="heading-toc" id="toc-lock-in-525-to-565on-terms-up-to-23-months"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Lock In 5.25% to 5.65%—On Terms Up to 23 Months </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Today's nation-leading CD rate across terms continues to be 5.65% APY. That's available from MutualOne Bank for a 3-month duration, securing your rate until mid-August. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Prefer a longer rate lock? The runner-up is Newtek Bank. Its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267">nation-leading 6-month CD</a> pays 5.55% APY—extending your rate lock almost to Thanksgiving. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> If you want to grab a rate that's guaranteed all the way to 2025, a total of 10 CDs are paying 5.35% to 5.50%, with terms ranging from 9 months to 15 months. That includes the best 1-year CD rate 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://www.nexbankpersonal.com/certificates-of-deposit-cds&amp;lender=NexBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">NexBank</a>, which is paying 5.40% APY. </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"> Or you might like <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human's</a> pick-your-term offer of 5.25%. Available for 18 to 23 months, it could stretch your rate guarantee until spring 2026.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_16-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/UXSiY/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Range of the Top 15 CD Rates per Term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-long-cd-terms-secure-your-rate-to-2027or-beyond"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Long CD Terms Secure Your Rate to 2027—Or Beyond </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Choosing a CD term of two years or longer is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-2-year-cd-rates-4801682">top 3-year CD</a> paying 5.00%. That would guarantee your return until 2027. Or you can opt to secure a rate in the 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 down the road</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_21-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 92px;"></colgroup> <colgroup span="1" style="width: 110px;"></colgroup> <colgroup span="1" style="width: 102px;"></colgroup> <colgroup span="1" style="width: 118px;"></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>5.65% APY</td> <td>5.65% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&amp;lender=MutualOne%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">MutualOne Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267" rel="noopener noreferrer">6 months</a></td> <td>5.55% APY</td> <td>5.55% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Newtek Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650" rel="noopener noreferrer">1 year</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&amp;lender=NexBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">NexBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348" rel="noopener noreferrer">18 months</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nasafcu.com/personal/checking-savings/certificates/certificates---rates&amp;lender=NASA%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">NASA Federal Credit Union</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&amp;lender=XCEL%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">2 years</a></td> <td>5.25% APY</td> <td>5.25% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938" rel="noopener noreferrer">3 years</a></td> <td>5.00% APY</td> <td>5.00% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&amp;lender=DollarSavingsDirect&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">DollarSavingsDirect</a> and <a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://transfcu.org/share-certificate/&amp;lender=Transportation%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Transportation Federal Credit Union</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473" rel="noopener noreferrer">4 years</a></td> <td>4.86% APY</td> <td>4.86% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.wellbyfinancial.com/savings/certificates/&amp;lender=Wellby%20Financial&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Wellby Financial</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&amp;lender=Lafayette%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">5 years</a></td> <td>4.80% APY</td> <td>4.80% APY</td> <td>No change</td> <td><a class="pseudoStyle" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&amp;lender=BMO%20Alto&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">BMO Alto</a></td> </tr> </tbody> </table> <figcaption>To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-whatyouneedtoknow" 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">Big U.S. Bank is a CD Rate Leader</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The top nationwide CD rates are typically offered by smaller banks and credit unions. But right now, the top 5-year return comes from a large U.S. Bank. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/new-cd-rate-leader-is-a-large-us-bank-8647924">BMO Alto</a> is the online-only arm of banking giant BMO, which operates about 1,000 physical branches and is the 12th-largest U.S. bank by deposits.<span class="ql-inline-citation" data-cite="46"></span> Though it only pays the top nationwide rate in the 5-year term, BMO Alto also has reasonably competitive rates on CDs ranging from 6 months to 4 years.</p></div></div></div> <span class="heading-toc" id="toc-cd-rates-are-still-near-20-year-highs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> CD Rates Are Still Near 20-Year Highs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> CD rates have inched lower since they climbed to a historic peak of 6.50% in October. At the start of February, the number of CDs in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">our daily ranking</a> that paid at least 5.50% APY was 30. Today that count sits at eight. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> But don't lose sight of how much certificates of deposit (CDs) still pay relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> 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_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_32-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/qHOaN/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="CD rates now vs. peak vs. January 2022"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_35-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>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-jumbo-cds-offer-a-rate-bump-in-some-terms"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Jumbo CDs Offer a Rate Bump in Some Terms </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while State Department Federal Credit Union offers 5.41% APY for 15 months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Beware that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">the best jumbo CD rates</a> don't <em>always</em> pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the eight terms below, so it's always wise to shop both certificate types before making a final decision. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_41-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 93px;"></colgroup> <colgroup span="1" style="width: 140px;"></colgroup> <colgroup span="1" style="width: 154px;"></colgroup> <colgroup span="1" style="width: 154px;"></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Term</b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-cd-rates-4801462" rel="noopener noreferrer">Today's Top National Bank Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214" rel="noopener noreferrer">Today's Top National Credit Union Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766" rel="noopener noreferrer">Today's Top National Jumbo Rate</a></b></td> </tr> <tr> <td>3 months</td> <td>5.65% APY*</td> <td>5.30% APY</td> <td>5.20% APY</td> </tr> <tr> <td>6 months</td> <td>5.55% APY*</td> <td>5.50% APY</td> <td>5.51% APY</td> </tr> <tr> <td>1 year</td> <td>5.40% APY</td> <td>5.25% APY</td> <td>5.50% APY*</td> </tr> <tr> <td>18 months</td> <td>5.25% APY</td> <td>5.40% APY</td> <td>5.41% APY*</td> </tr> <tr> <td>2 years</td> <td>5.00% APY</td> <td>5.25% APY*</td> <td>4.91% APY</td> </tr> <tr> <td>3 years</td> <td>5.00% APY*</td> <td>5.00% APY*</td> <td>4.97% APY</td> </tr> <tr> <td>4 years</td> <td>4.70% APY</td> <td>4.86% APY*</td> <td>4.48% APY</td> </tr> <tr> <td>5 years</td> <td>4.80% APY*</td> <td>4.65% APY</td> <td>4.38% 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_42-0"></div> <span class="heading-toc" id="toc-where-will-cd-rates-go-in-2024"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_43-0"> <span class="mntl-sc-block-heading__text"> Where Will CD Rates Go in 2024? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> 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_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> As a result, 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_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_48-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/UegMM/2/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="CD rates since December 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> But since its last rate hike in July, the Fed has been in a holding pattern. As was almost universally expected, the Federal Reserve's rate-setting committee <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952">announced on May 1</a> that it is maintaining the federal funds rate at its current level.<span class="ql-inline-citation" data-cite="43"></span> It's the sixth meeting in a row in which the central bank has held its benchmark rate steady.<span class="ql-inline-citation" data-cite="32"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> That's because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> has been cooling, allowing the Fed to stop raising interest rates. Yet, further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_54-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/wy3qs/2/" frameborder="0" id="mntl-sc-block-iframe__uri_4-0" title="Inflation proving stubborn"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> The Fed's written statement on May 1 left out discussion of projected rate cuts. When asked about this during his press conference following release of the statement, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-may-1-8641676#toc-2024-05-01t185349358z">longer than originally expected</a> to lower the fed funds rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> "My colleagues and I today said that we didn't see progress in the first quarter," Powell said. "And I've said that it appears then that it's going to take longer for us to reach that point of confidence. So I don't know how long it will take. When we get that confidence, then rate cuts will be in scope."<span class="ql-inline-citation" data-cite="45"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> It therefore seems likely the fed funds rate will stay where it is for some number of months—although with great uncertainty on when exactly the Fed will first cut rates. Following the latest Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take until Sept. 18 for the first rate cut to be implemented, according to CME Group's FedWatch Tool.<span class="ql-inline-citation" data-cite="44"></span> That's three meetings away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> New inflation data was reported yesterday, with the eagerly awaited release of April's Consumer Price Index (CPI). The latest monthly reading <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737">came in at 3.4%</a>. That's down from March's 3.5% level but represents only a minor change. As a result, Fed officials are expected to remain in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-officials-in-wait-and-see-mode-on-rate-cuts-ahead-of-next-weeks-inflation-data-8646908">"wait-and-see" mode</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> That also means CD rates will likely continue their current plateau. If at some point the Fed signals it's ready to start cutting rates, that would drive CD yields down more quickly. But it appears that could be months away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> The central bank will hold five more rate-setting meetings in 2024, with the next one scheduled to conclude June 12.<span class="ql-inline-citation" data-cite="42"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_69-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-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_71-0"><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_73-0"><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_74-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_75-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_76-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><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_77-0"> <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_78-0"> 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_79-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>.<br/> </p></div>

### Key Takeaways * Nation-leading [MutualOne Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&lender=MutualOne%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) is holding firm with its 3-month CD rate of 5.65% APY. That's the highest rate you can earn on a nationally available certificate of any length. * Offering a slightly longer 6-month rate lock, runner-up [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) is paying 5.55% APY. * The best CD rates for terms of 1 to 3 years range from 5.25% to 5.40%, while the top 4-year and 5-year CD returns are in upper-4% territory. * Today's [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) are slightly below their historic peak of last fall, inching down in anticipation of Fed rate cuts. But recent inflation readings suggest it could be a while before the Fed lowers rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. ## Lock In 5.25% to 5.65%—On Terms Up to 23 Months Today's nation-leading CD rate across terms continues to be 5.65% APY. That's available from MutualOne Bank for a 3-month duration, securing your rate until mid-August. Prefer a longer rate lock? The runner-up is Newtek Bank. Its [nation-leading 6-month CD](https://www.investopedia.com/best-6-month-cd-rates-4783267) pays 5.55% APY—extending your rate lock almost to Thanksgiving. If you want to grab a rate that's guaranteed all the way to 2025, a total of 10 CDs are paying 5.35% to 5.50%, with terms ranging from 9 months to 15 months. That includes the best 1-year CD rate from [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), which is paying 5.40% APY. Or 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) pick-your-term offer of 5.25%. Available for 18 to 23 months, it could stretch your rate guarantee until spring 2026. ## Long CD Terms Secure Your Rate to 2027—Or Beyond Choosing a CD term of two years or longer is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a [top 3-year CD](https://www.investopedia.com/best-2-year-cd-rates-4801682) paying 5.00%. That would guarantee your return until 2027. Or you can opt to secure a rate in the high-4% range for as far as 4 or [5 years down the road](https://www.investopedia.com/best-5-year-cd-rates-4801473). | **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) | 5.65% APY | 5.65% APY | No change | [MutualOne Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&lender=MutualOne%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [6 months](https://www.investopedia.com/best-6-month-cd-rates-4783267) | 5.55% APY | 5.55% APY | No change | [Newtek Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [1 year](https://www.investopedia.com/best-1-year-cd-rates-4796650) | 5.40% APY | 5.40% APY | No change | [NexBank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&lender=NexBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.40% APY | 5.40% APY | No change | [NASA Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nasafcu.com/personal/checking-savings/certificates/certificates---rates&lender=NASA%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [2 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.25% APY | 5.25% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [3 years](https://www.investopedia.com/best-3-year-cd-rates-4782938) | 5.00% APY | 5.00% APY | No change | [DollarSavingsDirect](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&lender=DollarSavingsDirect&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) and [Transportation Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://transfcu.org/share-certificate/&lender=Transportation%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [4 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) | 4.86% APY | 4.86% APY | No change | [Wellby Financial](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.wellbyfinancial.com/savings/certificates/&lender=Wellby%20Financial&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [5 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&lender=Lafayette%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.80% APY | 4.80% APY | No change | [BMO Alto](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&lender=BMO%20Alto&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. ### Big U.S. Bank is a CD Rate Leader The top nationwide CD rates are typically offered by smaller banks and credit unions. But right now, the top 5-year return comes from a large U.S. Bank. [BMO Alto](https://www.investopedia.com/new-cd-rate-leader-is-a-large-us-bank-8647924) is the online-only arm of banking giant BMO, which operates about 1,000 physical branches and is the 12th-largest U.S. bank by deposits. Though it only pays the top nationwide rate in the 5-year term, BMO Alto also has reasonably competitive rates on CDs ranging from 6 months to 4 years. ## CD Rates Are Still Near 20-Year Highs CD rates have inched lower since they climbed to a historic peak of 6.50% in October. At the start of February, the number of CDs in [our daily ranking](https://www.investopedia.com/best-cd-rates-4770214) that paid at least 5.50% APY was 30. Today that count sits at eight. But don't lose sight of how much certificates of deposit (CDs) still pay relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute *highest* APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. ### 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). ## Jumbo CDs Offer a Rate Bump in Some Terms The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while State Department Federal Credit Union offers 5.41% APY for 15 months. Beware that [the best jumbo CD rates](https://www.investopedia.com/best-jumbo-cd-rates-4797766) don't *always* pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the eight terms below, so it's always wise to shop both certificate types before making a final decision. | **CD Term** | **[Today's Top National Bank Rate](https://www.investopedia.com/best-bank-cd-rates-4801462)** | **[Today's Top National Credit Union Rate](https://www.investopedia.com/best-cd-rates-4770214)** | **[Today's Top National Jumbo Rate](https://www.investopedia.com/best-jumbo-cd-rates-4797766)** | | --- | --- | --- | --- | | 3 months | 5.65% APY\* | 5.30% APY | 5.20% APY | | 6 months | 5.55% APY\* | 5.50% APY | 5.51% APY | | 1 year | 5.40% APY | 5.25% APY | 5.50% APY\* | | 18 months | 5.25% APY | 5.40% APY | 5.41% APY\* | | 2 years | 5.00% APY | 5.25% APY\* | 4.91% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.70% APY | 4.86% APY\* | 4.48% APY | | 5 years | 4.80% APY\* | 4.65% APY | 4.38% APY | \*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. ## Where Will CD Rates Go in 2024? To combat decades-high inflation, the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) aggressively hiked the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a [high-yield savings](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) or [money market account](https://www.investopedia.com/best-money-market-accounts-5096917). Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. As was almost universally expected, the Federal Reserve's rate-setting committee [announced on May 1](https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952) that it is maintaining the federal funds rate at its current level. It's the sixth meeting in a row in which the central bank has held its benchmark rate steady. That's because [inflation](https://www.investopedia.com/terms/i/inflation.asp) has been cooling, allowing the Fed to stop raising interest rates. Yet, further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. The Fed's written statement on May 1 left out discussion of projected rate cuts. When asked about this during his press conference following release of the statement, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take [longer than originally expected](https://www.investopedia.com/us-economy-news-today-may-1-8641676#toc-2024-05-01t185349358z) to lower the fed funds rate. "My colleagues and I today said that we didn't see progress in the first quarter," Powell said. "And I've said that it appears then that it's going to take longer for us to reach that point of confidence. So I don't know how long it will take. When we get that confidence, then rate cuts will be in scope." It therefore seems likely the fed funds rate will stay where it is for some number of months—although with great uncertainty on when exactly the Fed will first cut rates. Following the latest Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take until Sept. 18 for the first rate cut to be implemented, according to CME Group's FedWatch Tool. That's three meetings away. New inflation data was reported yesterday, with the eagerly awaited release of April's Consumer Price Index (CPI). The latest monthly reading [came in at 3.4%](https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737). That's down from March's 3.5% level but represents only a minor change. As a result, Fed officials are expected to remain in ["wait-and-see" mode](https://www.investopedia.com/fed-officials-in-wait-and-see-mode-on-rate-cuts-ahead-of-next-weeks-inflation-data-8646908). That also means CD rates will likely continue their current plateau. If at some point the Fed signals it's ready to start cutting rates, that would drive CD yields down more quickly. But it appears that could be months away. The central bank will hold five more rate-setting meetings in 2024, with the next one scheduled to conclude June 12. [Best High-Yield Savings Accounts for May 2024—Up to 5.55%](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) [Best CD Rates for May 2024: Up to 5.51%](https://www.investopedia.com/best-cd-rates-4770214) [Best Money Market Account Rates for May 2024—Up to 5.35%](https://www.investopedia.com/best-money-market-accounts-5096917) ### Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. ## How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured ([FDIC](https://www.investopedia.com/terms/f/fdic-insured-account.asp) for banks, [NCUA](https://www.investopedia.com/terms/n/ncua-insured-institution.asp) for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, [read our full methodology](https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816).

Key Takeaways Nation-leading MutualOne Bank is holding firm with its 3-month CD rate of 5.65% APY. That's the highest rate you can earn on a nationally available certificate of any length. Offering a slightly longer 6-month rate lock, runner-up Newtek Bank is paying 5.55% APY. The best CD rates for terms of 1 to 3 years range from 5.25% to 5.40%, while the top 4-year and 5-year CD returns are in upper-4% territory. Today's best CD rates are slightly below their historic peak of last fall, inching down in anticipation of Fed rate cuts. But recent inflation readings suggest it could be a while before the Fed lowers rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. Lock In 5.25% to 5.65%—On Terms Up to 23 Months Today's nation-leading CD rate across terms continues to be 5.65% APY. That's available from MutualOne Bank for a 3-month duration, securing your rate until mid-August. Prefer a longer rate lock? The runner-up is Newtek Bank. Its nation-leading 6-month CD pays 5.55% APY—extending your rate lock almost to Thanksgiving. If you want to grab a rate that's guaranteed all the way to 2025, a total of 10 CDs are paying 5.35% to 5.50%, with terms ranging from 9 months to 15 months. That includes the best 1-year CD rate from NexBank, which is paying 5.40% APY. Or you might like Credit Human's pick-your-term offer of 5.25%. Available for 18 to 23 months, it could stretch your rate guarantee until spring 2026. Long CD Terms Secure Your Rate to 2027—Or Beyond Choosing a CD term of two years or longer is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a top 3-year CD paying 5.00%. That would guarantee your return until 2027. Or you can opt to secure a rate in the 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 5.65% APY 5.65% APY No change MutualOne Bank 6 months 5.55% APY 5.55% APY No change Newtek Bank 1 year 5.40% APY 5.40% APY No change NexBank 18 months 5.40% APY 5.40% APY No change NASA Federal Credit Union 2 years 5.25% APY 5.25% APY No change Credit Human 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect and Transportation Federal Credit Union 4 years 4.86% APY 4.86% APY No change Wellby Financial 5 years 4.80% APY 4.80% APY No change BMO Alto To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. Big U.S. Bank is a CD Rate Leader The top nationwide CD rates are typically offered by smaller banks and credit unions. But right now, the top 5-year return comes from a large U.S. Bank. BMO Alto is the online-only arm of banking giant BMO, which operates about 1,000 physical branches and is the 12th-largest U.S. bank by deposits. Though it only pays the top nationwide rate in the 5-year term, BMO Alto also has reasonably competitive rates on CDs ranging from 6 months to 4 years. CD Rates Are Still Near 20-Year Highs CD rates have inched lower since they climbed to a historic peak of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid at least 5.50% APY was 30. Today that count sits at eight. But don't lose sight of how much certificates of deposit (CDs) still pay relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute highest APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. 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. Jumbo CDs Offer a Rate Bump in Some Terms The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while State Department Federal Credit Union offers 5.41% APY for 15 months. Beware that the best jumbo CD rates don't always pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the eight terms below, so it's always wise to shop both certificate types before making a final decision. CD Term Today's Top National Bank Rate Today's Top National Credit Union Rate Today's Top National Jumbo Rate 3 months 5.65% APY* 5.30% APY 5.20% APY 6 months 5.55% APY* 5.50% APY 5.51% APY 1 year 5.40% APY 5.25% APY 5.50% APY* 18 months 5.25% APY 5.40% APY 5.41% APY* 2 years 5.00% APY 5.25% APY* 4.91% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.70% APY 4.86% APY* 4.48% APY 5 years 4.80% APY* 4.65% APY 4.38% APY *Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. Where Will CD Rates Go in 2024? To combat decades-high inflation, the Federal Reserve aggressively hiked the federal funds rate between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a high-yield savings or money market account. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. As was almost universally expected, the Federal Reserve's rate-setting committee announced on May 1 that it is maintaining the federal funds rate at its current level. It's the sixth meeting in a row in which the central bank has held its benchmark rate steady. That's because inflation has been cooling, allowing the Fed to stop raising interest rates. Yet, further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. The Fed's written statement on May 1 left out discussion of projected rate cuts. When asked about this during his press conference following release of the statement, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take longer than originally expected to lower the fed funds rate. "My colleagues and I today said that we didn't see progress in the first quarter," Powell said. "And I've said that it appears then that it's going to take longer for us to reach that point of confidence. So I don't know how long it will take. When we get that confidence, then rate cuts will be in scope." It therefore seems likely the fed funds rate will stay where it is for some number of months—although with great uncertainty on when exactly the Fed will first cut rates. Following the latest Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take until Sept. 18 for the first rate cut to be implemented, according to CME Group's FedWatch Tool. That's three meetings away. New inflation data was reported yesterday, with the eagerly awaited release of April's Consumer Price Index (CPI). The latest monthly reading came in at 3.4%. That's down from March's 3.5% level but represents only a minor change. As a result, Fed officials are expected to remain in "wait-and-see" mode. That also means CD rates will likely continue their current plateau. If at some point the Fed signals it's ready to start cutting rates, that would drive CD yields down more quickly. But it appears that could be months away. The central bank will hold five more rate-setting meetings in 2024, with the next one scheduled to conclude June 12. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

https://www.investopedia.com/managing-wealth/modern-portfolio-theory-why-its-still-hip/

Modern Portfolio Theory: Why It's Still Hip

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> If you were to craft the perfect investment, you would probably want its attributes to include high returns and low risk. </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 reality, of course, is that this kind of investment is next to impossible to find. Not surprisingly, people spend a lot of time developing methods and strategies that come close to the "perfect investment." But none have been as popular as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/modernportfoliotheory.asp">modern portfolio theory</a> (MPT). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Here, we look at the basic ideas behind MPT, its pros and cons, and how it should factor into your portfolio management. </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>Modern portfolio theory (MPT) argues that it's possible to design an ideal portfolio that will provide the investor maximum returns by taking on the optimal amount of risk.</li><li>MPT was developed by economist Harry Markowitz in the 1950s; his theories surround the importance of portfolios, risk, diversification, and the connections between different kinds of securities.<span class="ql-inline-citation" data-cite="3"></span></li><li>In particular, MPT advocates diversification of securities and asset classes or the benefits of not putting all your eggs in one basket.</li><li>MPT says stocks face both systematic risk—market risks such as interest rates and recessions—as well as unsystematic risk—issues that are specific to each stock, such as management changes or poor sales.</li><li>Proper diversification of a portfolio can't prevent systematic risk, but it can dampen, if not eliminate, unsystematic risk.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-theory"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> The Theory </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> One of the most important and influential economic theories dealing with finance and investment, MPT was developed by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/harrymarkowitz.asp">Harry Markowitz</a> and published under the title "Portfolio Selection" in the <em>Journal of Finance </em>in 1952.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The theory is based on Markowitz's hypothesis that it is possible for investors to design an optimal portfolio to maximize returns by taking on a quantifiable amount of risk. Essentially, investors can reduce risk through diversification using a quantitative method. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Modern portfolio theory says that it is not enough to look at the expected <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskreturntradeoff.asp">risk and return</a> of one particular stock. By investing in more than one stock, an investor can reap the benefits of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a>—chief among them, a reduction in the riskiness of the portfolio. MPT quantifies the benefits of diversification, or not putting all of your eggs in one basket. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> For most investors, the risk they take when they buy a stock is that the return will be lower than expected. In other words, it is the deviation from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/averagereturn.asp">average return</a>. Each stock has its own <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> from the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mean.asp">mean</a>, which modern portfolio theory calls "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"> The risk in a portfolio of diverse individual stocks will be less than the risk inherent in holding any one of the individual stocks, provided the risks of the various stocks are not directly related. Consider a portfolio that holds two risky stocks: one that pays off when it rains and another that pays off when it doesn't rain. A portfolio that contains both assets will always pay off, regardless of whether it rains or shines. Adding one risky asset to another can reduce the overall risk of an all-weather portfolio. </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 other words, Markowitz showed that investment is not just about picking stocks, but about choosing the right combination of stocks among which to distribute one's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nestegg.asp">nest egg</a>.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Markowitz, along with Merton H. Miller and William F. Sharpe, changed the way people invested; for their life's work, the three shared the 1990 Nobel Prize in Economic Sciences.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-kinds-of-risk"></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"> Kinds of Risk </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Modern portfolio theory states that the risk for individual stock returns has two components: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/systematicrisk.asp">Systematic Risk</a>: These are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketrisk.asp">market risks</a> that cannot be diversified away. Interest rates, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recession.asp">recessions</a>, and wars are examples of systematic risks. </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/terms/u/unsystematicrisk.asp">Unsystematic Risk</a>: Also known as "specific risk," this risk is specific to individual stocks, such as a change in management or a decline in operations. This kind of risk can be diversified away as you increase the number of stocks in your portfolio (see the figure below). It represents the component of a stock's return that is not <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/correlation.asp">correlated</a> with general market moves. </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 a well-diversified portfolio, the risk—or average deviation from the mean—of each stock contributes little to portfolio risk. Instead, it is the difference—or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/covariance.asp">covariance</a>—between individual stocks' levels of risk that determines overall portfolio risk. As a result, investors <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/company-insights/083016/example-applying-modern-portfolio-theory-mps.asp">benefit from holding diversified portfolios</a> instead of individual stocks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_33-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:63.3%;"> <img alt="Modern Portfolio Theory" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/LeYOCpxvp34dcQakzKI2B4tRGHQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ModernPortfolioTheory1_2-8e6110a86b02462c89b401a46ad2118f.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/LeYOCpxvp34dcQakzKI2B4tRGHQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ModernPortfolioTheory1_2-8e6110a86b02462c89b401a46ad2118f.png" data-srcset="https://www.investopedia.com/thmb/nFOa6IDftRW2KqyezMVCxg2uQ_s=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ModernPortfolioTheory1_2-8e6110a86b02462c89b401a46ad2118f.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_1-0" width="6250"/> <noscript> <img alt="Modern Portfolio Theory" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/LeYOCpxvp34dcQakzKI2B4tRGHQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ModernPortfolioTheory1_2-8e6110a86b02462c89b401a46ad2118f.png" srcset="https://www.investopedia.com/thmb/nFOa6IDftRW2KqyezMVCxg2uQ_s=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ModernPortfolioTheory1_2-8e6110a86b02462c89b401a46ad2118f.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> <span class="heading-toc" id="toc-the-efficient-frontier"></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 Efficient Frontier </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Now that we understand the benefits of diversification, the question of how to identify the best level of diversification arises. Enter the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/efficientfrontier.asp">efficient frontier</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> For every level of return, there is one portfolio that offers the lowest possible risk, and for every level of risk, there is a portfolio that offers the highest return. These combinations can be plotted on a graph, and the resulting line is the efficient frontier. The figure below shows the efficient frontier for just two stocks—a high risk/high return technology stock (like Google) and a low risk/low return consumer stock (like Coca-Cola). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></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_39-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:63.3%;"> <img alt="Efficient Frontier For Two Stocks" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/JDrjJ1lwFUsgcWhLhyVoFQSezbY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ModernPortfolioTheory2_2-48788533579e4739919ec76a33f1ca3d.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/JDrjJ1lwFUsgcWhLhyVoFQSezbY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ModernPortfolioTheory2_2-48788533579e4739919ec76a33f1ca3d.png" data-srcset="https://www.investopedia.com/thmb/mehs2TR8IWFfih7Q_KVQzFTnTes=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ModernPortfolioTheory2_2-48788533579e4739919ec76a33f1ca3d.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_2-0" width="6251"/> <noscript> <img alt="Efficient Frontier For Two Stocks" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/JDrjJ1lwFUsgcWhLhyVoFQSezbY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ModernPortfolioTheory2_2-48788533579e4739919ec76a33f1ca3d.png" srcset="https://www.investopedia.com/thmb/mehs2TR8IWFfih7Q_KVQzFTnTes=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ModernPortfolioTheory2_2-48788533579e4739919ec76a33f1ca3d.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_40-0"> Any portfolio that lies on the upper part of the curve is efficient: It gives the maximum <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> for a given level of risk. A rational investor will only ever hold a portfolio that lies somewhere on the efficient frontier. The maximum level of risk that the investor will take on determines the position of the portfolio on the line. </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"> Modern portfolio theory takes this idea even further. It suggests that combining a stock portfolio that sits on the efficient frontier with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskfreeasset.asp">risk-free asset</a>, the purchase of which is funded by borrowing, can actually increase returns beyond the efficient frontier. In other words, if you were to borrow to acquire a risk-free stock, then the remaining stock portfolio could have a riskier profile and, therefore, a higher return than you might otherwise choose. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>When a portfolio is well-balanced, the individual risk of each stock has little impact on overall portfolio risk; rather, it's the difference between each stock's level of risk that influences the overall portfolio risk.</p></div></div></div> <span class="heading-toc" id="toc-what-mpt-means-for-you"></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"> What MPT Means for You </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Modern portfolio theory has had a marked impact on how investors perceive risk, return, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfoliomanagement.asp">portfolio management</a>. The theory demonstrates that portfolio diversification can reduce investment risk. In fact, modern <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymanager.asp">money managers</a> routinely follow its precepts. Passive investing also incorporates MPT as investors choose index funds that are low cost and well-diversified. Losses in any individual stock are not material enough to damage performance due to the diversification, and the success and prevalence of passive investing is an indication of the ubiquity of modern portfolio theory. </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-downsides-to-mpt"></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"> Downsides to MPT </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> As ubiquitous as MPT might be, it still has some shortcomings in the real world. For starters, it often requires investors to rethink notions of risk. Sometimes it demands that the investor take on a perceived risky investment (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a>, for example) in order to reduce overall risk. That can be a tough sell to an investor not familiar with the benefits of sophisticated portfolio management techniques. </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"> Furthermore, MPT assumes that it is possible to select stocks whose individual performance is independent of other investments in the portfolio. But market historians have shown that there are no such instruments. In times of market stress, seemingly independent investments do act as though they are related. </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"> Likewise, it is logical to borrow to hold a risk-free asset and increase your <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio-return.asp">portfolio returns</a>, but finding a truly risk-free asset is another matter. Government-backed bonds are presumed to be risk-free, but, in reality, they are not. Securities such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gilts.asp">gilts</a> and <a class="pseudoStyle" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybond.asp">U.S. Treasury bonds</a> are free of <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/defaultrisk.asp">default risk</a>, but expectations of higher inflation and interest rate changes can both affect their value. </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"> Then there is the question of the number of stocks required for diversification. How many is enough? Mutual funds can contain dozens and dozens of stocks. Investment guru William J. Bernstein says that even 100 stocks are not enough to diversify away the unsystematic risk.<span class="ql-inline-citation" data-cite="2"></span> By contrast, Edwin J. Elton and Martin J. Gruber in their book <em>Modern Portfolio Theory And <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment-analysis.asp">Investment Analysis</a></em> (1981), conclude that you would come very close to achieving optimal diversity after adding the 20th stock.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <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"> The gist of MPT is that the market is hard to beat and that the people who beat the market are those who take on above-average risk. It is also implied that these risk-takers will get their comeuppance when markets turn down. </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"> Then again, investors such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/071801.asp" rel="noopener noreferrer">Warren Buffett</a> remind us that portfolio theory is just that—theory. At the end of the day, a portfolio's success rests on the investor's skills and the time that they devote to it. Sometimes it is better to pick a small number of out-of-favor investments and wait for the market to turn in your favor than to rely on <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketaverage.asp" rel="noopener noreferrer">market averages</a> alone. </p></div>

If you were to craft the perfect investment, you would probably want its attributes to include high returns and low risk. The reality, of course, is that this kind of investment is next to impossible to find. Not surprisingly, people spend a lot of time developing methods and strategies that come close to the "perfect investment." But none have been as popular as [modern portfolio theory](https://www.investopedia.com/terms/m/modernportfoliotheory.asp) (MPT). Here, we look at the basic ideas behind MPT, its pros and cons, and how it should factor into your portfolio management. ### Key Takeaways * Modern portfolio theory (MPT) argues that it's possible to design an ideal portfolio that will provide the investor maximum returns by taking on the optimal amount of risk. * MPT was developed by economist Harry Markowitz in the 1950s; his theories surround the importance of portfolios, risk, diversification, and the connections between different kinds of securities. * In particular, MPT advocates diversification of securities and asset classes or the benefits of not putting all your eggs in one basket. * MPT says stocks face both systematic risk—market risks such as interest rates and recessions—as well as unsystematic risk—issues that are specific to each stock, such as management changes or poor sales. * Proper diversification of a portfolio can't prevent systematic risk, but it can dampen, if not eliminate, unsystematic risk. ## The Theory One of the most important and influential economic theories dealing with finance and investment, MPT was developed by [Harry Markowitz](https://www.investopedia.com/terms/h/harrymarkowitz.asp) and published under the title "Portfolio Selection" in the *Journal of Finance*in 1952. The theory is based on Markowitz's hypothesis that it is possible for investors to design an optimal portfolio to maximize returns by taking on a quantifiable amount of risk. Essentially, investors can reduce risk through diversification using a quantitative method. Modern portfolio theory says that it is not enough to look at the expected [risk and return](https://www.investopedia.com/terms/r/riskreturntradeoff.asp) of one particular stock. By investing in more than one stock, an investor can reap the benefits of [diversification](https://www.investopedia.com/terms/d/diversification.asp)—chief among them, a reduction in the riskiness of the portfolio. MPT quantifies the benefits of diversification, or not putting all of your eggs in one basket. For most investors, the risk they take when they buy a stock is that the return will be lower than expected. In other words, it is the deviation from the [average return](https://www.investopedia.com/terms/a/averagereturn.asp). Each stock has its own [standard deviation](https://www.investopedia.com/terms/s/standarddeviation.asp) from the [mean](https://www.investopedia.com/terms/m/mean.asp), which modern portfolio theory calls "risk." The risk in a portfolio of diverse individual stocks will be less than the risk inherent in holding any one of the individual stocks, provided the risks of the various stocks are not directly related. Consider a portfolio that holds two risky stocks: one that pays off when it rains and another that pays off when it doesn't rain. A portfolio that contains both assets will always pay off, regardless of whether it rains or shines. Adding one risky asset to another can reduce the overall risk of an all-weather portfolio. In other words, Markowitz showed that investment is not just about picking stocks, but about choosing the right combination of stocks among which to distribute one's [nest egg](https://www.investopedia.com/terms/n/nestegg.asp).  ### Markowitz, along with Merton H. Miller and William F. Sharpe, changed the way people invested; for their life's work, the three shared the 1990 Nobel Prize in Economic Sciences. ## Kinds of Risk Modern portfolio theory states that the risk for individual stock returns has two components: [Systematic Risk](https://www.investopedia.com/terms/s/systematicrisk.asp): These are [market risks](https://www.investopedia.com/terms/m/marketrisk.asp) that cannot be diversified away. Interest rates, [recessions](https://www.investopedia.com/terms/r/recession.asp), and wars are examples of systematic risks. [Unsystematic Risk](https://www.investopedia.com/terms/u/unsystematicrisk.asp): Also known as "specific risk," this risk is specific to individual stocks, such as a change in management or a decline in operations. This kind of risk can be diversified away as you increase the number of stocks in your portfolio (see the figure below). It represents the component of a stock's return that is not [correlated](https://www.investopedia.com/terms/c/correlation.asp) with general market moves. For a well-diversified portfolio, the risk—or average deviation from the mean—of each stock contributes little to portfolio risk. Instead, it is the difference—or [covariance](https://www.investopedia.com/terms/c/covariance.asp)—between individual stocks' levels of risk that determines overall portfolio risk. As a result, investors [benefit from holding diversified portfolios](https://www.investopedia.com/articles/company-insights/083016/example-applying-modern-portfolio-theory-mps.asp) instead of individual stocks. ![Modern Portfolio Theory]() :max_bytes(150000):strip_icc()/ModernPortfolioTheory1_2-8e6110a86b02462c89b401a46ad2118f.png) Image by Julie Bang © Investopedia 2020 ## The Efficient Frontier Now that we understand the benefits of diversification, the question of how to identify the best level of diversification arises. Enter the [efficient frontier](https://www.investopedia.com/terms/e/efficientfrontier.asp). For every level of return, there is one portfolio that offers the lowest possible risk, and for every level of risk, there is a portfolio that offers the highest return. These combinations can be plotted on a graph, and the resulting line is the efficient frontier. The figure below shows the efficient frontier for just two stocks—a high risk/high return technology stock (like Google) and a low risk/low return consumer stock (like Coca-Cola). ![Efficient Frontier For Two Stocks]() :max_bytes(150000):strip_icc()/ModernPortfolioTheory2_2-48788533579e4739919ec76a33f1ca3d.png) Image by Julie Bang © Investopedia 2020 Any portfolio that lies on the upper part of the curve is efficient: It gives the maximum [expected return](https://www.investopedia.com/terms/e/expectedreturn.asp) for a given level of risk. A rational investor will only ever hold a portfolio that lies somewhere on the efficient frontier. The maximum level of risk that the investor will take on determines the position of the portfolio on the line. Modern portfolio theory takes this idea even further. It suggests that combining a stock portfolio that sits on the efficient frontier with a [risk-free asset](https://www.investopedia.com/terms/r/riskfreeasset.asp), the purchase of which is funded by borrowing, can actually increase returns beyond the efficient frontier. In other words, if you were to borrow to acquire a risk-free stock, then the remaining stock portfolio could have a riskier profile and, therefore, a higher return than you might otherwise choose. ### When a portfolio is well-balanced, the individual risk of each stock has little impact on overall portfolio risk; rather, it's the difference between each stock's level of risk that influences the overall portfolio risk. ## What MPT Means for You Modern portfolio theory has had a marked impact on how investors perceive risk, return, and [portfolio management](https://www.investopedia.com/terms/p/portfoliomanagement.asp). The theory demonstrates that portfolio diversification can reduce investment risk. In fact, modern [money managers](https://www.investopedia.com/terms/m/moneymanager.asp) routinely follow its precepts. Passive investing also incorporates MPT as investors choose index funds that are low cost and well-diversified. Losses in any individual stock are not material enough to damage performance due to the diversification, and the success and prevalence of passive investing is an indication of the ubiquity of modern portfolio theory. ## Downsides to MPT As ubiquitous as MPT might be, it still has some shortcomings in the real world. For starters, it often requires investors to rethink notions of risk. Sometimes it demands that the investor take on a perceived risky investment ([futures](https://www.investopedia.com/terms/f/futures.asp), for example) in order to reduce overall risk. That can be a tough sell to an investor not familiar with the benefits of sophisticated portfolio management techniques. Furthermore, MPT assumes that it is possible to select stocks whose individual performance is independent of other investments in the portfolio. But market historians have shown that there are no such instruments. In times of market stress, seemingly independent investments do act as though they are related. Likewise, it is logical to borrow to hold a risk-free asset and increase your [portfolio returns](https://www.investopedia.com/terms/p/portfolio-return.asp), but finding a truly risk-free asset is another matter. Government-backed bonds are presumed to be risk-free, but, in reality, they are not. Securities such as [gilts](https://www.investopedia.com/terms/g/gilts.asp) and [U.S. Treasury bonds](https://www.investopedia.com/terms/t/treasurybond.asp) are free of [default risk](https://www.investopedia.com/terms/d/defaultrisk.asp), but expectations of higher inflation and interest rate changes can both affect their value. Then there is the question of the number of stocks required for diversification. How many is enough? Mutual funds can contain dozens and dozens of stocks. Investment guru William J. Bernstein says that even 100 stocks are not enough to diversify away the unsystematic risk. By contrast, Edwin J. Elton and Martin J. Gruber in their book *Modern Portfolio Theory And [Investment Analysis](https://www.investopedia.com/terms/i/investment-analysis.asp)* (1981), conclude that you would come very close to achieving optimal diversity after adding the 20th stock. ## The Bottom Line The gist of MPT is that the market is hard to beat and that the people who beat the market are those who take on above-average risk. It is also implied that these risk-takers will get their comeuppance when markets turn down. Then again, investors such as [Warren Buffett](https://www.investopedia.com/articles/01/071801.asp) remind us that portfolio theory is just that—theory. At the end of the day, a portfolio's success rests on the investor's skills and the time that they devote to it. Sometimes it is better to pick a small number of out-of-favor investments and wait for the market to turn in your favor than to rely on [market averages](https://www.investopedia.com/terms/m/marketaverage.asp) alone.

If you were to craft the perfect investment, you would probably want its attributes to include high returns and low risk. The reality, of course, is that this kind of investment is next to impossible to find. Not surprisingly, people spend a lot of time developing methods and strategies that come close to the "perfect investment." But none have been as popular as modern portfolio theory (MPT). Here, we look at the basic ideas behind MPT, its pros and cons, and how it should factor into your portfolio management. Key Takeaways Modern portfolio theory (MPT) argues that it's possible to design an ideal portfolio that will provide the investor maximum returns by taking on the optimal amount of risk.MPT was developed by economist Harry Markowitz in the 1950s; his theories surround the importance of portfolios, risk, diversification, and the connections between different kinds of securities.In particular, MPT advocates diversification of securities and asset classes or the benefits of not putting all your eggs in one basket.MPT says stocks face both systematic risk—market risks such as interest rates and recessions—as well as unsystematic risk—issues that are specific to each stock, such as management changes or poor sales.Proper diversification of a portfolio can't prevent systematic risk, but it can dampen, if not eliminate, unsystematic risk. The Theory One of the most important and influential economic theories dealing with finance and investment, MPT was developed by Harry Markowitz and published under the title "Portfolio Selection" in the Journal of Finance in 1952. The theory is based on Markowitz's hypothesis that it is possible for investors to design an optimal portfolio to maximize returns by taking on a quantifiable amount of risk. Essentially, investors can reduce risk through diversification using a quantitative method. Modern portfolio theory says that it is not enough to look at the expected risk and return of one particular stock. By investing in more than one stock, an investor can reap the benefits of diversification—chief among them, a reduction in the riskiness of the portfolio. MPT quantifies the benefits of diversification, or not putting all of your eggs in one basket. For most investors, the risk they take when they buy a stock is that the return will be lower than expected. In other words, it is the deviation from the average return. Each stock has its own standard deviation from the mean, which modern portfolio theory calls "risk." The risk in a portfolio of diverse individual stocks will be less than the risk inherent in holding any one of the individual stocks, provided the risks of the various stocks are not directly related. Consider a portfolio that holds two risky stocks: one that pays off when it rains and another that pays off when it doesn't rain. A portfolio that contains both assets will always pay off, regardless of whether it rains or shines. Adding one risky asset to another can reduce the overall risk of an all-weather portfolio. In other words, Markowitz showed that investment is not just about picking stocks, but about choosing the right combination of stocks among which to distribute one's nest egg.  Markowitz, along with Merton H. Miller and William F. Sharpe, changed the way people invested; for their life's work, the three shared the 1990 Nobel Prize in Economic Sciences. Kinds of Risk Modern portfolio theory states that the risk for individual stock returns has two components: Systematic Risk: These are market risks that cannot be diversified away. Interest rates, recessions, and wars are examples of systematic risks. Unsystematic Risk: Also known as "specific risk," this risk is specific to individual stocks, such as a change in management or a decline in operations. This kind of risk can be diversified away as you increase the number of stocks in your portfolio (see the figure below). It represents the component of a stock's return that is not correlated with general market moves. For a well-diversified portfolio, the risk—or average deviation from the mean—of each stock contributes little to portfolio risk. Instead, it is the difference—or covariance—between individual stocks' levels of risk that determines overall portfolio risk. As a result, investors benefit from holding diversified portfolios instead of individual stocks. Image by Julie Bang © Investopedia 2020 The Efficient Frontier Now that we understand the benefits of diversification, the question of how to identify the best level of diversification arises. Enter the efficient frontier. For every level of return, there is one portfolio that offers the lowest possible risk, and for every level of risk, there is a portfolio that offers the highest return. These combinations can be plotted on a graph, and the resulting line is the efficient frontier. The figure below shows the efficient frontier for just two stocks—a high risk/high return technology stock (like Google) and a low risk/low return consumer stock (like Coca-Cola). Image by Julie Bang © Investopedia 2020 Any portfolio that lies on the upper part of the curve is efficient: It gives the maximum expected return for a given level of risk. A rational investor will only ever hold a portfolio that lies somewhere on the efficient frontier. The maximum level of risk that the investor will take on determines the position of the portfolio on the line. Modern portfolio theory takes this idea even further. It suggests that combining a stock portfolio that sits on the efficient frontier with a risk-free asset, the purchase of which is funded by borrowing, can actually increase returns beyond the efficient frontier. In other words, if you were to borrow to acquire a risk-free stock, then the remaining stock portfolio could have a riskier profile and, therefore, a higher return than you might otherwise choose. When a portfolio is well-balanced, the individual risk of each stock has little impact on overall portfolio risk; rather, it's the difference between each stock's level of risk that influences the overall portfolio risk. What MPT Means for You Modern portfolio theory has had a marked impact on how investors perceive risk, return, and portfolio management. The theory demonstrates that portfolio diversification can reduce investment risk. In fact, modern money managers routinely follow its precepts. Passive investing also incorporates MPT as investors choose index funds that are low cost and well-diversified. Losses in any individual stock are not material enough to damage performance due to the diversification, and the success and prevalence of passive investing is an indication of the ubiquity of modern portfolio theory. Downsides to MPT As ubiquitous as MPT might be, it still has some shortcomings in the real world. For starters, it often requires investors to rethink notions of risk. Sometimes it demands that the investor take on a perceived risky investment (futures, for example) in order to reduce overall risk. That can be a tough sell to an investor not familiar with the benefits of sophisticated portfolio management techniques. Furthermore, MPT assumes that it is possible to select stocks whose individual performance is independent of other investments in the portfolio. But market historians have shown that there are no such instruments. In times of market stress, seemingly independent investments do act as though they are related. Likewise, it is logical to borrow to hold a risk-free asset and increase your portfolio returns, but finding a truly risk-free asset is another matter. Government-backed bonds are presumed to be risk-free, but, in reality, they are not. Securities such as gilts and U.S. Treasury bonds are free of default risk, but expectations of higher inflation and interest rate changes can both affect their value. Then there is the question of the number of stocks required for diversification. How many is enough? Mutual funds can contain dozens and dozens of stocks. Investment guru William J. Bernstein says that even 100 stocks are not enough to diversify away the unsystematic risk. By contrast, Edwin J. Elton and Martin J. Gruber in their book Modern Portfolio Theory And Investment Analysis (1981), conclude that you would come very close to achieving optimal diversity after adding the 20th stock. The Bottom Line The gist of MPT is that the market is hard to beat and that the people who beat the market are those who take on above-average risk. It is also implied that these risk-takers will get their comeuppance when markets turn down. Then again, investors such as Warren Buffett remind us that portfolio theory is just that—theory. At the end of the day, a portfolio's success rests on the investor's skills and the time that they devote to it. Sometimes it is better to pick a small number of out-of-favor investments and wait for the market to turn in your favor than to rely on market averages alone.

https://www.investopedia.com/news/cryptographic-hash-functions/

Cryptographic Hash Functions: Definition and Examples

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-are-cryptographic-hash-functions"></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 Cryptographic Hash Functions? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A cryptographic hash function is a mathematical function used in cryptography. Typical hash functions take inputs of variable lengths to return outputs of a fixed length. </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 cryptographic hash function combines the message-passing capabilities of hash functions with security properties. </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>Hash functions are mathematical functions that transform or "map" a given data set into a bit string of fixed size, also known as the "hash value."</li><li>Hash functions are used in cryptography and have variable levels of complexity and difficulty.</li><li>Hash functions are used for cryptocurrency, password security, and message security.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-cryptographic-hash-functions-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 Cryptographic Hash Functions Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Hash functions are commonly used data structures in computing systems for tasks such as checking the integrity of messages and authenticating information. While they are considered cryptographically "weak" because they can be solved in polynomial time, they are not easily decipherable. </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"> Cryptographic hash functions add security features to typical hash functions, making it more difficult to detect the contents of a message or information about recipients and senders.  </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 particular, cryptographic hash functions exhibit these three properties: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>They are "collision-free." This means that no different inputs should map to the same output <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hash.asp">hash</a>. </li> <li>They can be hidden. It should be difficult to guess the input value for a hash function from its output. </li> <li>They should be puzzle-friendly. It should be difficult to select an input that provides a pre-defined output. Thus, the input should be selected from a distribution that's as wide as possible.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_18-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The three properties outlined above are desirable but cannot always be implemented in practice.</p></div></div></div> <span class="heading-toc" id="toc-examples-of-cryptographic-hash-functions"></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"> Examples of Cryptographic Hash Functions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Cryptographic hash functions are widely used in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrencies</a> to pass transaction information anonymously. For example, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">Bitcoin</a>, the original and largest cryptocurrency, uses the SHA-256 cryptographic hash function in its algorithm.<span class="ql-inline-citation" data-cite="6"></span> <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ethereum.asp">Ethereum</a>, the second most popular blockchain, uses Keccak-256 to hash information.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> However, hashes have other applications in the real world. These are some of the most common cryptographic applications: </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"> Password Verification </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Storing passwords in a regular text file is dangerous, so nearly all sites store passwords as hashes. When a user inputs their password, it is hashed, and the result is compared to the list of hashed values stored on the company's servers. However, this is not a fool-proof practice—hackers have created databases of common passwords and their hashes, called rainbow tables, which make it easier for them to get into accounts.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <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"> Signature Generation and Verification </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Verifying signatures is a mathematical process used to verify the authenticity of digital documents or messages. A valid digital signature, where the prerequisites are satisfied, gives its receiver strong proof that a known sender created the message and that it was not altered in transit. </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 digital signature scheme typically consists of three algorithms: a key generation algorithm; a signing algorithm that, given a message and a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/private-key.asp">private key</a>, produces a signature; and a signature verifying algorithm. </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"> Verifying File and Message Integrity </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Hashes can ensure messages and files transmitted from sender to receiver are not tampered with during transit. The practice builds a "chain of trust." For example, a user might publish a hashed version of their data and the key so that recipients can compare the hash value they compute to the published value to make sure they align. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-what-is-the-best-cryptographic-hash-function"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Best Cryptographic Hash Function?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The best cryptographic hash function is the one that meets the needs of whatever it is being used for. SHA 256 is one of the most used, but there are many to choose from.</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-whats-an-example-of-a-hash-function"></span> <h2 class="mntl-sc-block-questionandanswer__question">What's an Example of a Hash Function?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An example of a hash function is MD5, used for encoding sensitive information. Here is the previous sentence in an MD5 hash: d13718d1f2b95ae65888a57fd5bc0056</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-what-are-the-3-properties-of-a-hash-function"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the 3 Properties of a Hash Function?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The three properties a hash function should have are collision resistance, preimage resistance, and second preimage resistance.<span class="ql-inline-citation" data-cite="7"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Cryptographic hash functions are programs that use a mathematical function, like an algorithm, to convert information to a hexadecimal form. These functions are also used in cryptocurrency to secure blockchain information. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> <em>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><br/> </p></div>

## What Are Cryptographic Hash Functions? A cryptographic hash function is a mathematical function used in cryptography. Typical hash functions take inputs of variable lengths to return outputs of a fixed length. A cryptographic hash function combines the message-passing capabilities of hash functions with security properties. ### Key Takeaways * Hash functions are mathematical functions that transform or "map" a given data set into a bit string of fixed size, also known as the "hash value." * Hash functions are used in cryptography and have variable levels of complexity and difficulty. * Hash functions are used for cryptocurrency, password security, and message security. ## How Cryptographic Hash Functions Work Hash functions are commonly used data structures in computing systems for tasks such as checking the integrity of messages and authenticating information. While they are considered cryptographically "weak" because they can be solved in polynomial time, they are not easily decipherable. Cryptographic hash functions add security features to typical hash functions, making it more difficult to detect the contents of a message or information about recipients and senders.  In particular, cryptographic hash functions exhibit these three properties: * They are "collision-free." This means that no different inputs should map to the same output [hash](https://www.investopedia.com/terms/h/hash.asp). * They can be hidden. It should be difficult to guess the input value for a hash function from its output. * They should be puzzle-friendly. It should be difficult to select an input that provides a pre-defined output. Thus, the input should be selected from a distribution that's as wide as possible. ### The three properties outlined above are desirable but cannot always be implemented in practice. ## Examples of Cryptographic Hash Functions Cryptographic hash functions are widely used in [cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp) to pass transaction information anonymously. For example, [Bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp), the original and largest cryptocurrency, uses the SHA-256 cryptographic hash function in its algorithm. [Ethereum](https://www.investopedia.com/terms/e/ethereum.asp), the second most popular blockchain, uses Keccak-256 to hash information. However, hashes have other applications in the real world. These are some of the most common cryptographic applications: ### Password Verification Storing passwords in a regular text file is dangerous, so nearly all sites store passwords as hashes. When a user inputs their password, it is hashed, and the result is compared to the list of hashed values stored on the company's servers. However, this is not a fool-proof practice—hackers have created databases of common passwords and their hashes, called rainbow tables, which make it easier for them to get into accounts. ### Signature Generation and Verification Verifying signatures is a mathematical process used to verify the authenticity of digital documents or messages. A valid digital signature, where the prerequisites are satisfied, gives its receiver strong proof that a known sender created the message and that it was not altered in transit. A digital signature scheme typically consists of three algorithms: a key generation algorithm; a signing algorithm that, given a message and a [private key](https://www.investopedia.com/terms/p/private-key.asp), produces a signature; and a signature verifying algorithm. ### Verifying File and Message Integrity Hashes can ensure messages and files transmitted from sender to receiver are not tampered with during transit. The practice builds a "chain of trust." For example, a user might publish a hashed version of their data and the key so that recipients can compare the hash value they compute to the published value to make sure they align. ## What Is the Best Cryptographic Hash Function? The best cryptographic hash function is the one that meets the needs of whatever it is being used for. SHA 256 is one of the most used, but there are many to choose from. ## What's an Example of a Hash Function? An example of a hash function is MD5, used for encoding sensitive information. Here is the previous sentence in an MD5 hash: d13718d1f2b95ae65888a57fd5bc0056 ## What Are the 3 Properties of a Hash Function? The three properties a hash function should have are collision resistance, preimage resistance, and second preimage resistance. ## The Bottom Line Cryptographic hash functions are programs that use a mathematical function, like an algorithm, to convert information to a hexadecimal form. These functions are also used in cryptocurrency to secure blockchain information. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.*

What Are Cryptographic Hash Functions? A cryptographic hash function is a mathematical function used in cryptography. Typical hash functions take inputs of variable lengths to return outputs of a fixed length. A cryptographic hash function combines the message-passing capabilities of hash functions with security properties. Key Takeaways Hash functions are mathematical functions that transform or "map" a given data set into a bit string of fixed size, also known as the "hash value."Hash functions are used in cryptography and have variable levels of complexity and difficulty.Hash functions are used for cryptocurrency, password security, and message security. How Cryptographic Hash Functions Work Hash functions are commonly used data structures in computing systems for tasks such as checking the integrity of messages and authenticating information. While they are considered cryptographically "weak" because they can be solved in polynomial time, they are not easily decipherable. Cryptographic hash functions add security features to typical hash functions, making it more difficult to detect the contents of a message or information about recipients and senders.  In particular, cryptographic hash functions exhibit these three properties: They are "collision-free." This means that no different inputs should map to the same output hash.  They can be hidden. It should be difficult to guess the input value for a hash function from its output.  They should be puzzle-friendly. It should be difficult to select an input that provides a pre-defined output. Thus, the input should be selected from a distribution that's as wide as possible. The three properties outlined above are desirable but cannot always be implemented in practice. Examples of Cryptographic Hash Functions Cryptographic hash functions are widely used in cryptocurrencies to pass transaction information anonymously. For example, Bitcoin, the original and largest cryptocurrency, uses the SHA-256 cryptographic hash function in its algorithm. Ethereum, the second most popular blockchain, uses Keccak-256 to hash information. However, hashes have other applications in the real world. These are some of the most common cryptographic applications: Password Verification Storing passwords in a regular text file is dangerous, so nearly all sites store passwords as hashes. When a user inputs their password, it is hashed, and the result is compared to the list of hashed values stored on the company's servers. However, this is not a fool-proof practice—hackers have created databases of common passwords and their hashes, called rainbow tables, which make it easier for them to get into accounts. Signature Generation and Verification Verifying signatures is a mathematical process used to verify the authenticity of digital documents or messages. A valid digital signature, where the prerequisites are satisfied, gives its receiver strong proof that a known sender created the message and that it was not altered in transit. A digital signature scheme typically consists of three algorithms: a key generation algorithm; a signing algorithm that, given a message and a private key, produces a signature; and a signature verifying algorithm. Verifying File and Message Integrity Hashes can ensure messages and files transmitted from sender to receiver are not tampered with during transit. The practice builds a "chain of trust." For example, a user might publish a hashed version of their data and the key so that recipients can compare the hash value they compute to the published value to make sure they align. What Is the Best Cryptographic Hash Function? The best cryptographic hash function is the one that meets the needs of whatever it is being used for. SHA 256 is one of the most used, but there are many to choose from. What's an Example of a Hash Function? An example of a hash function is MD5, used for encoding sensitive information. Here is the previous sentence in an MD5 hash: d13718d1f2b95ae65888a57fd5bc0056 What Are the 3 Properties of a Hash Function? The three properties a hash function should have are collision resistance, preimage resistance, and second preimage resistance. The Bottom Line Cryptographic hash functions are programs that use a mathematical function, like an algorithm, to convert information to a hexadecimal form. These functions are also used in cryptocurrency to secure blockchain information. The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info.

https://www.investopedia.com/what-you-should-know-before-taking-out-a-personal-loan-5201657

What You Should Know Before Taking Out a Personal Loan

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> There’s a lot to know when seeking a personal loan. For example, how is a personal loan different from more familiar types, like auto loans and mortgage loans? What can you use personal loans for? Are there any alternatives to personal loans? </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 get the answers to these and other questions, Investopedia spoke with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://my.wlu.edu/Documents/directory/hooksl.pdf?v=1633579019">Linda M. Hooks</a>, head of the Department of Economics at Washington and Lee University in Lexington, Virginia. In addition to leading the largest department at Washington and Lee, Dr. Hooks has conducted and published research in a variety of economic areas. Our edited conversation follows. </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>Personal loans are defined by their versatility. While they are typically used to fund major purchases, they can also be used to consolidate debt or cover one-time expenses.</li><li>Lenders base the amount they allow a prospective personal loan borrower to take out on their credit score, in addition to other potential factors that might affect their creditworthiness.</li><li>If you suspect your lender might be doing something illegal, the Consumer Financial Protection Bureau (CFPB) offers resources and an avenue for borrowers to report suspect financial service providers.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-personal-loans-differ-from-other-types-of-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"> How Personal Loans Differ from Other Types of Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <strong>Investopedia</strong>: "For starters, what’s a personal loan, and how does it differ from other types of loans?" </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"> <strong>Hooks</strong>: "A personal loan is a fixed-payment loan for an individual consumer. An individual borrows money now and repays it over a specific time period by paying the same amount monthly. In that way, it is similar to a car loan or a mortgage payment. It is different from those types of loans because it may not require <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a> or an item of value, such as a car or home, that you agree to forfeit if you cannot repay." </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"> <strong>Investopedia</strong>: "What can personal loan funds be used for?" </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>Hooks</strong>: "Personal loans are versatile. They can be used for purchases that are too large to buy with cash, such as a new appliance or air conditioner. They sometimes can be used for consolidating other debt. They can be used for one-time expenses such as medical bills, educational expenses, or perhaps a special trip." </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-how-to-qualify-for-a-personal-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> How to Qualify for a Personal Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <strong>Investopedia</strong>: "What qualifications do you need to have to apply for a personal loan?" </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> <strong>Hooks</strong>: "As with most loans, the primary qualification is a good <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a>. Sometimes, it may be possible to use collateral for a personal loan, and this may help to make you qualified for a personal loan or a better rate on the loan. Ask your bank what else might be accepted as collateral, such as savings accounts or an insurance policy." </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>Investopedia</strong>: "Where can people find out their credit score, and does it cost money?" </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"> <strong>Hooks</strong>: "Generally, you can obtain a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> only by paying a fee. However, you can obtain a free credit report from the website <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>. You can find additional information on this service, including a phone number and mailing address if you prefer to order a report that way, at the Federal Trade Commission website titled <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="http://consumer.ftc.gov/articles/free-credit-reports">Free Credit Reports</a>. The information in your credit report is the basis for the credit score, so you may not need to see the actual credit score as long as your credit report looks accurate." </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-factors-that-determine-how-much-you-can-borrow"></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"> Factors That Determine How Much You Can Borrow </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <strong>Investopedia</strong>: "How do lenders determine how much people can borrow?" </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>Hooks</strong>: "To determine how much a person could borrow, lenders use the credit score along with other factors such as possible collateral or an already-existing financial relationship with you." </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>Investopedia</strong>: "What are some ways to improve your chances if you are not approved?" </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>Hooks</strong>: "If your application is denied, you have a right under federal law to know why it was denied.<span class="ql-inline-citation" data-cite="5"></span> This can help you decide what to do next. Often, the denial is due to a low credit score, and you can work to improve the score. Some steps to improve your credit score include paying bills on time and paying the amount required, which is at least the minimum payment required on a credit card. You should pay more than that, if possible. Do not charge the maximum allowed by your credit cards, meaning keep the balance well below the maximum." </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-early-payoff-co-signers-and-other-loan-options"></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"> Early Payoff, Co-Signers, and Other Loan Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <strong>Investopedia</strong>: "Can you pay a personal loan off early, or does that depend on the terms of the loan?" </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>Hooks</strong>: "Early repayment of the loan might be possible, but it does depend on your specific loan. Ask before you sign the loan documents if there would be any penalty associated with early repayment." </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>Investopedia</strong>: "What is a co-signer, and when might a borrower need one?"<strong><br/></strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <strong>Hooks</strong>: "A co-signer is someone additional who agrees to repay the loan if you cannot. Having a co-signer can help someone with a limited credit history to obtain a loan. However, the co-signer should be aware that they are liable for the loan in the same way that they would be if it were their own loan. It may also affect the co-signer’s credit history and score." </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>Investopedia</strong>: "What are some alternatives to a personal loan?" </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <strong>Hooks</strong>: "Alternatives to a personal loan might include a home equity loan or a credit card. Another alternative, if it is a planned expense, is to save up for the purchase and buy it only after you have saved the funds for the item."<br/> </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-protections-available-to-borrowers"></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"> Protections Available to Borrowers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> <strong>Investopedia</strong>: "Where do you go to complain if you feel your lender is doing something illegal or wrong?" </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>Hooks</strong>: "The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp">Consumer Financial Protection Bureau (CFPB)</a> was established under the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp">Dodd-Frank Act</a> of 2010 to provide consumers with resources and an avenue for complaints about financial services."<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_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> <strong>Investopedia</strong>: "What happens if you have financial problems and can’t make loan payments?" </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"> <strong>Hooks</strong>: "If you run into financial problems and feel you would have trouble making a payment, contact your lender as soon as possible. There may be federal government programs that can help you as well, and you could find information on that on the CFPB website."<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <span class="heading-toc" id="toc-final-thoughts"></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"> Final Thoughts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> <strong>Investopedia</strong>: "What final words of advice do you have for anyone considering a personal loan?" </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"> <strong>Hooks</strong>: "Consider carefully the option of obtaining a personal loan. For example, in some circumstances, it may make sense to forgo a personal loan so that you can instead qualify for a home mortgage." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_61-0"><span class="heading-toc" id="toc-where-do-i-go-to-get-my-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Do I Go to Get My Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>According to the Consumer Financial Protection Bureau (CFPB), there are four ways to get your credit score:</p><ul><li><strong>Check credit card or loan statements</strong>: Many major credit card companies provide your credit score on your monthly statement.</li><li><strong>Talk to a nonprofit credit counselor</strong>: Nonprofit and 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>-approved counselors may provide credit scores and review them with you.</li><li><strong>Use a credit score service</strong>: Some services offer a “free credit score” but require you to sign up for a subscription. Others, funded by advertisers, do not charge a fee.</li><li><strong>Buy your score</strong>: Credit reporting companies will sell your score to you. You can also buy your score at <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.myfico.com/" rel="sponsored nofollow">myFICO.com</a>.<span class="ql-inline-citation" data-cite="1"></span></li></ul></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-is-there-a-penalty-for-paying-off-my-personal-loan-early"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is There a Penalty for Paying Off My Personal Loan Early?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It depends on the terms of your personal loan. It’s always wise to ask about penalties, including early-payoff penalties, before applying for a loan.</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-which-is-better-a-private-student-loan-or-a-personal-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Is Better: a Private Student Loan or a Personal Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A private student loan comes with lower interest rates, offers more flexibility in repayment, and typically allows you to write off interest payments on your taxes.<span class="ql-inline-citation" data-cite="6"></span> If you need money to pay for college and college expenses, a private student loan is probably best. If you have other non-school-related expenses, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-use-personal-loan-7562541">personal loan may be best</a>.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> Personal loans offer flexibility for purchases that might not fit into a purpose-built loan, such as an auto loan or mortgage. Personal loans can be obtained relatively quickly, and with a good credit history, they can have lower rates than a credit card. However, personal loans can be fairly expensive if you have bad credit. Carefully consider your long-term financial goals before taking out a personal loan. In the long run, saving up for your big expense may be a wiser move. </p></div>

There’s a lot to know when seeking a personal loan. For example, how is a personal loan different from more familiar types, like auto loans and mortgage loans? What can you use personal loans for? Are there any alternatives to personal loans? To get the answers to these and other questions, Investopedia spoke with [Linda M. Hooks](https://my.wlu.edu/Documents/directory/hooksl.pdf?v=1633579019), head of the Department of Economics at Washington and Lee University in Lexington, Virginia. In addition to leading the largest department at Washington and Lee, Dr. Hooks has conducted and published research in a variety of economic areas. Our edited conversation follows. ### Key Takeaways * Personal loans are defined by their versatility. While they are typically used to fund major purchases, they can also be used to consolidate debt or cover one-time expenses. * Lenders base the amount they allow a prospective personal loan borrower to take out on their credit score, in addition to other potential factors that might affect their creditworthiness. * If you suspect your lender might be doing something illegal, the Consumer Financial Protection Bureau (CFPB) offers resources and an avenue for borrowers to report suspect financial service providers. ## How Personal Loans Differ from Other Types of Loans **Investopedia**: "For starters, what’s a personal loan, and how does it differ from other types of loans?" **Hooks**: "A personal loan is a fixed-payment loan for an individual consumer. An individual borrows money now and repays it over a specific time period by paying the same amount monthly. In that way, it is similar to a car loan or a mortgage payment. It is different from those types of loans because it may not require [collateral](https://www.investopedia.com/terms/c/collateral.asp) or an item of value, such as a car or home, that you agree to forfeit if you cannot repay." **Investopedia**: "What can personal loan funds be used for?" **Hooks**: "Personal loans are versatile. They can be used for purchases that are too large to buy with cash, such as a new appliance or air conditioner. They sometimes can be used for consolidating other debt. They can be used for one-time expenses such as medical bills, educational expenses, or perhaps a special trip." ## How to Qualify for a Personal Loan **Investopedia**: "What qualifications do you need to have to apply for a personal loan?" **Hooks**: "As with most loans, the primary qualification is a good [credit history](https://www.investopedia.com/terms/c/credit-history.asp). Sometimes, it may be possible to use collateral for a personal loan, and this may help to make you qualified for a personal loan or a better rate on the loan. Ask your bank what else might be accepted as collateral, such as savings accounts or an insurance policy." **Investopedia**: "Where can people find out their credit score, and does it cost money?" **Hooks**: "Generally, you can obtain a [credit score](https://www.investopedia.com/terms/c/credit_score.asp) only by paying a fee. However, you can obtain a free credit report from the website [AnnualCreditReport.com](https://www.annualcreditreport.com/index.action). You can find additional information on this service, including a phone number and mailing address if you prefer to order a report that way, at the Federal Trade Commission website titled [Free Credit Reports](http://consumer.ftc.gov/articles/free-credit-reports). The information in your credit report is the basis for the credit score, so you may not need to see the actual credit score as long as your credit report looks accurate." ## Factors That Determine How Much You Can Borrow **Investopedia**: "How do lenders determine how much people can borrow?" **Hooks**: "To determine how much a person could borrow, lenders use the credit score along with other factors such as possible collateral or an already-existing financial relationship with you." **Investopedia**: "What are some ways to improve your chances if you are not approved?" **Hooks**: "If your application is denied, you have a right under federal law to know why it was denied. This can help you decide what to do next. Often, the denial is due to a low credit score, and you can work to improve the score. Some steps to improve your credit score include paying bills on time and paying the amount required, which is at least the minimum payment required on a credit card. You should pay more than that, if possible. Do not charge the maximum allowed by your credit cards, meaning keep the balance well below the maximum." ## Early Payoff, Co-Signers, and Other Loan Options **Investopedia**: "Can you pay a personal loan off early, or does that depend on the terms of the loan?" **Hooks**: "Early repayment of the loan might be possible, but it does depend on your specific loan. Ask before you sign the loan documents if there would be any penalty associated with early repayment." **Investopedia**: "What is a co-signer, and when might a borrower need one?" **Hooks**: "A co-signer is someone additional who agrees to repay the loan if you cannot. Having a co-signer can help someone with a limited credit history to obtain a loan. However, the co-signer should be aware that they are liable for the loan in the same way that they would be if it were their own loan. It may also affect the co-signer’s credit history and score." **Investopedia**: "What are some alternatives to a personal loan?" **Hooks**: "Alternatives to a personal loan might include a home equity loan or a credit card. Another alternative, if it is a planned expense, is to save up for the purchase and buy it only after you have saved the funds for the item." ## Protections Available to Borrowers **Investopedia**: "Where do you go to complain if you feel your lender is doing something illegal or wrong?" **Hooks**: "The [Consumer Financial Protection Bureau (CFPB)](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp) was established under the [Dodd-Frank Act](https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp) of 2010 to provide consumers with resources and an avenue for complaints about financial services." **Investopedia**: "What happens if you have financial problems and can’t make loan payments?" **Hooks**: "If you run into financial problems and feel you would have trouble making a payment, contact your lender as soon as possible. There may be federal government programs that can help you as well, and you could find information on that on the CFPB website." ## Final Thoughts **Investopedia**: "What final words of advice do you have for anyone considering a personal loan?" **Hooks**: "Consider carefully the option of obtaining a personal loan. For example, in some circumstances, it may make sense to forgo a personal loan so that you can instead qualify for a home mortgage." ## Where Do I Go to Get My Credit Score? According to the Consumer Financial Protection Bureau (CFPB), there are four ways to get your credit score: * **Check credit card or loan statements**: Many major credit card companies provide your credit score on your monthly statement. * **Talk to a nonprofit credit counselor**: Nonprofit and U.S. [Department of Housing and Urban Development (HUD)](https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp)-approved counselors may provide credit scores and review them with you. * **Use a credit score service**: Some services offer a “free credit score” but require you to sign up for a subscription. Others, funded by advertisers, do not charge a fee. * **Buy your score**: Credit reporting companies will sell your score to you. You can also buy your score at [myFICO.com](https://www.myfico.com/). ## Is There a Penalty for Paying Off My Personal Loan Early? It depends on the terms of your personal loan. It’s always wise to ask about penalties, including early-payoff penalties, before applying for a loan. ## Which Is Better: a Private Student Loan or a Personal Loan? A private student loan comes with lower interest rates, offers more flexibility in repayment, and typically allows you to write off interest payments on your taxes. If you need money to pay for college and college expenses, a private student loan is probably best. If you have other non-school-related expenses, a [personal loan may be best](https://www.investopedia.com/how-use-personal-loan-7562541). ## The Bottom Line Personal loans offer flexibility for purchases that might not fit into a purpose-built loan, such as an auto loan or mortgage. Personal loans can be obtained relatively quickly, and with a good credit history, they can have lower rates than a credit card. However, personal loans can be fairly expensive if you have bad credit. Carefully consider your long-term financial goals before taking out a personal loan. In the long run, saving up for your big expense may be a wiser move.

There’s a lot to know when seeking a personal loan. For example, how is a personal loan different from more familiar types, like auto loans and mortgage loans? What can you use personal loans for? Are there any alternatives to personal loans? To get the answers to these and other questions, Investopedia spoke with Linda M. Hooks, head of the Department of Economics at Washington and Lee University in Lexington, Virginia. In addition to leading the largest department at Washington and Lee, Dr. Hooks has conducted and published research in a variety of economic areas. Our edited conversation follows. Key Takeaways Personal loans are defined by their versatility. While they are typically used to fund major purchases, they can also be used to consolidate debt or cover one-time expenses.Lenders base the amount they allow a prospective personal loan borrower to take out on their credit score, in addition to other potential factors that might affect their creditworthiness.If you suspect your lender might be doing something illegal, the Consumer Financial Protection Bureau (CFPB) offers resources and an avenue for borrowers to report suspect financial service providers. How Personal Loans Differ from Other Types of Loans Investopedia: "For starters, what’s a personal loan, and how does it differ from other types of loans?" Hooks: "A personal loan is a fixed-payment loan for an individual consumer. An individual borrows money now and repays it over a specific time period by paying the same amount monthly. In that way, it is similar to a car loan or a mortgage payment. It is different from those types of loans because it may not require collateral or an item of value, such as a car or home, that you agree to forfeit if you cannot repay." Investopedia: "What can personal loan funds be used for?" Hooks: "Personal loans are versatile. They can be used for purchases that are too large to buy with cash, such as a new appliance or air conditioner. They sometimes can be used for consolidating other debt. They can be used for one-time expenses such as medical bills, educational expenses, or perhaps a special trip." How to Qualify for a Personal Loan Investopedia: "What qualifications do you need to have to apply for a personal loan?" Hooks: "As with most loans, the primary qualification is a good credit history. Sometimes, it may be possible to use collateral for a personal loan, and this may help to make you qualified for a personal loan or a better rate on the loan. Ask your bank what else might be accepted as collateral, such as savings accounts or an insurance policy." Investopedia: "Where can people find out their credit score, and does it cost money?" Hooks: "Generally, you can obtain a credit score only by paying a fee. However, you can obtain a free credit report from the website AnnualCreditReport.com. You can find additional information on this service, including a phone number and mailing address if you prefer to order a report that way, at the Federal Trade Commission website titled Free Credit Reports. The information in your credit report is the basis for the credit score, so you may not need to see the actual credit score as long as your credit report looks accurate." Factors That Determine How Much You Can Borrow Investopedia: "How do lenders determine how much people can borrow?" Hooks: "To determine how much a person could borrow, lenders use the credit score along with other factors such as possible collateral or an already-existing financial relationship with you." Investopedia: "What are some ways to improve your chances if you are not approved?" Hooks: "If your application is denied, you have a right under federal law to know why it was denied. This can help you decide what to do next. Often, the denial is due to a low credit score, and you can work to improve the score. Some steps to improve your credit score include paying bills on time and paying the amount required, which is at least the minimum payment required on a credit card. You should pay more than that, if possible. Do not charge the maximum allowed by your credit cards, meaning keep the balance well below the maximum." Early Payoff, Co-Signers, and Other Loan Options Investopedia: "Can you pay a personal loan off early, or does that depend on the terms of the loan?" Hooks: "Early repayment of the loan might be possible, but it does depend on your specific loan. Ask before you sign the loan documents if there would be any penalty associated with early repayment." Investopedia: "What is a co-signer, and when might a borrower need one?" Hooks: "A co-signer is someone additional who agrees to repay the loan if you cannot. Having a co-signer can help someone with a limited credit history to obtain a loan. However, the co-signer should be aware that they are liable for the loan in the same way that they would be if it were their own loan. It may also affect the co-signer’s credit history and score." Investopedia: "What are some alternatives to a personal loan?" Hooks: "Alternatives to a personal loan might include a home equity loan or a credit card. Another alternative, if it is a planned expense, is to save up for the purchase and buy it only after you have saved the funds for the item." Protections Available to Borrowers Investopedia: "Where do you go to complain if you feel your lender is doing something illegal or wrong?" Hooks: "The Consumer Financial Protection Bureau (CFPB) was established under the Dodd-Frank Act of 2010 to provide consumers with resources and an avenue for complaints about financial services." Investopedia: "What happens if you have financial problems and can’t make loan payments?" Hooks: "If you run into financial problems and feel you would have trouble making a payment, contact your lender as soon as possible. There may be federal government programs that can help you as well, and you could find information on that on the CFPB website." Final Thoughts Investopedia: "What final words of advice do you have for anyone considering a personal loan?" Hooks: "Consider carefully the option of obtaining a personal loan. For example, in some circumstances, it may make sense to forgo a personal loan so that you can instead qualify for a home mortgage." Where Do I Go to Get My Credit Score? According to the Consumer Financial Protection Bureau (CFPB), there are four ways to get your credit score:Check credit card or loan statements: Many major credit card companies provide your credit score on your monthly statement.Talk to a nonprofit credit counselor: Nonprofit and U.S. Department of Housing and Urban Development (HUD)-approved counselors may provide credit scores and review them with you.Use a credit score service: Some services offer a “free credit score” but require you to sign up for a subscription. Others, funded by advertisers, do not charge a fee.Buy your score: Credit reporting companies will sell your score to you. You can also buy your score at myFICO.com. Is There a Penalty for Paying Off My Personal Loan Early? It depends on the terms of your personal loan. It’s always wise to ask about penalties, including early-payoff penalties, before applying for a loan. Which Is Better: a Private Student Loan or a Personal Loan? A private student loan comes with lower interest rates, offers more flexibility in repayment, and typically allows you to write off interest payments on your taxes. If you need money to pay for college and college expenses, a private student loan is probably best. If you have other non-school-related expenses, a personal loan may be best. The Bottom Line Personal loans offer flexibility for purchases that might not fit into a purpose-built loan, such as an auto loan or mortgage. Personal loans can be obtained relatively quickly, and with a good credit history, they can have lower rates than a credit card. However, personal loans can be fairly expensive if you have bad credit. Carefully consider your long-term financial goals before taking out a personal loan. In the long run, saving up for your big expense may be a wiser move.

https://www.investopedia.com/investing-5g-5220515

What Do Investors Need to Know About 5G?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> 5G is the latest-generation wireless network technology. Providing faster speeds and greater capacity than the previous 4G network, 5G networks started coming online in the United States in 2018. </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"> Along with the new wireless technology comes the potential for transformative technologies for individual consumers, businesses, governments, and more. With significant global interest in 5G and the last several years seeing telecommunications companies and countries vying to create the largest 5G networks, investors may wonder how to capitalize on this development.<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_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Many individual companies and larger industries stand to benefit from 5G technology, providing investors with ample opportunities to profit as well. However, there are also some potential downsides to 5G that investors should be aware of, such as security concerns.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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>5G technology is the latest and fastest wireless network technology.<span class="ql-inline-citation" data-cite="8"></span></li><li>Wireless providers in the U.S. and abroad have raced to establish 5G networks.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="7"></span></li><li>Investors looking to target 5G may consider looking to individual stocks of internet providers, technology companies, automotive companies, robotics and AI companies, and many others, as well as mutual funds, exchange-traded funds (ETFs), and other vehicles.<span class="ql-inline-citation" data-cite="9"></span></li><li>Potential downsides to 5G include the length of time expected to establish large global networks, concerns about cybersecurity, and potential interference with aviation.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="6"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-5g"></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 5G? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> 5G is best distinguished from previous wireless network technology by its speed. It operates on a larger portion of the radio spectrum to allow wireless devices to transmit signals more efficiently. The technology also allows for faster information-processing times for devices.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> As of early 2022, all major carriers in the U.S. have 5G deployments covering 200 million or more people. New top-of-the-line smartphones released by major manufacturers in 2021 were all equipped with 5G capacity.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> As with other types of wireless technology, there are also multiple versions of 5G technology, including millimeter wave, which offers tremendously high speeds over short distances, and low band, which provides slower speeds and wider range.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-how-is-5g-transformational"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> How Is 5G Transformational? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Besides offering significantly higher speeds than prior wireless technologies, 5G may open up the possibility of new technologies. The technology may have applications across many industries, including in self-driving cars, government infrastructure, the test and measurement industry, and various others. Businesses utilizing high-resolution streaming video, industrial automation, artificial intelligence, machine learning, virtual reality, and related technologies all stand to benefit.<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_18-0"></div> <span class="heading-toc" id="toc-how-to-invest-in-5g"></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"> How to Invest in 5G </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> One immediate way to invest in 5G is to target telecommunications companies and technology companies that are likely to make popular 5G-capable devices. Major wireless networks like Verizon Communications Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VZ">VZ</a>) or T-Mobile US Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TMUS">TMUS</a>) have worked tirelessly in recent years to set up large 5G networks in a bid to entice and retain customers seeking higher speeds and the latest technology. However, there are also many ways to invest in 5G beyond internet companies.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Companies building popular 5G-enabled devices—as well as companies that provide key components of those devices, such as chips or 3D inspection systems—are another possible access point. Cloud computing companies, providers of network access infrastructure, hardware, and services, and fiber-optic technology companies all stand to benefit from the new technology.<span class="ql-inline-citation" data-cite="4"></span> Farther afield, companies developing self-driving car technology, virtual reality systems, robotics, and similar technologies could also benefit, albeit less directly. </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"> Investors have many vehicles to use to access the investment paths listed above. Individual equities are always a possibility. Investors searching for greater diversity may wish to focus on <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>, <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>, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reit.asp">real estate investment trusts (REITs)</a> targeting this area. Within these options, investors have the choice of broader vehicles, such as the Technology Select Sector SPDR ETF (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLK">XLK</a>), which targets all tech stocks in the broader S&amp;P 500. Investors can also target an industry more directly linked to 5G. The Pacer Benchmark Data and Infrastructure Real Estate SCTR ETF (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SRVR">SRVR</a>) is an example: It is an ETF targeting data center and cellphone tower REITs.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-what-are-potential-risks-to-investing-in-5g"></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"> What Are Potential Risks to Investing in 5G? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> While 5G has the potential to revolutionize technology in many ways, it also carries risks for investors. For instance, the U.S. Federal Aviation Administration (FAA) has cautioned that there are potential safety issues due to the possibility of interference related to 5G services utilizing a portion of the radio spectrum close to that used by airplanes. Airlines and wireless network providers have strong incentives to resolve any possible safety concerns related to 5G technology, but it is an ongoing and developing situation that may have deleterious effects for investors.<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"> Additionally, as power grids, factories, oil refineries, hospitals, and other infrastructure systems utilize 5G technology in place of wired setups, there are potential vulnerabilities to cyberattacks by hackers that may not have been a concern previously.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Finally, due to the need to completely overhaul infrastructure to facilitate 5G, it is likely going to take a while before this technology is fully available. Telecommunications industry trade group GSMA has estimated that half of mobile connections will be 5G by 2025, with greater adoption taking more time beyond 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_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-5g"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is 5G?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>5G is the latest iteration of wireless technology. It is the fastest wireless ever created and presents new possibilities for technology and connectivity.<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_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-what-is-the-downside-of-5g"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is the downside of 5G?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One of the main downsides of 5G is that it is only available in limited areas at this point. The rollout of 5G access on a global level will likely take many years. As with other wireless technology, there are risks associated with cybersecurity for 5G.<span class="ql-inline-citation" data-cite="10"></span> And the U.S. Federal Aviation Administration (FAA) warns of potential safety issues for aircraft related to 5G as well.<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-how-do-you-invest-in-5g"></span> <h2 class="mntl-sc-block-questionandanswer__question">How do you invest in 5G?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investors can target 5G in their investments by focusing on individual telecommunications companies involved in 5G infrastructure and access. They can also focus on companies indirectly involved in 5G, including makers of 5G-enabled technology. Finally, select index, mutual, and exchange-traded funds (ETFs) may target this technology as well.</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"> 5G wireless technology is the fastest wireless ever produced. While it is transformative and presents exciting possibilities for investors, it does carry risks and likely will not be fully implemented for years to come. Still, a multitude of companies across many industries—ranging from internet service providers to automotive manufacturers to firms focused on artificial intelligence—stand to benefit from this technology. </p></div>

5G is the latest-generation wireless network technology. Providing faster speeds and greater capacity than the previous 4G network, 5G networks started coming online in the United States in 2018. Along with the new wireless technology comes the potential for transformative technologies for individual consumers, businesses, governments, and more. With significant global interest in 5G and the last several years seeing telecommunications companies and countries vying to create the largest 5G networks, investors may wonder how to capitalize on this development. Many individual companies and larger industries stand to benefit from 5G technology, providing investors with ample opportunities to profit as well. However, there are also some potential downsides to 5G that investors should be aware of, such as security concerns. ### Key Takeaways * 5G technology is the latest and fastest wireless network technology. * Wireless providers in the U.S. and abroad have raced to establish 5G networks. * Investors looking to target 5G may consider looking to individual stocks of internet providers, technology companies, automotive companies, robotics and AI companies, and many others, as well as mutual funds, exchange-traded funds (ETFs), and other vehicles. * Potential downsides to 5G include the length of time expected to establish large global networks, concerns about cybersecurity, and potential interference with aviation. ## What Is 5G? 5G is best distinguished from previous wireless network technology by its speed. It operates on a larger portion of the radio spectrum to allow wireless devices to transmit signals more efficiently. The technology also allows for faster information-processing times for devices. As of early 2022, all major carriers in the U.S. have 5G deployments covering 200 million or more people. New top-of-the-line smartphones released by major manufacturers in 2021 were all equipped with 5G capacity. As with other types of wireless technology, there are also multiple versions of 5G technology, including millimeter wave, which offers tremendously high speeds over short distances, and low band, which provides slower speeds and wider range. ## How Is 5G Transformational? Besides offering significantly higher speeds than prior wireless technologies, 5G may open up the possibility of new technologies. The technology may have applications across many industries, including in self-driving cars, government infrastructure, the test and measurement industry, and various others. Businesses utilizing high-resolution streaming video, industrial automation, artificial intelligence, machine learning, virtual reality, and related technologies all stand to benefit. ## How to Invest in 5G One immediate way to invest in 5G is to target telecommunications companies and technology companies that are likely to make popular 5G-capable devices. Major wireless networks like Verizon Communications Inc. ([VZ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VZ)) or T-Mobile US Inc. ([TMUS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TMUS)) have worked tirelessly in recent years to set up large 5G networks in a bid to entice and retain customers seeking higher speeds and the latest technology. However, there are also many ways to invest in 5G beyond internet companies. Companies building popular 5G-enabled devices—as well as companies that provide key components of those devices, such as chips or 3D inspection systems—are another possible access point. Cloud computing companies, providers of network access infrastructure, hardware, and services, and fiber-optic technology companies all stand to benefit from the new technology. Farther afield, companies developing self-driving car technology, virtual reality systems, robotics, and similar technologies could also benefit, albeit less directly. Investors have many vehicles to use to access the investment paths listed above. Individual equities are always a possibility. Investors searching for greater diversity may wish to focus on [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp), [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp), or [real estate investment trusts (REITs)](https://www.investopedia.com/terms/r/reit.asp) targeting this area. Within these options, investors have the choice of broader vehicles, such as the Technology Select Sector SPDR ETF ([XLK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLK)), which targets all tech stocks in the broader S&P 500. Investors can also target an industry more directly linked to 5G. The Pacer Benchmark Data and Infrastructure Real Estate SCTR ETF ([SRVR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SRVR)) is an example: It is an ETF targeting data center and cellphone tower REITs. ## What Are Potential Risks to Investing in 5G? While 5G has the potential to revolutionize technology in many ways, it also carries risks for investors. For instance, the U.S. Federal Aviation Administration (FAA) has cautioned that there are potential safety issues due to the possibility of interference related to 5G services utilizing a portion of the radio spectrum close to that used by airplanes. Airlines and wireless network providers have strong incentives to resolve any possible safety concerns related to 5G technology, but it is an ongoing and developing situation that may have deleterious effects for investors. Additionally, as power grids, factories, oil refineries, hospitals, and other infrastructure systems utilize 5G technology in place of wired setups, there are potential vulnerabilities to cyberattacks by hackers that may not have been a concern previously. Finally, due to the need to completely overhaul infrastructure to facilitate 5G, it is likely going to take a while before this technology is fully available. Telecommunications industry trade group GSMA has estimated that half of mobile connections will be 5G by 2025, with greater adoption taking more time beyond that. ## What is 5G? 5G is the latest iteration of wireless technology. It is the fastest wireless ever created and presents new possibilities for technology and connectivity. ## What is the downside of 5G? One of the main downsides of 5G is that it is only available in limited areas at this point. The rollout of 5G access on a global level will likely take many years. As with other wireless technology, there are risks associated with cybersecurity for 5G. And the U.S. Federal Aviation Administration (FAA) warns of potential safety issues for aircraft related to 5G as well. ## How do you invest in 5G? Investors can target 5G in their investments by focusing on individual telecommunications companies involved in 5G infrastructure and access. They can also focus on companies indirectly involved in 5G, including makers of 5G-enabled technology. Finally, select index, mutual, and exchange-traded funds (ETFs) may target this technology as well. ## The Bottom Line 5G wireless technology is the fastest wireless ever produced. While it is transformative and presents exciting possibilities for investors, it does carry risks and likely will not be fully implemented for years to come. Still, a multitude of companies across many industries—ranging from internet service providers to automotive manufacturers to firms focused on artificial intelligence—stand to benefit from this technology.

5G is the latest-generation wireless network technology. Providing faster speeds and greater capacity than the previous 4G network, 5G networks started coming online in the United States in 2018. Along with the new wireless technology comes the potential for transformative technologies for individual consumers, businesses, governments, and more. With significant global interest in 5G and the last several years seeing telecommunications companies and countries vying to create the largest 5G networks, investors may wonder how to capitalize on this development. Many individual companies and larger industries stand to benefit from 5G technology, providing investors with ample opportunities to profit as well. However, there are also some potential downsides to 5G that investors should be aware of, such as security concerns. Key Takeaways 5G technology is the latest and fastest wireless network technology.Wireless providers in the U.S. and abroad have raced to establish 5G networks.Investors looking to target 5G may consider looking to individual stocks of internet providers, technology companies, automotive companies, robotics and AI companies, and many others, as well as mutual funds, exchange-traded funds (ETFs), and other vehicles.Potential downsides to 5G include the length of time expected to establish large global networks, concerns about cybersecurity, and potential interference with aviation. What Is 5G? 5G is best distinguished from previous wireless network technology by its speed. It operates on a larger portion of the radio spectrum to allow wireless devices to transmit signals more efficiently. The technology also allows for faster information-processing times for devices. As of early 2022, all major carriers in the U.S. have 5G deployments covering 200 million or more people. New top-of-the-line smartphones released by major manufacturers in 2021 were all equipped with 5G capacity. As with other types of wireless technology, there are also multiple versions of 5G technology, including millimeter wave, which offers tremendously high speeds over short distances, and low band, which provides slower speeds and wider range. How Is 5G Transformational? Besides offering significantly higher speeds than prior wireless technologies, 5G may open up the possibility of new technologies. The technology may have applications across many industries, including in self-driving cars, government infrastructure, the test and measurement industry, and various others. Businesses utilizing high-resolution streaming video, industrial automation, artificial intelligence, machine learning, virtual reality, and related technologies all stand to benefit. How to Invest in 5G One immediate way to invest in 5G is to target telecommunications companies and technology companies that are likely to make popular 5G-capable devices. Major wireless networks like Verizon Communications Inc. (VZ) or T-Mobile US Inc. (TMUS) have worked tirelessly in recent years to set up large 5G networks in a bid to entice and retain customers seeking higher speeds and the latest technology. However, there are also many ways to invest in 5G beyond internet companies. Companies building popular 5G-enabled devices—as well as companies that provide key components of those devices, such as chips or 3D inspection systems—are another possible access point. Cloud computing companies, providers of network access infrastructure, hardware, and services, and fiber-optic technology companies all stand to benefit from the new technology. Farther afield, companies developing self-driving car technology, virtual reality systems, robotics, and similar technologies could also benefit, albeit less directly. Investors have many vehicles to use to access the investment paths listed above. Individual equities are always a possibility. Investors searching for greater diversity may wish to focus on mutual funds, exchange-traded funds (ETFs), or real estate investment trusts (REITs) targeting this area. Within these options, investors have the choice of broader vehicles, such as the Technology Select Sector SPDR ETF (XLK), which targets all tech stocks in the broader S&P 500. Investors can also target an industry more directly linked to 5G. The Pacer Benchmark Data and Infrastructure Real Estate SCTR ETF (SRVR) is an example: It is an ETF targeting data center and cellphone tower REITs. What Are Potential Risks to Investing in 5G? While 5G has the potential to revolutionize technology in many ways, it also carries risks for investors. For instance, the U.S. Federal Aviation Administration (FAA) has cautioned that there are potential safety issues due to the possibility of interference related to 5G services utilizing a portion of the radio spectrum close to that used by airplanes. Airlines and wireless network providers have strong incentives to resolve any possible safety concerns related to 5G technology, but it is an ongoing and developing situation that may have deleterious effects for investors. Additionally, as power grids, factories, oil refineries, hospitals, and other infrastructure systems utilize 5G technology in place of wired setups, there are potential vulnerabilities to cyberattacks by hackers that may not have been a concern previously. Finally, due to the need to completely overhaul infrastructure to facilitate 5G, it is likely going to take a while before this technology is fully available. Telecommunications industry trade group GSMA has estimated that half of mobile connections will be 5G by 2025, with greater adoption taking more time beyond that. What is 5G? 5G is the latest iteration of wireless technology. It is the fastest wireless ever created and presents new possibilities for technology and connectivity. What is the downside of 5G? One of the main downsides of 5G is that it is only available in limited areas at this point. The rollout of 5G access on a global level will likely take many years. As with other wireless technology, there are risks associated with cybersecurity for 5G. And the U.S. Federal Aviation Administration (FAA) warns of potential safety issues for aircraft related to 5G as well. How do you invest in 5G? Investors can target 5G in their investments by focusing on individual telecommunications companies involved in 5G infrastructure and access. They can also focus on companies indirectly involved in 5G, including makers of 5G-enabled technology. Finally, select index, mutual, and exchange-traded funds (ETFs) may target this technology as well. The Bottom Line 5G wireless technology is the fastest wireless ever produced. While it is transformative and presents exciting possibilities for investors, it does carry risks and likely will not be fully implemented for years to come. Still, a multitude of companies across many industries—ranging from internet service providers to automotive manufacturers to firms focused on artificial intelligence—stand to benefit from this technology.

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

Financial Technology (Fintech): Its Uses and Impact on Our Lives

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-financial-technology-fintech"></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 Financial Technology (Fintech)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Financial technology (better known as fintech) is used to describe new technology that seeks to improve and automate the delivery and use of financial services. ​​​At its core, fintech is utilized to help companies, business owners, and consumers better <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/company-insights/090816/how-splitwise-works-and-makes-money.asp">manage their financial operations</a>, processes, and lives. It is composed of specialized software and algorithms that are used on computers and smartphones. Fintech, the word, is a shortened combination of “financial technology.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> When fintech emerged in the 21st century, the term was initially applied to the technology employed at the backend systems of established financial institutions, such as banks. From 2018 or so to 2022, there was a shift to consumer-oriented services. Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management, to name a few. </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"> Fintech also includes the development and use of cryptocurrencies, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">Bitcoin</a>. While that segment of fintech may see the most headlines, the big money still lies in the traditional global banking industry and its multitrillion-dollar <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>. </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>Fintech refers to the integration of technology into offerings by financial services companies to improve their use and delivery to consumers.</li><li>It primarily works by unbundling offerings by such firms and creating new markets for them.</li><li>Companies in the finance industry that use fintech have expanded financial inclusion and use technology to cut down on operational costs.</li><li>Fintech funding is on the rise, but regulatory problems exist.</li><li>Examples of fintech applications include robo-advisors, payment apps, peer-to-peer (P2P) lending apps, investment apps, and crypto apps, among others.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_10-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Financial Technology" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/9DNaVQQhlHz0y2MSScuNyO6qaio=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/FinancialTechnology_Final_4196400-3a7fb7e98adf4370b6e493034ade80bd.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/9DNaVQQhlHz0y2MSScuNyO6qaio=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/FinancialTechnology_Final_4196400-3a7fb7e98adf4370b6e493034ade80bd.jpg" data-srcset="https://www.investopedia.com/thmb/fqW1sRMmtoRYSpVaCpeoegylsWc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/FinancialTechnology_Final_4196400-3a7fb7e98adf4370b6e493034ade80bd.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Financial Technology" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/9DNaVQQhlHz0y2MSScuNyO6qaio=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/FinancialTechnology_Final_4196400-3a7fb7e98adf4370b6e493034ade80bd.jpg" srcset="https://www.investopedia.com/thmb/fqW1sRMmtoRYSpVaCpeoegylsWc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/FinancialTechnology_Final_4196400-3a7fb7e98adf4370b6e493034ade80bd.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>Paige McLaughlin / Investopedia</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-fintech"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> Understanding Fintech </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Broadly, the term “financial technology” can apply to any innovation in how people transact business, from the invention of digital money to double-entry bookkeeping. Since the internet revolution, financial technology has grown explosively. </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"> You likely use some element of fintech on a daily basis. Some examples include transferring money from your debit account to your checking account via your iPhone, sending money to a friend through Venmo, or managing investments through an online broker. According to EY’s 2019 Global FinTech Adoption Index, two-thirds of consumers utilize at least two or more fintech services, and those consumers are increasingly aware of fintech as a part of their daily lives.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-fintech-in-practice"></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"> Fintech in Practice </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The most talked-about (and most funded) fintech startups share the same characteristic: They are designed to challenge, and eventually take over, traditional financial services providers by being more nimble, serving an underserved segment of the population, or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fintech-home-equity-loan-evaluation-5272069">providing faster or better service</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> For example, financial company <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-does-affirm-work-5183684">Affirm</a> seeks to cut <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/09/credit-card-company-invest.asp">credit card companies</a> out of the online shopping process by offering a way for consumers to secure immediate, short-term loans for purchases. While rates can be high, Affirm claims to offer a way for consumers with poor or no credit a way to secure credit and build their <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_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Similarly, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/better-mortgage-review-6363423">Better Mortgage</a> seeks to streamline the home mortgage process with a digital-only offering that can reward users with a verified pre-approval letter within 24 hours of applying. GreenSky seeks to link home improvement borrowers with banks by helping consumers avoid lenders and save on interest by offering zero-interest promotional periods. </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"> For consumers with poor or no <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit.asp">credit</a>, Tala offers consumers in the developing world microloans by doing a deep data dig on their smartphones for their transaction history and seemingly unrelated things, such as what mobile games they play. Tala seeks to give such consumers better options than local banks, unregulated lenders, and other <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/microfinance.asp">microfinance</a> institutions.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> In short, if you have ever wondered why some aspect of your financial life was so unpleasant (such as applying for a mortgage with a traditional lender) or felt like it wasn’t quite the right fit, fintech probably has (or seeks to have) a solution for you.   </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-fintechs-expanding-horizons"></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"> Fintech’s Expanding Horizons </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> In its most basic form, fintech unbundles financial services into individual offerings that are often easier to use. The combination of streamlined offerings with technology allows fintech companies to be more efficient and cut down on costs associated with each transaction. </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"> If one word can describe how many fintech innovations have affected traditional trading, banking, financial advice, and products, it’s “disruption”—a word you have likely heard in commonplace conversations or the media. Financial products and services that were once the realm of branches, salespeople, and desktops are now more commonly found on mobile devices. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> For example, the mobile-only stock trading app <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/robinhood-review-4587919">Robinhood</a> charges no fees for trades,<span class="ql-inline-citation" data-cite="7"></span> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peer-to-peer-lending.asp">peer-to-peer (P2P) lending</a> sites like Prosper Marketplace, LendingClub, and OnDeck promise to reduce rates by opening up competition for loans to broad market forces. Business loan providers such as Kabbage, Lendio, Accion, and Funding Circle (among others) offer startup and established businesses easy, fast platforms to secure working capital. Oscar, an online insurance startup, received $165 million in funding in March 2018.<span class="ql-inline-citation" data-cite="4"></span> Such significant funding rounds are not unusual and occur globally for fintech startups. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> This shift to a digital-first mindset has pushed several traditional institutions to invest heavily in similar products. For example, investment bank Goldman Sachs launched consumer lending platform Marcus in 2016 in an effort to enter the fintech space.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> That said, many tech-savvy industry watchers warn that keeping apace of fintech-inspired innovations requires more than just ramped-up tech spending. Rather, competing with lighter-on-their-feet startups requires a significant change in thinking, processes, decision making, and even overall corporate structure. </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-fintech-and-new-technologies"></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"> Fintech and New Technologies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> New technologies, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/machine-learning.asp">machine learning</a>/artificial intelligence (AI), predictive behavioral analytics, and data-driven marketing, will take the guesswork and habit out of financial decisions. “Learning” apps will not only learn the habits of users but also engage users in learning games to make their automatic, unconscious spending and saving decisions better. </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"> Fintech is also a keen adapter of automated customer service technology, utilizing chatbots and AI interfaces to assist customers with basic tasks and keep down staffing costs. Fintech is also being leveraged to fight fraud by leveraging information about payment history to flag transactions that are outside the norm. </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-fintech-landscape"></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"> Fintech Landscape </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Since the mid-2010s, fintech has exploded, with startups receiving billions in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/venturecapital.asp">venture funding</a> (some of which have become <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unicorn.asp">unicorns</a>) and incumbent financial firms either snatching up new ventures or building out their own fintech offerings. </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"> North America still produces most of the fintech startups, with Asia a relatively close second, followed by Europe. Some of the most active areas of fintech innovation include or revolve around the following areas (among others): </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">Cryptocurrency</a> (Bitcoin, Ethereum, etc.), digital tokens (e.g., <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/non-fungible-tokens-nft-5115211">non-fungible tokens, or NFTs</a>), and digital cash. These often rely on <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a> technology, which is a distributed ledger technology (DLT) that maintains records on a network of computers but has no central ledger. Blockchain also allows for so-called <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smart-contracts.asp">smart contracts</a>, which utilize code to automatically execute contracts between parties such as buyers and sellers.</li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/open-banking.asp">Open banking</a>, which is a concept that proposes that all people should have access to bank data to build applications that create a connected network of financial institutions and third-party providers. An example is the all-in-one money management tool <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/how-use-mint-app/">Mint</a>.</li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurtech.asp">Insurtech</a>, which seeks to use technology to simplify and streamline the insurance industry.</li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regtech.asp">Regtech</a>, which seeks to help financial service firms meet industry compliance rules, especially those covering Anti-Money Laundering and Know Your Customer protocols that fight fraud.</li> <li><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp">Robo-advisors</a>, such as <a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/betterment-review-4587887">Betterment</a>, utilize algorithms to automate investment advice to lower its cost and increase accessibility. This is one of the most common areas where fintech is known and used.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li>Unbanked/underbanked services that seek to serve disadvantaged or low-income individuals who are ignored or underserved by traditional banks or mainstream financial services companies. These applications promote <a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-inclusion.asp">financial inclusion</a>.</li> <li><a data-component="link" data-ordinal="12" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cybersecurity.asp">Cybersecurity</a>. Given the proliferation of cybercrime and the decentralized storage of data, cybersecurity and fintech are intertwined.</li> <li><a data-component="link" data-ordinal="13" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chatbot.asp">AI chatbots</a>, which rose to popularity in 2022, are another example of fintech’s rising presence in day-to-day usage.</li> </ul> <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-fintech-users"></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"> Fintech Users </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> There are four broad categories of users for fintech: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/btob.asp">Business-to-business (B2B)</a> for banks</li> <li>Clients of B2B banks</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/btoc.asp">Business-to-consumer (B2C)</a> for small businesses</li> <li>Consumers</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Trends toward mobile banking, increased information, data, more accurate analytics, and decentralization of access will create opportunities for all four groups to interact in unprecedented ways. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> As for consumers, the younger you are, the more likely it will be that you are aware of and can accurately describe what fintech is. Consumer-oriented fintech is mostly targeted toward Gen Z and millennials, given the huge size and rising earning potential of these generations. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> When it comes to businesses, before the adoption of fintech, a business owner or startup would have gone to a bank to secure financing or startup capital. If they intended to accept credit card payments, they would have to establish a relationship with a credit provider and even install infrastructure, such as a landline-connected card reader. Now, with mobile technology, those hurdles are a thing of the past. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-regulation-and-fintech"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> Regulation and Fintech </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Financial services are among the most heavily regulated sectors in the world. As such, regulation has emerged as the number one concern among governments as fintech companies take off. </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"> According to the U.S. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/ustreasury.asp">Department of the Treasury</a>, while fintech firms create new opportunities and capabilities for companies and consumers, they are also creating new risks to be aware of. “Data privacy and regulatory arbitrage” are the main concerns noted by the Treasury. In its most recent report in November 2022, the Treasury called for enhanced oversight of consumer financial activities, specifically when it comes to nonbank firms.<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_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Regulation is also a problem in the emerging world of cryptocurrencies. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp">Initial coin offerings (ICOs)</a> are a form of fundraising that allows startups to raise capital directly from lay investors. In most countries, they are unregulated and have become fertile ground for scams and frauds. Regulatory uncertainty for ICOs has also allowed entrepreneurs to slip security tokens disguised as utility tokens past the U.S. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission (SEC)</a> to avoid fees and compliance costs.<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"> Because of the diversity of offerings in fintech and the disparate industries it touches, it is difficult to formulate a single and comprehensive approach to these problems. For the most part, governments have used existing regulations and, in some cases, customized them to regulate fintech. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_70-0"><span class="heading-toc" id="toc-what-are-examples-of-fintech"></span> <h2 class="mntl-sc-block-questionandanswer__question">What are examples of fintech?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Fintech has been applied to many areas of finance. Here are just a few examples.</p><ul><li><strong>Robo-advisors</strong> are apps or online platforms that optimally invest your money automatically, often for little cost, and are accessible to ordinary individuals.</li><li><strong>Investment apps</strong> like Robinhood make it easy to buy and sell <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock.asp">stocks</a>, <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>, and cryptocurrency from your mobile device, often with little or no commission.</li><li><strong>Payment apps</strong> like PayPal, Venmo, Block (Square), Zelle, and Cash App make it easy to pay individuals or businesses online and in an instant.</li><li><strong>Personal finance apps</strong> such as Mint, YNAB, and Quicken Simplifi let you see all of your finances in one place, set budgets, pay bills, and so on.</li><li><strong>Peer-to-peer (P2P) lending</strong> platforms like Prosper Marketplace, LendingClub, and Upstart allow individuals and small business owners to receive loans from an array of individuals who contribute microloans directly to them.</li><li><strong>Crypto apps</strong>, including wallets, exchanges, and payment applications, allow you to hold and transact in cryptocurrencies and digital tokens like Bitcoin and non-fungible tokens (NFTs).</li><li><strong>Insurtech</strong> is the application of technology specifically to the insurance space. One example would be the use of devices that monitor your driving in order to adjust auto insurance rates.</li></ul></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-does-fintech-apply-only-to-banking"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does fintech apply only to banking?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. While banks and startups have created useful fintech applications around basic banking (e.g., checking and savings accounts, bank transfers, credit/debit cards, and loans), many other fintech areas that have more to do with personal finance, investing, or payments (among others) have grown in popularity.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_74-0"><span class="heading-toc" id="toc-how-do-fintech-companies-make-money"></span> <h2 class="mntl-sc-block-questionandanswer__question">How do fintech companies make money?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Fintechs make money in different ways depending on their specialty. Banking fintechs, for example, may generate revenue from fees, loan interest, and selling financial products. Investment apps may charge brokerage fees, utilize <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paymentoforderflow.asp">payment for order flow (PFOF)</a>, or collect a percentage of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">assets under management (AUM)</a>. Payment apps may earn <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> on cash amounts and charge for features like earlier withdrawals or credit card use.</p></div> </div></div>

## What Is Financial Technology (Fintech)? Financial technology (better known as fintech) is used to describe new technology that seeks to improve and automate the delivery and use of financial services. ​​​At its core, fintech is utilized to help companies, business owners, and consumers better [manage their financial operations](https://www.investopedia.com/articles/company-insights/090816/how-splitwise-works-and-makes-money.asp), processes, and lives. It is composed of specialized software and algorithms that are used on computers and smartphones. Fintech, the word, is a shortened combination of “financial technology.” When fintech emerged in the 21st century, the term was initially applied to the technology employed at the backend systems of established financial institutions, such as banks. From 2018 or so to 2022, there was a shift to consumer-oriented services. Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management, to name a few. Fintech also includes the development and use of cryptocurrencies, such as [Bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp). While that segment of fintech may see the most headlines, the big money still lies in the traditional global banking industry and its multitrillion-dollar [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp). ### Key Takeaways * Fintech refers to the integration of technology into offerings by financial services companies to improve their use and delivery to consumers. * It primarily works by unbundling offerings by such firms and creating new markets for them. * Companies in the finance industry that use fintech have expanded financial inclusion and use technology to cut down on operational costs. * Fintech funding is on the rise, but regulatory problems exist. * Examples of fintech applications include robo-advisors, payment apps, peer-to-peer (P2P) lending apps, investment apps, and crypto apps, among others. ![Financial Technology]() :max_bytes(150000):strip_icc()/FinancialTechnology_Final_4196400-3a7fb7e98adf4370b6e493034ade80bd.jpg) Paige McLaughlin / Investopedia ## Understanding Fintech Broadly, the term “financial technology” can apply to any innovation in how people transact business, from the invention of digital money to double-entry bookkeeping. Since the internet revolution, financial technology has grown explosively. You likely use some element of fintech on a daily basis. Some examples include transferring money from your debit account to your checking account via your iPhone, sending money to a friend through Venmo, or managing investments through an online broker. According to EY’s 2019 Global FinTech Adoption Index, two-thirds of consumers utilize at least two or more fintech services, and those consumers are increasingly aware of fintech as a part of their daily lives. ## Fintech in Practice The most talked-about (and most funded) fintech startups share the same characteristic: They are designed to challenge, and eventually take over, traditional financial services providers by being more nimble, serving an underserved segment of the population, or [providing faster or better service](https://www.investopedia.com/fintech-home-equity-loan-evaluation-5272069). For example, financial company [Affirm](https://www.investopedia.com/how-does-affirm-work-5183684) seeks to cut [credit card companies](https://www.investopedia.com/articles/stocks/09/credit-card-company-invest.asp) out of the online shopping process by offering a way for consumers to secure immediate, short-term loans for purchases. While rates can be high, Affirm claims to offer a way for consumers with poor or no credit a way to secure credit and build their [credit history](https://www.investopedia.com/terms/c/credit-history.asp). Similarly, [Better Mortgage](https://www.investopedia.com/better-mortgage-review-6363423) seeks to streamline the home mortgage process with a digital-only offering that can reward users with a verified pre-approval letter within 24 hours of applying. GreenSky seeks to link home improvement borrowers with banks by helping consumers avoid lenders and save on interest by offering zero-interest promotional periods. For consumers with poor or no [credit](https://www.investopedia.com/terms/c/credit.asp), Tala offers consumers in the developing world microloans by doing a deep data dig on their smartphones for their transaction history and seemingly unrelated things, such as what mobile games they play. Tala seeks to give such consumers better options than local banks, unregulated lenders, and other [microfinance](https://www.investopedia.com/terms/m/microfinance.asp) institutions. In short, if you have ever wondered why some aspect of your financial life was so unpleasant (such as applying for a mortgage with a traditional lender) or felt like it wasn’t quite the right fit, fintech probably has (or seeks to have) a solution for you.   ## Fintech’s Expanding Horizons In its most basic form, fintech unbundles financial services into individual offerings that are often easier to use. The combination of streamlined offerings with technology allows fintech companies to be more efficient and cut down on costs associated with each transaction. If one word can describe how many fintech innovations have affected traditional trading, banking, financial advice, and products, it’s “disruption”—a word you have likely heard in commonplace conversations or the media. Financial products and services that were once the realm of branches, salespeople, and desktops are now more commonly found on mobile devices. For example, the mobile-only stock trading app [Robinhood](https://www.investopedia.com/robinhood-review-4587919) charges no fees for trades, and [peer-to-peer (P2P) lending](https://www.investopedia.com/terms/p/peer-to-peer-lending.asp) sites like Prosper Marketplace, LendingClub, and OnDeck promise to reduce rates by opening up competition for loans to broad market forces. Business loan providers such as Kabbage, Lendio, Accion, and Funding Circle (among others) offer startup and established businesses easy, fast platforms to secure working capital. Oscar, an online insurance startup, received $165 million in funding in March 2018. Such significant funding rounds are not unusual and occur globally for fintech startups. This shift to a digital-first mindset has pushed several traditional institutions to invest heavily in similar products. For example, investment bank Goldman Sachs launched consumer lending platform Marcus in 2016 in an effort to enter the fintech space. That said, many tech-savvy industry watchers warn that keeping apace of fintech-inspired innovations requires more than just ramped-up tech spending. Rather, competing with lighter-on-their-feet startups requires a significant change in thinking, processes, decision making, and even overall corporate structure. ## Fintech and New Technologies New technologies, such as [machine learning](https://www.investopedia.com/terms/m/machine-learning.asp)/artificial intelligence (AI), predictive behavioral analytics, and data-driven marketing, will take the guesswork and habit out of financial decisions. “Learning” apps will not only learn the habits of users but also engage users in learning games to make their automatic, unconscious spending and saving decisions better. Fintech is also a keen adapter of automated customer service technology, utilizing chatbots and AI interfaces to assist customers with basic tasks and keep down staffing costs. Fintech is also being leveraged to fight fraud by leveraging information about payment history to flag transactions that are outside the norm. ## Fintech Landscape Since the mid-2010s, fintech has exploded, with startups receiving billions in [venture funding](https://www.investopedia.com/terms/v/venturecapital.asp) (some of which have become [unicorns](https://www.investopedia.com/terms/u/unicorn.asp)) and incumbent financial firms either snatching up new ventures or building out their own fintech offerings. North America still produces most of the fintech startups, with Asia a relatively close second, followed by Europe. Some of the most active areas of fintech innovation include or revolve around the following areas (among others): * [Cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp) (Bitcoin, Ethereum, etc.), digital tokens (e.g., [non-fungible tokens, or NFTs](https://www.investopedia.com/non-fungible-tokens-nft-5115211)), and digital cash. These often rely on [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) technology, which is a distributed ledger technology (DLT) that maintains records on a network of computers but has no central ledger. Blockchain also allows for so-called [smart contracts](https://www.investopedia.com/terms/s/smart-contracts.asp), which utilize code to automatically execute contracts between parties such as buyers and sellers. * [Open banking](https://www.investopedia.com/terms/o/open-banking.asp), which is a concept that proposes that all people should have access to bank data to build applications that create a connected network of financial institutions and third-party providers. An example is the all-in-one money management tool [Mint](https://www.investopedia.com/personal-finance/how-use-mint-app/). * [Insurtech](https://www.investopedia.com/terms/i/insurtech.asp), which seeks to use technology to simplify and streamline the insurance industry. * [Regtech](https://www.investopedia.com/terms/r/regtech.asp), which seeks to help financial service firms meet industry compliance rules, especially those covering Anti-Money Laundering and Know Your Customer protocols that fight fraud. * [Robo-advisors](https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp), such as [Betterment](https://www.investopedia.com/betterment-review-4587887), utilize algorithms to automate investment advice to lower its cost and increase accessibility. This is one of the most common areas where fintech is known and used. * Unbanked/underbanked services that seek to serve disadvantaged or low-income individuals who are ignored or underserved by traditional banks or mainstream financial services companies. These applications promote [financial inclusion](https://www.investopedia.com/terms/f/financial-inclusion.asp). * [Cybersecurity](https://www.investopedia.com/terms/c/cybersecurity.asp). Given the proliferation of cybercrime and the decentralized storage of data, cybersecurity and fintech are intertwined. * [AI chatbots](https://www.investopedia.com/terms/c/chatbot.asp), which rose to popularity in 2022, are another example of fintech’s rising presence in day-to-day usage. ## Fintech Users There are four broad categories of users for fintech: * [Business-to-business (B2B)](https://www.investopedia.com/terms/b/btob.asp) for banks * Clients of B2B banks * [Business-to-consumer (B2C)](https://www.investopedia.com/terms/b/btoc.asp) for small businesses * Consumers Trends toward mobile banking, increased information, data, more accurate analytics, and decentralization of access will create opportunities for all four groups to interact in unprecedented ways. As for consumers, the younger you are, the more likely it will be that you are aware of and can accurately describe what fintech is. Consumer-oriented fintech is mostly targeted toward Gen Z and millennials, given the huge size and rising earning potential of these generations. When it comes to businesses, before the adoption of fintech, a business owner or startup would have gone to a bank to secure financing or startup capital. If they intended to accept credit card payments, they would have to establish a relationship with a credit provider and even install infrastructure, such as a landline-connected card reader. Now, with mobile technology, those hurdles are a thing of the past. ## Regulation and Fintech Financial services are among the most heavily regulated sectors in the world. As such, regulation has emerged as the number one concern among governments as fintech companies take off. According to the U.S. [Department of the Treasury](https://www.investopedia.com/terms/u/ustreasury.asp), while fintech firms create new opportunities and capabilities for companies and consumers, they are also creating new risks to be aware of. “Data privacy and regulatory arbitrage” are the main concerns noted by the Treasury. In its most recent report in November 2022, the Treasury called for enhanced oversight of consumer financial activities, specifically when it comes to nonbank firms. Regulation is also a problem in the emerging world of cryptocurrencies. [Initial coin offerings (ICOs)](https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp) are a form of fundraising that allows startups to raise capital directly from lay investors. In most countries, they are unregulated and have become fertile ground for scams and frauds. Regulatory uncertainty for ICOs has also allowed entrepreneurs to slip security tokens disguised as utility tokens past the U.S. [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) to avoid fees and compliance costs. Because of the diversity of offerings in fintech and the disparate industries it touches, it is difficult to formulate a single and comprehensive approach to these problems. For the most part, governments have used existing regulations and, in some cases, customized them to regulate fintech. ## What are examples of fintech? Fintech has been applied to many areas of finance. Here are just a few examples. * **Robo-advisors** are apps or online platforms that optimally invest your money automatically, often for little cost, and are accessible to ordinary individuals. * **Investment apps** like Robinhood make it easy to buy and sell [stocks](https://www.investopedia.com/terms/s/stock.asp), [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp), and cryptocurrency from your mobile device, often with little or no commission. * **Payment apps** like PayPal, Venmo, Block (Square), Zelle, and Cash App make it easy to pay individuals or businesses online and in an instant. * **Personal finance apps** such as Mint, YNAB, and Quicken Simplifi let you see all of your finances in one place, set budgets, pay bills, and so on. * **Peer-to-peer (P2P) lending** platforms like Prosper Marketplace, LendingClub, and Upstart allow individuals and small business owners to receive loans from an array of individuals who contribute microloans directly to them. * **Crypto apps**, including wallets, exchanges, and payment applications, allow you to hold and transact in cryptocurrencies and digital tokens like Bitcoin and non-fungible tokens (NFTs). * **Insurtech** is the application of technology specifically to the insurance space. One example would be the use of devices that monitor your driving in order to adjust auto insurance rates. ## Does fintech apply only to banking? No. While banks and startups have created useful fintech applications around basic banking (e.g., checking and savings accounts, bank transfers, credit/debit cards, and loans), many other fintech areas that have more to do with personal finance, investing, or payments (among others) have grown in popularity. ## How do fintech companies make money? Fintechs make money in different ways depending on their specialty. Banking fintechs, for example, may generate revenue from fees, loan interest, and selling financial products. Investment apps may charge brokerage fees, utilize [payment for order flow (PFOF)](https://www.investopedia.com/terms/p/paymentoforderflow.asp), or collect a percentage of [assets under management (AUM)](https://www.investopedia.com/terms/a/aum.asp). Payment apps may earn [interest](https://www.investopedia.com/terms/i/interest.asp) on cash amounts and charge for features like earlier withdrawals or credit card use.

What Is Financial Technology (Fintech)? Financial technology (better known as fintech) is used to describe new technology that seeks to improve and automate the delivery and use of financial services. ​​​At its core, fintech is utilized to help companies, business owners, and consumers better manage their financial operations, processes, and lives. It is composed of specialized software and algorithms that are used on computers and smartphones. Fintech, the word, is a shortened combination of “financial technology.” When fintech emerged in the 21st century, the term was initially applied to the technology employed at the backend systems of established financial institutions, such as banks. From 2018 or so to 2022, there was a shift to consumer-oriented services. Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management, to name a few. Fintech also includes the development and use of cryptocurrencies, such as Bitcoin. While that segment of fintech may see the most headlines, the big money still lies in the traditional global banking industry and its multitrillion-dollar market capitalization. Key Takeaways Fintech refers to the integration of technology into offerings by financial services companies to improve their use and delivery to consumers.It primarily works by unbundling offerings by such firms and creating new markets for them.Companies in the finance industry that use fintech have expanded financial inclusion and use technology to cut down on operational costs.Fintech funding is on the rise, but regulatory problems exist.Examples of fintech applications include robo-advisors, payment apps, peer-to-peer (P2P) lending apps, investment apps, and crypto apps, among others. Paige McLaughlin / Investopedia Understanding Fintech Broadly, the term “financial technology” can apply to any innovation in how people transact business, from the invention of digital money to double-entry bookkeeping. Since the internet revolution, financial technology has grown explosively. You likely use some element of fintech on a daily basis. Some examples include transferring money from your debit account to your checking account via your iPhone, sending money to a friend through Venmo, or managing investments through an online broker. According to EY’s 2019 Global FinTech Adoption Index, two-thirds of consumers utilize at least two or more fintech services, and those consumers are increasingly aware of fintech as a part of their daily lives. Fintech in Practice The most talked-about (and most funded) fintech startups share the same characteristic: They are designed to challenge, and eventually take over, traditional financial services providers by being more nimble, serving an underserved segment of the population, or providing faster or better service. For example, financial company Affirm seeks to cut credit card companies out of the online shopping process by offering a way for consumers to secure immediate, short-term loans for purchases. While rates can be high, Affirm claims to offer a way for consumers with poor or no credit a way to secure credit and build their credit history. Similarly, Better Mortgage seeks to streamline the home mortgage process with a digital-only offering that can reward users with a verified pre-approval letter within 24 hours of applying. GreenSky seeks to link home improvement borrowers with banks by helping consumers avoid lenders and save on interest by offering zero-interest promotional periods. For consumers with poor or no credit, Tala offers consumers in the developing world microloans by doing a deep data dig on their smartphones for their transaction history and seemingly unrelated things, such as what mobile games they play. Tala seeks to give such consumers better options than local banks, unregulated lenders, and other microfinance institutions. In short, if you have ever wondered why some aspect of your financial life was so unpleasant (such as applying for a mortgage with a traditional lender) or felt like it wasn’t quite the right fit, fintech probably has (or seeks to have) a solution for you.   Fintech’s Expanding Horizons In its most basic form, fintech unbundles financial services into individual offerings that are often easier to use. The combination of streamlined offerings with technology allows fintech companies to be more efficient and cut down on costs associated with each transaction. If one word can describe how many fintech innovations have affected traditional trading, banking, financial advice, and products, it’s “disruption”—a word you have likely heard in commonplace conversations or the media. Financial products and services that were once the realm of branches, salespeople, and desktops are now more commonly found on mobile devices. For example, the mobile-only stock trading app Robinhood charges no fees for trades, and peer-to-peer (P2P) lending sites like Prosper Marketplace, LendingClub, and OnDeck promise to reduce rates by opening up competition for loans to broad market forces. Business loan providers such as Kabbage, Lendio, Accion, and Funding Circle (among others) offer startup and established businesses easy, fast platforms to secure working capital. Oscar, an online insurance startup, received $165 million in funding in March 2018. Such significant funding rounds are not unusual and occur globally for fintech startups. This shift to a digital-first mindset has pushed several traditional institutions to invest heavily in similar products. For example, investment bank Goldman Sachs launched consumer lending platform Marcus in 2016 in an effort to enter the fintech space. That said, many tech-savvy industry watchers warn that keeping apace of fintech-inspired innovations requires more than just ramped-up tech spending. Rather, competing with lighter-on-their-feet startups requires a significant change in thinking, processes, decision making, and even overall corporate structure. Fintech and New Technologies New technologies, such as machine learning/artificial intelligence (AI), predictive behavioral analytics, and data-driven marketing, will take the guesswork and habit out of financial decisions. “Learning” apps will not only learn the habits of users but also engage users in learning games to make their automatic, unconscious spending and saving decisions better. Fintech is also a keen adapter of automated customer service technology, utilizing chatbots and AI interfaces to assist customers with basic tasks and keep down staffing costs. Fintech is also being leveraged to fight fraud by leveraging information about payment history to flag transactions that are outside the norm. Fintech Landscape Since the mid-2010s, fintech has exploded, with startups receiving billions in venture funding (some of which have become unicorns) and incumbent financial firms either snatching up new ventures or building out their own fintech offerings. North America still produces most of the fintech startups, with Asia a relatively close second, followed by Europe. Some of the most active areas of fintech innovation include or revolve around the following areas (among others): Cryptocurrency (Bitcoin, Ethereum, etc.), digital tokens (e.g., non-fungible tokens, or NFTs), and digital cash. These often rely on blockchain technology, which is a distributed ledger technology (DLT) that maintains records on a network of computers but has no central ledger. Blockchain also allows for so-called smart contracts, which utilize code to automatically execute contracts between parties such as buyers and sellers. Open banking, which is a concept that proposes that all people should have access to bank data to build applications that create a connected network of financial institutions and third-party providers. An example is the all-in-one money management tool Mint. Insurtech, which seeks to use technology to simplify and streamline the insurance industry. Regtech, which seeks to help financial service firms meet industry compliance rules, especially those covering Anti-Money Laundering and Know Your Customer protocols that fight fraud. Robo-advisors, such as Betterment, utilize algorithms to automate investment advice to lower its cost and increase accessibility. This is one of the most common areas where fintech is known and used. Unbanked/underbanked services that seek to serve disadvantaged or low-income individuals who are ignored or underserved by traditional banks or mainstream financial services companies. These applications promote financial inclusion. Cybersecurity. Given the proliferation of cybercrime and the decentralized storage of data, cybersecurity and fintech are intertwined. AI chatbots, which rose to popularity in 2022, are another example of fintech’s rising presence in day-to-day usage. Fintech Users There are four broad categories of users for fintech: Business-to-business (B2B) for banks Clients of B2B banks Business-to-consumer (B2C) for small businesses Consumers Trends toward mobile banking, increased information, data, more accurate analytics, and decentralization of access will create opportunities for all four groups to interact in unprecedented ways. As for consumers, the younger you are, the more likely it will be that you are aware of and can accurately describe what fintech is. Consumer-oriented fintech is mostly targeted toward Gen Z and millennials, given the huge size and rising earning potential of these generations. When it comes to businesses, before the adoption of fintech, a business owner or startup would have gone to a bank to secure financing or startup capital. If they intended to accept credit card payments, they would have to establish a relationship with a credit provider and even install infrastructure, such as a landline-connected card reader. Now, with mobile technology, those hurdles are a thing of the past. Regulation and Fintech Financial services are among the most heavily regulated sectors in the world. As such, regulation has emerged as the number one concern among governments as fintech companies take off. According to the U.S. Department of the Treasury, while fintech firms create new opportunities and capabilities for companies and consumers, they are also creating new risks to be aware of. “Data privacy and regulatory arbitrage” are the main concerns noted by the Treasury. In its most recent report in November 2022, the Treasury called for enhanced oversight of consumer financial activities, specifically when it comes to nonbank firms. Regulation is also a problem in the emerging world of cryptocurrencies. Initial coin offerings (ICOs) are a form of fundraising that allows startups to raise capital directly from lay investors. In most countries, they are unregulated and have become fertile ground for scams and frauds. Regulatory uncertainty for ICOs has also allowed entrepreneurs to slip security tokens disguised as utility tokens past the U.S. Securities and Exchange Commission (SEC) to avoid fees and compliance costs. Because of the diversity of offerings in fintech and the disparate industries it touches, it is difficult to formulate a single and comprehensive approach to these problems. For the most part, governments have used existing regulations and, in some cases, customized them to regulate fintech. What are examples of fintech? Fintech has been applied to many areas of finance. Here are just a few examples.Robo-advisors are apps or online platforms that optimally invest your money automatically, often for little cost, and are accessible to ordinary individuals.Investment apps like Robinhood make it easy to buy and sell stocks, exchange-traded funds (ETFs), and cryptocurrency from your mobile device, often with little or no commission.Payment apps like PayPal, Venmo, Block (Square), Zelle, and Cash App make it easy to pay individuals or businesses online and in an instant.Personal finance apps such as Mint, YNAB, and Quicken Simplifi let you see all of your finances in one place, set budgets, pay bills, and so on.Peer-to-peer (P2P) lending platforms like Prosper Marketplace, LendingClub, and Upstart allow individuals and small business owners to receive loans from an array of individuals who contribute microloans directly to them.Crypto apps, including wallets, exchanges, and payment applications, allow you to hold and transact in cryptocurrencies and digital tokens like Bitcoin and non-fungible tokens (NFTs).Insurtech is the application of technology specifically to the insurance space. One example would be the use of devices that monitor your driving in order to adjust auto insurance rates. Does fintech apply only to banking? No. While banks and startups have created useful fintech applications around basic banking (e.g., checking and savings accounts, bank transfers, credit/debit cards, and loans), many other fintech areas that have more to do with personal finance, investing, or payments (among others) have grown in popularity. How do fintech companies make money? Fintechs make money in different ways depending on their specialty. Banking fintechs, for example, may generate revenue from fees, loan interest, and selling financial products. Investment apps may charge brokerage fees, utilize payment for order flow (PFOF), or collect a percentage of assets under management (AUM). Payment apps may earn interest on cash amounts and charge for features like earlier withdrawals or credit card use.

https://www.investopedia.com/how-much-are-birth-mother-expenses-when-adopting-6752815

How Much Are Birth Mother Expenses When Adopting?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 most people think about the adoption process, the expenses for the birth mother (parent) are rarely considered. These expenses include pregnancy-related medical and living expenses. In some cases, expenses can extend beyond birth to postpartum recovery. </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"> Almost all U.S. states have laws governing the fees and expenses that adoptive parents are expected to pay when arranging a private-placement or independent domestic adoption.<span class="ql-inline-citation" data-cite="1"></span> There are also provisions that limit birth parent expenses. These limits are usually vague (“reasonable and customary”), which leaves it to the court to decide what is reasonable in each family’s case.<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"> Each family is different, but if you’re considering adoption, you should estimate birth parent expenses and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/budgeting-for-baby.asp">budget accordingly</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 birth parent’s expenses may include medical expenses, travel and transportation, pregnancy clothes, housing, counseling, and legal fees.</li><li>Pregnancy and childbirth are part of the 10 essential services that private insurance is required to cover by the Affordable Care Act.<span class="ql-inline-citation" data-cite="2"></span> </li><li>In most states, adoptive parents do not get repaid for expenses incurred if the adoption falls through. </li><li>The birth parent may be legally liable if they accept money from adoptive parents outside of state regulations that govern reasonable adoption expenses.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-are-birth-parent-expenses"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> What Are Birth Parent Expenses? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> A birth parent’s expenses can include doctor visits, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-does-it-cost-to-have-a-baby-in-america-6745508">the cost of giving birth</a>, housing, utility and grocery bills, counseling, travel costs, and legal fees. A birth parent’s expenses vary widely based on their living situation, the pregnancy, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/insurance-and-giving-birth-6542535">whether they are insured</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> If the birth parent enters into an agreement with prospective adoptive parents (whether in a private adoption or through an agency) before giving birth, the agreement usually outlines what expenses are to be paid by the adoptive parents. If, however, the birth parent has already given birth and then decides to place the child for adoption, they may not be entitled to reimbursement for the cost of pregnancy and childbirth unless expressly agreed upon. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> When working with an agency, birth parent expenses are usually included in agency fees and paid directly to them by the agency. These payments are reviewed by a court during the adoption approval process to ensure compliance with state laws that stipulate what birth parents can be reimbursed for and how much. </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 only seven states explicitly prohibit the payment of certain expenses, the majority limit reimbursement to only those expenses expressly permitted by law or deemed reasonable by a court. Ineligible expenses often include education, vehicles, vacations, and permanent housing, which qualify as compensation rather than reimbursement. It is illegal in every state to pay a birth parent to adopt their child.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Some states even go so far as to stipulate how long before or after birth adoptive parents can pay certain expenses. In Iowa, adoptive parents cannot pay the birth parent’s living expenses more than 30 days after she gives birth. New York limits the payment of living expenses to a 90-day window—60 days prior to birth and 30 days after.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Eligible expenses vary widely from state to state. “In New Jersey, birth parent expenses are heavily regulated; this is not the case in other states,” explains Christina Letizia, executive director of A Loving Choice Adoption Associates. “I have seen out-of-state adoptions cost in excess of $60,000. New Jersey residents are not permitted to utilize the services of paid facilitators or consultants.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-what-birth-parent-expenses-may-include"></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 Birth Parent Expenses May Include </span> </h2> <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"> Pregnancy-Related Medical Expenses </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Medical expenses include labor and delivery expenses, prenatal and postnatal doctor visits, prenatal vitamins, specialist services for preexisting conditions, ultrasounds, and additional care during the recovery period. When using an agency, these expenses may be included in the agency fees. If not, the adoptive parents may have to pay them directly according to the reasonable needs of the birth parent.<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_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> If the birth parent is insured, insurance should cover a lot of these medical costs, in which case adoptive parents would be responsible only for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/copay.asp">co-pays</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coinsurance.asp">co-insurance</a> for doctor visits and prescriptions.<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_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"> Travel and Transportation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Travel to and from doctor appointments, court appearances, or to the hospital to give birth may be reimbursed by the adoptive parents. Adoptive parents may be asked to pay for taxi or bus fares, gas, or even plane tickets if it is an out-of-state adoption. Although most courts won’t approve the purchase of a vehicle, adoptive parents can pay for a reasonable car service when used for appointments and necessities. If the birth parent has dependent children or needs a companion to accompany her, their transportation costs may be charged to the adoptive parents as well.<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> <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"> Pregnancy Clothes </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Some birth parents may not ask to be reimbursed for pregnancy wear, but they are allowed to ask for it and courts may approve a reasonable amount, which varies from case to case.<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_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"> Counseling </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Adoption can take a physical, emotional, and mental toll on a birth parent. Therefore, access to counseling during pregnancy and after adoption placement is standard, but the amount that adoptive parents can pay for counseling is different in each state. </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"> Agencies may include these services in their fee, or adoptive parents may set aside money to pay for these services if necessary. A Loving Choice Adoption Associates’ fee schedule, provided to Investopedia directly, states that counseling for any party to an adoption is billed at $150 per hour. </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"> Housing </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> If a birth parent cannot pay rent or does not have adequate housing during the pregnancy or adoption process, then adoptive parents may be asked to help. Housing expenses can include utilities (such as electricity, water, and gas), groceries, and phone and internet bills. An adoption agency can help adoptive parents ascertain what costs are reasonable to expect.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <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"> Legal Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Adoptive parents are responsible for birth parents’ legal fees on top of their own, including home study and guardian ad litem fees. According to the Child Welfare Information Gateway, court documentation fees range from $500 to $2,000. And adoptive parents working with an agency, whose fees often include some legal expenses, can expect to spend up to $4,500 on attorneys.<span class="ql-inline-citation" data-cite="4"></span> Families adopting independently will pay even more in legal fees, ranging from $7,000 to $15,000 by the Gladney Center for Adoption’s estimate.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-does-health-insurance-cover-birth-parent-expenses"></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"> Does Health Insurance Cover Birth Parent Expenses? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Under the Affordable Care Act, health insurance plans must cover pregnancy and childbirth costs, including prenatal and postnatal care. If the birth parent is insured, then most adoptive parents will cover only the cost of premiums, deductibles, co-pays, and co-insurance. However, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/080615/6-reasons-healthcare-so-expensive-us.asp">cost of healthcare in the U.S.</a> being what it is, that can add up. According to the Peterson-Kaiser Family Foundation Health System Tracker, insured women who give birth pay almost $3,000 more on healthcare than their peers who don’t give birth.<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_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> If the birth parent does not have insurance, they could enroll in Medicaid as long as they meet state <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-advisors/011816/4-tips-qualifying-medicaid.asp">eligibility requirements</a>. If the adoptive parent is ineligible, the adoptive parents may need to pay for them to enroll in a private plan. Because pregnancy is not a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/qualifying-event.asp">qualifying life event</a> that makes one eligible for a Special Enrollment Period, adoptive parents may need to buy <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-short-term-health-insurance-4844942">short-term insurance</a> to cover the birth parent until they can enroll in a marketplace plan during open enrollment. After adoption placement, the insurance of the adoptive parents will cover the baby as a dependent under their policy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <span class="heading-toc" id="toc-can-adoptive-parents-be-reimbursed-if-the-adoption-falls-through"></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"> Can Adoptive Parents Be Reimbursed If the Adoption Falls Through? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Whether adoptive parents can be reimbursed for their payments when an adoption falls through depends on the state where the adoption is taking place. Only Idaho and Puerto Rico require that a birth parent return payments made to them by adoptive parents if they decide not to go through with the adoption. In Montana, North Carolina, and Vermont, the adoptive parent can stop additional payments when the adoption falls through unless there was a prior written agreement to make payments regardless of the adoption outcome.<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_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> In the unfortunate event of a birth parent taking payments from multiple adoptive families, lying about being pregnant, or accepting payments with no intention of completing the adoption, adoptive parents may be entitled to reimbursement for their expenses.<span class="ql-inline-citation" data-cite="7"></span> Adoptive parents should talk to their lawyer or adoption agency about what expenses they may be able to recover if the adoption falls through. </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-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-pay-for-adoption-5409336">Adoption is a costly process</a> for everyone involved. Some birth parents do not require financial support for health expenses, but many do. Legal fees, travel expenses, and even lost wages are all expenses that can be passed along to adoptive parents if state laws allow it and courts deem it reasonable. Many agencies and adoption facilitators work to ensure that the birth parent does not incur any expenses in the process, but each state has specific limits on individual costs that can be claimed by a birth parent and the timing of when these fees should be paid. </p></div>

When most people think about the adoption process, the expenses for the birth mother (parent) are rarely considered. These expenses include pregnancy-related medical and living expenses. In some cases, expenses can extend beyond birth to postpartum recovery. Almost all U.S. states have laws governing the fees and expenses that adoptive parents are expected to pay when arranging a private-placement or independent domestic adoption. There are also provisions that limit birth parent expenses. These limits are usually vague (“reasonable and customary”), which leaves it to the court to decide what is reasonable in each family’s case. Each family is different, but if you’re considering adoption, you should estimate birth parent expenses and [budget accordingly](https://www.investopedia.com/articles/pf/08/budgeting-for-baby.asp). ### Key Takeaways * A birth parent’s expenses may include medical expenses, travel and transportation, pregnancy clothes, housing, counseling, and legal fees. * Pregnancy and childbirth are part of the 10 essential services that private insurance is required to cover by the Affordable Care Act. * In most states, adoptive parents do not get repaid for expenses incurred if the adoption falls through. * The birth parent may be legally liable if they accept money from adoptive parents outside of state regulations that govern reasonable adoption expenses. ## What Are Birth Parent Expenses? A birth parent’s expenses can include doctor visits, [the cost of giving birth](https://www.investopedia.com/how-much-does-it-cost-to-have-a-baby-in-america-6745508), housing, utility and grocery bills, counseling, travel costs, and legal fees. A birth parent’s expenses vary widely based on their living situation, the pregnancy, and [whether they are insured](https://www.investopedia.com/insurance-and-giving-birth-6542535). If the birth parent enters into an agreement with prospective adoptive parents (whether in a private adoption or through an agency) before giving birth, the agreement usually outlines what expenses are to be paid by the adoptive parents. If, however, the birth parent has already given birth and then decides to place the child for adoption, they may not be entitled to reimbursement for the cost of pregnancy and childbirth unless expressly agreed upon. When working with an agency, birth parent expenses are usually included in agency fees and paid directly to them by the agency. These payments are reviewed by a court during the adoption approval process to ensure compliance with state laws that stipulate what birth parents can be reimbursed for and how much. While only seven states explicitly prohibit the payment of certain expenses, the majority limit reimbursement to only those expenses expressly permitted by law or deemed reasonable by a court. Ineligible expenses often include education, vehicles, vacations, and permanent housing, which qualify as compensation rather than reimbursement. It is illegal in every state to pay a birth parent to adopt their child. Some states even go so far as to stipulate how long before or after birth adoptive parents can pay certain expenses. In Iowa, adoptive parents cannot pay the birth parent’s living expenses more than 30 days after she gives birth. New York limits the payment of living expenses to a 90-day window—60 days prior to birth and 30 days after. Eligible expenses vary widely from state to state. “In New Jersey, birth parent expenses are heavily regulated; this is not the case in other states,” explains Christina Letizia, executive director of A Loving Choice Adoption Associates. “I have seen out-of-state adoptions cost in excess of $60,000. New Jersey residents are not permitted to utilize the services of paid facilitators or consultants.” ## What Birth Parent Expenses May Include ### Pregnancy-Related Medical Expenses Medical expenses include labor and delivery expenses, prenatal and postnatal doctor visits, prenatal vitamins, specialist services for preexisting conditions, ultrasounds, and additional care during the recovery period. When using an agency, these expenses may be included in the agency fees. If not, the adoptive parents may have to pay them directly according to the reasonable needs of the birth parent. If the birth parent is insured, insurance should cover a lot of these medical costs, in which case adoptive parents would be responsible only for [co-pays](https://www.investopedia.com/terms/c/copay.asp) and [co-insurance](https://www.investopedia.com/terms/c/coinsurance.asp) for doctor visits and prescriptions. ### Travel and Transportation Travel to and from doctor appointments, court appearances, or to the hospital to give birth may be reimbursed by the adoptive parents. Adoptive parents may be asked to pay for taxi or bus fares, gas, or even plane tickets if it is an out-of-state adoption. Although most courts won’t approve the purchase of a vehicle, adoptive parents can pay for a reasonable car service when used for appointments and necessities. If the birth parent has dependent children or needs a companion to accompany her, their transportation costs may be charged to the adoptive parents as well. ### Pregnancy Clothes Some birth parents may not ask to be reimbursed for pregnancy wear, but they are allowed to ask for it and courts may approve a reasonable amount, which varies from case to case. ### Counseling Adoption can take a physical, emotional, and mental toll on a birth parent. Therefore, access to counseling during pregnancy and after adoption placement is standard, but the amount that adoptive parents can pay for counseling is different in each state. Agencies may include these services in their fee, or adoptive parents may set aside money to pay for these services if necessary. A Loving Choice Adoption Associates’ fee schedule, provided to Investopedia directly, states that counseling for any party to an adoption is billed at $150 per hour. ### Housing If a birth parent cannot pay rent or does not have adequate housing during the pregnancy or adoption process, then adoptive parents may be asked to help. Housing expenses can include utilities (such as electricity, water, and gas), groceries, and phone and internet bills. An adoption agency can help adoptive parents ascertain what costs are reasonable to expect. ### Legal Fees Adoptive parents are responsible for birth parents’ legal fees on top of their own, including home study and guardian ad litem fees. According to the Child Welfare Information Gateway, court documentation fees range from $500 to $2,000. And adoptive parents working with an agency, whose fees often include some legal expenses, can expect to spend up to $4,500 on attorneys. Families adopting independently will pay even more in legal fees, ranging from $7,000 to $15,000 by the Gladney Center for Adoption’s estimate. ## Does Health Insurance Cover Birth Parent Expenses? Under the Affordable Care Act, health insurance plans must cover pregnancy and childbirth costs, including prenatal and postnatal care. If the birth parent is insured, then most adoptive parents will cover only the cost of premiums, deductibles, co-pays, and co-insurance. However, the [cost of healthcare in the U.S.](https://www.investopedia.com/articles/personal-finance/080615/6-reasons-healthcare-so-expensive-us.asp) being what it is, that can add up. According to the Peterson-Kaiser Family Foundation Health System Tracker, insured women who give birth pay almost $3,000 more on healthcare than their peers who don’t give birth. If the birth parent does not have insurance, they could enroll in Medicaid as long as they meet state [eligibility requirements](https://www.investopedia.com/articles/financial-advisors/011816/4-tips-qualifying-medicaid.asp). If the adoptive parent is ineligible, the adoptive parents may need to pay for them to enroll in a private plan. Because pregnancy is not a [qualifying life event](https://www.investopedia.com/terms/q/qualifying-event.asp) that makes one eligible for a Special Enrollment Period, adoptive parents may need to buy [short-term insurance](https://www.investopedia.com/best-short-term-health-insurance-4844942) to cover the birth parent until they can enroll in a marketplace plan during open enrollment. After adoption placement, the insurance of the adoptive parents will cover the baby as a dependent under their policy. ## Can Adoptive Parents Be Reimbursed If the Adoption Falls Through? Whether adoptive parents can be reimbursed for their payments when an adoption falls through depends on the state where the adoption is taking place. Only Idaho and Puerto Rico require that a birth parent return payments made to them by adoptive parents if they decide not to go through with the adoption. In Montana, North Carolina, and Vermont, the adoptive parent can stop additional payments when the adoption falls through unless there was a prior written agreement to make payments regardless of the adoption outcome. In the unfortunate event of a birth parent taking payments from multiple adoptive families, lying about being pregnant, or accepting payments with no intention of completing the adoption, adoptive parents may be entitled to reimbursement for their expenses. Adoptive parents should talk to their lawyer or adoption agency about what expenses they may be able to recover if the adoption falls through. ## The Bottom Line [Adoption is a costly process](https://www.investopedia.com/how-to-pay-for-adoption-5409336) for everyone involved. Some birth parents do not require financial support for health expenses, but many do. Legal fees, travel expenses, and even lost wages are all expenses that can be passed along to adoptive parents if state laws allow it and courts deem it reasonable. Many agencies and adoption facilitators work to ensure that the birth parent does not incur any expenses in the process, but each state has specific limits on individual costs that can be claimed by a birth parent and the timing of when these fees should be paid.

When most people think about the adoption process, the expenses for the birth mother (parent) are rarely considered. These expenses include pregnancy-related medical and living expenses. In some cases, expenses can extend beyond birth to postpartum recovery. Almost all U.S. states have laws governing the fees and expenses that adoptive parents are expected to pay when arranging a private-placement or independent domestic adoption. There are also provisions that limit birth parent expenses. These limits are usually vague (“reasonable and customary”), which leaves it to the court to decide what is reasonable in each family’s case. Each family is different, but if you’re considering adoption, you should estimate birth parent expenses and budget accordingly. Key Takeaways A birth parent’s expenses may include medical expenses, travel and transportation, pregnancy clothes, housing, counseling, and legal fees.Pregnancy and childbirth are part of the 10 essential services that private insurance is required to cover by the Affordable Care Act. In most states, adoptive parents do not get repaid for expenses incurred if the adoption falls through. The birth parent may be legally liable if they accept money from adoptive parents outside of state regulations that govern reasonable adoption expenses. What Are Birth Parent Expenses? A birth parent’s expenses can include doctor visits, the cost of giving birth, housing, utility and grocery bills, counseling, travel costs, and legal fees. A birth parent’s expenses vary widely based on their living situation, the pregnancy, and whether they are insured. If the birth parent enters into an agreement with prospective adoptive parents (whether in a private adoption or through an agency) before giving birth, the agreement usually outlines what expenses are to be paid by the adoptive parents. If, however, the birth parent has already given birth and then decides to place the child for adoption, they may not be entitled to reimbursement for the cost of pregnancy and childbirth unless expressly agreed upon. When working with an agency, birth parent expenses are usually included in agency fees and paid directly to them by the agency. These payments are reviewed by a court during the adoption approval process to ensure compliance with state laws that stipulate what birth parents can be reimbursed for and how much. While only seven states explicitly prohibit the payment of certain expenses, the majority limit reimbursement to only those expenses expressly permitted by law or deemed reasonable by a court. Ineligible expenses often include education, vehicles, vacations, and permanent housing, which qualify as compensation rather than reimbursement. It is illegal in every state to pay a birth parent to adopt their child. Some states even go so far as to stipulate how long before or after birth adoptive parents can pay certain expenses. In Iowa, adoptive parents cannot pay the birth parent’s living expenses more than 30 days after she gives birth. New York limits the payment of living expenses to a 90-day window—60 days prior to birth and 30 days after. Eligible expenses vary widely from state to state. “In New Jersey, birth parent expenses are heavily regulated; this is not the case in other states,” explains Christina Letizia, executive director of A Loving Choice Adoption Associates. “I have seen out-of-state adoptions cost in excess of $60,000. New Jersey residents are not permitted to utilize the services of paid facilitators or consultants.” What Birth Parent Expenses May Include Pregnancy-Related Medical Expenses Medical expenses include labor and delivery expenses, prenatal and postnatal doctor visits, prenatal vitamins, specialist services for preexisting conditions, ultrasounds, and additional care during the recovery period. When using an agency, these expenses may be included in the agency fees. If not, the adoptive parents may have to pay them directly according to the reasonable needs of the birth parent. If the birth parent is insured, insurance should cover a lot of these medical costs, in which case adoptive parents would be responsible only for co-pays and co-insurance for doctor visits and prescriptions. Travel and Transportation Travel to and from doctor appointments, court appearances, or to the hospital to give birth may be reimbursed by the adoptive parents. Adoptive parents may be asked to pay for taxi or bus fares, gas, or even plane tickets if it is an out-of-state adoption. Although most courts won’t approve the purchase of a vehicle, adoptive parents can pay for a reasonable car service when used for appointments and necessities. If the birth parent has dependent children or needs a companion to accompany her, their transportation costs may be charged to the adoptive parents as well. Pregnancy Clothes Some birth parents may not ask to be reimbursed for pregnancy wear, but they are allowed to ask for it and courts may approve a reasonable amount, which varies from case to case. Counseling Adoption can take a physical, emotional, and mental toll on a birth parent. Therefore, access to counseling during pregnancy and after adoption placement is standard, but the amount that adoptive parents can pay for counseling is different in each state. Agencies may include these services in their fee, or adoptive parents may set aside money to pay for these services if necessary. A Loving Choice Adoption Associates’ fee schedule, provided to Investopedia directly, states that counseling for any party to an adoption is billed at $150 per hour. Housing If a birth parent cannot pay rent or does not have adequate housing during the pregnancy or adoption process, then adoptive parents may be asked to help. Housing expenses can include utilities (such as electricity, water, and gas), groceries, and phone and internet bills. An adoption agency can help adoptive parents ascertain what costs are reasonable to expect. Legal Fees Adoptive parents are responsible for birth parents’ legal fees on top of their own, including home study and guardian ad litem fees. According to the Child Welfare Information Gateway, court documentation fees range from $500 to $2,000. And adoptive parents working with an agency, whose fees often include some legal expenses, can expect to spend up to $4,500 on attorneys. Families adopting independently will pay even more in legal fees, ranging from $7,000 to $15,000 by the Gladney Center for Adoption’s estimate. Does Health Insurance Cover Birth Parent Expenses? Under the Affordable Care Act, health insurance plans must cover pregnancy and childbirth costs, including prenatal and postnatal care. If the birth parent is insured, then most adoptive parents will cover only the cost of premiums, deductibles, co-pays, and co-insurance. However, the cost of healthcare in the U.S. being what it is, that can add up. According to the Peterson-Kaiser Family Foundation Health System Tracker, insured women who give birth pay almost $3,000 more on healthcare than their peers who don’t give birth. If the birth parent does not have insurance, they could enroll in Medicaid as long as they meet state eligibility requirements. If the adoptive parent is ineligible, the adoptive parents may need to pay for them to enroll in a private plan. Because pregnancy is not a qualifying life event that makes one eligible for a Special Enrollment Period, adoptive parents may need to buy short-term insurance to cover the birth parent until they can enroll in a marketplace plan during open enrollment. After adoption placement, the insurance of the adoptive parents will cover the baby as a dependent under their policy. Can Adoptive Parents Be Reimbursed If the Adoption Falls Through? Whether adoptive parents can be reimbursed for their payments when an adoption falls through depends on the state where the adoption is taking place. Only Idaho and Puerto Rico require that a birth parent return payments made to them by adoptive parents if they decide not to go through with the adoption. In Montana, North Carolina, and Vermont, the adoptive parent can stop additional payments when the adoption falls through unless there was a prior written agreement to make payments regardless of the adoption outcome. In the unfortunate event of a birth parent taking payments from multiple adoptive families, lying about being pregnant, or accepting payments with no intention of completing the adoption, adoptive parents may be entitled to reimbursement for their expenses. Adoptive parents should talk to their lawyer or adoption agency about what expenses they may be able to recover if the adoption falls through. The Bottom Line Adoption is a costly process for everyone involved. Some birth parents do not require financial support for health expenses, but many do. Legal fees, travel expenses, and even lost wages are all expenses that can be passed along to adoptive parents if state laws allow it and courts deem it reasonable. Many agencies and adoption facilitators work to ensure that the birth parent does not incur any expenses in the process, but each state has specific limits on individual costs that can be claimed by a birth parent and the timing of when these fees should be paid.

https://www.investopedia.com/texting-employees-cost-16-more-companies-usd81-million-in-fines-8575103

Texting Employees Cost 16 More Financial Firms $81 Million In Fines

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Securities and Exchange Commission has fined 16 companies $81 million because their employees communicated about business on private texts and did not save the messages.<br/></li><li>The SEC requires financial companies to save communications in case the commission investigates wrongdoing.<br/></li><li>The regulator has made a point of enforcing its communication rules in recent years, and has fined companies billions for recordkeeping violations.<br/></li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> More companies are in the Securities and Exchange Commission's crosshairs because of their employees' communications.<br/><br/>The Securities and Exchange Commission (SEC) fined 16 financial companies $81 million because their employees talked about business over private text messages, the commission said Friday. The broker-dealer firms agreed to pay fines ranging from $1.25 million to $16.5 million, the commission said.<span class="ql-inline-citation" data-cite="1"></span><br/><br/>The fines are the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wall-street-firms-fined-usd549-million-for-violating-recordkeeping-rules-7571291">latest in a wave</a> of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/firms-fined-whatsapp-6744781">similar penalties</a> for Wall Street firms over the last two years targeting “off-channel” communications. The federal regulator requires the companies it oversees to do business using official channels and preserve the messages so that they can be reviewed if and when the SEC investigates wrongdoing.<br/><br/>“Today’s actions against these 16 firms result from our continuing efforts to ensure that all regulated entities comply with the recordkeeping requirements, which are essential to our ability to monitor and enforce compliance with the federal securities laws,” Gurbir S. Grewal, director of the SEC’s division of enforcement, said in a prepared statement.<br/><br/>The companies paying fines are:<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> <li>Northwestern Mutual Investment Services (NMIS): $16.5 million</li><li>Guggenheim Securities: $15 million</li><li>Oppenheimer: $12 million</li><li>Cambridge: $10 million</li><li>Key Investment Services and KeyBanc Capital Markets: $10 million</li><li>Lincoln Financial: $8.5 million</li><li>U.S. Bancorp: $8 million</li><li>Huntington: $1.25 million</li> </ul> <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 smaller fine for Huntington reflects the company’s self-reporting of problems and cooperation, Grewal said. <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 * The Securities and Exchange Commission has fined 16 companies $81 million because their employees communicated about business on private texts and did not save the messages. * The SEC requires financial companies to save communications in case the commission investigates wrongdoing. * The regulator has made a point of enforcing its communication rules in recent years, and has fined companies billions for recordkeeping violations. More companies are in the Securities and Exchange Commission's crosshairs because of their employees' communications. The Securities and Exchange Commission (SEC) fined 16 financial companies $81 million because their employees talked about business over private text messages, the commission said Friday. The broker-dealer firms agreed to pay fines ranging from $1.25 million to $16.5 million, the commission said. The fines are the [latest in a wave](https://www.investopedia.com/wall-street-firms-fined-usd549-million-for-violating-recordkeeping-rules-7571291) of [similar penalties](https://www.investopedia.com/firms-fined-whatsapp-6744781) for Wall Street firms over the last two years targeting “off-channel” communications. The federal regulator requires the companies it oversees to do business using official channels and preserve the messages so that they can be reviewed if and when the SEC investigates wrongdoing. “Today’s actions against these 16 firms result from our continuing efforts to ensure that all regulated entities comply with the recordkeeping requirements, which are essential to our ability to monitor and enforce compliance with the federal securities laws,” Gurbir S. Grewal, director of the SEC’s division of enforcement, said in a prepared statement. The companies paying fines are: * Northwestern Mutual Investment Services (NMIS): $16.5 million * Guggenheim Securities: $15 million * Oppenheimer: $12 million * Cambridge: $10 million * Key Investment Services and KeyBanc Capital Markets: $10 million * Lincoln Financial: $8.5 million * U.S. Bancorp: $8 million * Huntington: $1.25 million The smaller fine for Huntington reflects the company’s self-reporting of problems and cooperation, Grewal said.  Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways The Securities and Exchange Commission has fined 16 companies $81 million because their employees communicated about business on private texts and did not save the messages.The SEC requires financial companies to save communications in case the commission investigates wrongdoing.The regulator has made a point of enforcing its communication rules in recent years, and has fined companies billions for recordkeeping violations. More companies are in the Securities and Exchange Commission's crosshairs because of their employees' communications.The Securities and Exchange Commission (SEC) fined 16 financial companies $81 million because their employees talked about business over private text messages, the commission said Friday. The broker-dealer firms agreed to pay fines ranging from $1.25 million to $16.5 million, the commission said.The fines are the latest in a wave of similar penalties for Wall Street firms over the last two years targeting “off-channel” communications. The federal regulator requires the companies it oversees to do business using official channels and preserve the messages so that they can be reviewed if and when the SEC investigates wrongdoing.“Today’s actions against these 16 firms result from our continuing efforts to ensure that all regulated entities comply with the recordkeeping requirements, which are essential to our ability to monitor and enforce compliance with the federal securities laws,” Gurbir S. Grewal, director of the SEC’s division of enforcement, said in a prepared statement.The companies paying fines are: Northwestern Mutual Investment Services (NMIS): $16.5 millionGuggenheim Securities: $15 millionOppenheimer: $12 millionCambridge: $10 millionKey Investment Services and KeyBanc Capital Markets: $10 millionLincoln Financial: $8.5 millionU.S. Bancorp: $8 millionHuntington: $1.25 million The smaller fine for Huntington reflects the company’s self-reporting of problems and cooperation, Grewal said.  Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Sin Stock: What it is, How it Works, Pros and Cons

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-sin-stock"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Sin Stock? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A sin <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock.asp">stock</a> is a publicly traded company involved in or associated with an activity that is considered unethical or immoral. Sin stocks are generally in sectors that deal directly with morally dubious actions. They are perceived as making money from exploiting human weaknesses and frailties. </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 sin stock is a publicly traded company involved in or associated with an activity that is considered unethical or immoral.</li><li>Sin stock sectors usually include alcohol, tobacco, gambling, sex-related industries, and weapons manufacturers.</li><li>Consistent consumer demand for their products helps sin stocks during recessions.</li><li>Sin stocks face far greater political risk than most other stocks.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-sin-stocks"></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 Sin Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Sin stock sectors usually include alcohol, tobacco, gambling, sex-related industries, and weapons manufacturers. However, they can also be defined by regional and societal expectations that vary widely across the globe. For example, brewing has a long tradition in much of the world, so alcohol stocks are not necessarily considered sin stocks by everyone. Political leanings can also influence what is branded as a sin stock. Some people's lists will include all military contractors, while others may consider supporting the military a patriotic duty. Also known as "sinful stocks," sin stocks sit on the opposite end of the spectrum from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ethical-investing.asp">ethical investing</a> and socially responsible investing. The goal of these other investing styles is to seek out investments that yield an overall benefit for society. </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"> Sin stocks are difficult to classify with any certainty, as sin depends on an investor's personal feelings toward an industry. That said, tobacco firms like Phillip Morris are often on the list, as are alcohol producers like Anheuser-Busch. Weapons manufacturers like Smith &amp; Wesson make the list too. However, General Dynamics may not, depending on your views about providing weapons systems to the military. Of course, many gambling stocks are tied to hotels, such as Caesars Entertainment Corporation or Las Vegas Sands Corp. It can be hard to disentangle the sin portions of some businesses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Sin stocks have a chance to gain if their particular sins become more socially acceptable over time.</p></div></div></div> <span class="heading-toc" id="toc-benefits-of-sin-stocks"></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 Sin Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Investing in sin stocks may be disagreeable to some investors. However, the fact is that many of them are sound investments. The very nature of their business ensures that they have a steady stream of customers. Since the demand for their products or services is relatively <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/inelastic.asp">inelastic</a>, their business is more recession-proof than other companies. There are also social and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regulatory_risk.asp">regulatory risks</a> that discourage competitors from entering the market, which adds to the downside protection. This lesser degree of competition ensures fat margins and stable profits for sin stocks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Some research suggests that sin stocks may also be undervalued. Their negative images lead analysts and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/institutionalinvestor.asp">institutional investors</a> to shun them. That makes sin stocks attractive to investors willing to take the plunge. Several of the biggest sin stocks have great long-term records of generating <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shareholder-value.asp">shareholder value</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"> More interesting is the fact that many financial stocks in socially responsible investing funds were caught up in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/07/subprime-blame.asp">subprime mortgage scandals</a> of the 2008 financial crisis. That puts the whole question of sin in a new light. Is selling people booze worse than putting them into houses they can't afford and financially ruining them? It all depends on your moral code. </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-disadvantages-of-sin-stocks"></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"> Disadvantages of Sin Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Sin stocks face far greater <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/politicalrisk.asp">political risk</a> than most other stocks. Some companies are at greater risk of declaring bankruptcy. However, sin stocks face a higher risk of being declared morally bankrupt and forced out of business. The public perception that an industry is immoral is the first step toward outlawing it. For example, prohibitions on drugs and alcohol in the U.S. during parts of the 20th century would have seemed very strange in the 18th century. The public began to associate alcohol and drugs with various crimes in the 19th century before these bans took place. </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"> Even when sin stocks are not actually outlawed, they still face the threat of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sin_tax.asp">sin taxes</a>. There are both political and economic reasons why sin stocks are more likely to be taxed. Politically, many conservatives are generally opposed to taxes but willing to vote for taxes on behavior that they consider immoral. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> There is also an economic argument that tends to support sin taxes, resulting in higher taxes for sin stocks. Whenever a good or service is taxed, some people will reduce consumption in response to the tax. This reduced consumption does not produce any tax revenue. However, it does decrease the happiness of people who would otherwise consume the good or service. The typical result of such a tax is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deadweightloss.asp">deadweight loss</a> for society. However, it can be argued that taxing a sin, such as tobacco, actually benefits the community. Lower tobacco consumption ultimately improves health and reduces medical expenses. </p></div>

## What Is a Sin Stock? A sin [stock](https://www.investopedia.com/terms/s/stock.asp) is a publicly traded company involved in or associated with an activity that is considered unethical or immoral. Sin stocks are generally in sectors that deal directly with morally dubious actions. They are perceived as making money from exploiting human weaknesses and frailties. ### Key Takeaways * A sin stock is a publicly traded company involved in or associated with an activity that is considered unethical or immoral. * Sin stock sectors usually include alcohol, tobacco, gambling, sex-related industries, and weapons manufacturers. * Consistent consumer demand for their products helps sin stocks during recessions. * Sin stocks face far greater political risk than most other stocks. ## Understanding Sin Stocks Sin stock sectors usually include alcohol, tobacco, gambling, sex-related industries, and weapons manufacturers. However, they can also be defined by regional and societal expectations that vary widely across the globe. For example, brewing has a long tradition in much of the world, so alcohol stocks are not necessarily considered sin stocks by everyone. Political leanings can also influence what is branded as a sin stock. Some people's lists will include all military contractors, while others may consider supporting the military a patriotic duty. Also known as "sinful stocks," sin stocks sit on the opposite end of the spectrum from [ethical investing](https://www.investopedia.com/terms/e/ethical-investing.asp) and socially responsible investing. The goal of these other investing styles is to seek out investments that yield an overall benefit for society. Sin stocks are difficult to classify with any certainty, as sin depends on an investor's personal feelings toward an industry. That said, tobacco firms like Phillip Morris are often on the list, as are alcohol producers like Anheuser-Busch. Weapons manufacturers like Smith & Wesson make the list too. However, General Dynamics may not, depending on your views about providing weapons systems to the military. Of course, many gambling stocks are tied to hotels, such as Caesars Entertainment Corporation or Las Vegas Sands Corp. It can be hard to disentangle the sin portions of some businesses. ### Sin stocks have a chance to gain if their particular sins become more socially acceptable over time. ## Benefits of Sin Stocks Investing in sin stocks may be disagreeable to some investors. However, the fact is that many of them are sound investments. The very nature of their business ensures that they have a steady stream of customers. Since the demand for their products or services is relatively [inelastic](https://www.investopedia.com/terms/e/inelastic.asp), their business is more recession-proof than other companies. There are also social and [regulatory risks](https://www.investopedia.com/terms/r/regulatory_risk.asp) that discourage competitors from entering the market, which adds to the downside protection. This lesser degree of competition ensures fat margins and stable profits for sin stocks. Some research suggests that sin stocks may also be undervalued. Their negative images lead analysts and [institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp) to shun them. That makes sin stocks attractive to investors willing to take the plunge. Several of the biggest sin stocks have great long-term records of generating [shareholder value](https://www.investopedia.com/terms/s/shareholder-value.asp). More interesting is the fact that many financial stocks in socially responsible investing funds were caught up in the [subprime mortgage scandals](https://www.investopedia.com/articles/07/subprime-blame.asp) of the 2008 financial crisis. That puts the whole question of sin in a new light. Is selling people booze worse than putting them into houses they can't afford and financially ruining them? It all depends on your moral code. ## Disadvantages of Sin Stocks Sin stocks face far greater [political risk](https://www.investopedia.com/terms/p/politicalrisk.asp) than most other stocks. Some companies are at greater risk of declaring bankruptcy. However, sin stocks face a higher risk of being declared morally bankrupt and forced out of business. The public perception that an industry is immoral is the first step toward outlawing it. For example, prohibitions on drugs and alcohol in the U.S. during parts of the 20th century would have seemed very strange in the 18th century. The public began to associate alcohol and drugs with various crimes in the 19th century before these bans took place. Even when sin stocks are not actually outlawed, they still face the threat of [sin taxes](https://www.investopedia.com/terms/s/sin_tax.asp). There are both political and economic reasons why sin stocks are more likely to be taxed. Politically, many conservatives are generally opposed to taxes but willing to vote for taxes on behavior that they consider immoral. There is also an economic argument that tends to support sin taxes, resulting in higher taxes for sin stocks. Whenever a good or service is taxed, some people will reduce consumption in response to the tax. This reduced consumption does not produce any tax revenue. However, it does decrease the happiness of people who would otherwise consume the good or service. The typical result of such a tax is a [deadweight loss](https://www.investopedia.com/terms/d/deadweightloss.asp) for society. However, it can be argued that taxing a sin, such as tobacco, actually benefits the community. Lower tobacco consumption ultimately improves health and reduces medical expenses.

What Is a Sin Stock? A sin stock is a publicly traded company involved in or associated with an activity that is considered unethical or immoral. Sin stocks are generally in sectors that deal directly with morally dubious actions. They are perceived as making money from exploiting human weaknesses and frailties. Key Takeaways A sin stock is a publicly traded company involved in or associated with an activity that is considered unethical or immoral.Sin stock sectors usually include alcohol, tobacco, gambling, sex-related industries, and weapons manufacturers.Consistent consumer demand for their products helps sin stocks during recessions.Sin stocks face far greater political risk than most other stocks. Understanding Sin Stocks Sin stock sectors usually include alcohol, tobacco, gambling, sex-related industries, and weapons manufacturers. However, they can also be defined by regional and societal expectations that vary widely across the globe. For example, brewing has a long tradition in much of the world, so alcohol stocks are not necessarily considered sin stocks by everyone. Political leanings can also influence what is branded as a sin stock. Some people's lists will include all military contractors, while others may consider supporting the military a patriotic duty. Also known as "sinful stocks," sin stocks sit on the opposite end of the spectrum from ethical investing and socially responsible investing. The goal of these other investing styles is to seek out investments that yield an overall benefit for society. Sin stocks are difficult to classify with any certainty, as sin depends on an investor's personal feelings toward an industry. That said, tobacco firms like Phillip Morris are often on the list, as are alcohol producers like Anheuser-Busch. Weapons manufacturers like Smith & Wesson make the list too. However, General Dynamics may not, depending on your views about providing weapons systems to the military. Of course, many gambling stocks are tied to hotels, such as Caesars Entertainment Corporation or Las Vegas Sands Corp. It can be hard to disentangle the sin portions of some businesses. Sin stocks have a chance to gain if their particular sins become more socially acceptable over time. Benefits of Sin Stocks Investing in sin stocks may be disagreeable to some investors. However, the fact is that many of them are sound investments. The very nature of their business ensures that they have a steady stream of customers. Since the demand for their products or services is relatively inelastic, their business is more recession-proof than other companies. There are also social and regulatory risks that discourage competitors from entering the market, which adds to the downside protection. This lesser degree of competition ensures fat margins and stable profits for sin stocks. Some research suggests that sin stocks may also be undervalued. Their negative images lead analysts and institutional investors to shun them. That makes sin stocks attractive to investors willing to take the plunge. Several of the biggest sin stocks have great long-term records of generating shareholder value. More interesting is the fact that many financial stocks in socially responsible investing funds were caught up in the subprime mortgage scandals of the 2008 financial crisis. That puts the whole question of sin in a new light. Is selling people booze worse than putting them into houses they can't afford and financially ruining them? It all depends on your moral code. Disadvantages of Sin Stocks Sin stocks face far greater political risk than most other stocks. Some companies are at greater risk of declaring bankruptcy. However, sin stocks face a higher risk of being declared morally bankrupt and forced out of business. The public perception that an industry is immoral is the first step toward outlawing it. For example, prohibitions on drugs and alcohol in the U.S. during parts of the 20th century would have seemed very strange in the 18th century. The public began to associate alcohol and drugs with various crimes in the 19th century before these bans took place. Even when sin stocks are not actually outlawed, they still face the threat of sin taxes. There are both political and economic reasons why sin stocks are more likely to be taxed. Politically, many conservatives are generally opposed to taxes but willing to vote for taxes on behavior that they consider immoral. There is also an economic argument that tends to support sin taxes, resulting in higher taxes for sin stocks. Whenever a good or service is taxed, some people will reduce consumption in response to the tax. This reduced consumption does not produce any tax revenue. However, it does decrease the happiness of people who would otherwise consume the good or service. The typical result of such a tax is a deadweight loss for society. However, it can be argued that taxing a sin, such as tobacco, actually benefits the community. Lower tobacco consumption ultimately improves health and reduces medical expenses.

https://www.investopedia.com/impact-inflation-on-401k-5323824

What Is the Impact of Inflation on My 401(k)?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Investing in a 401(k) is a common path to building retirement wealth while enjoying some tax advantages. When inflation is on the rise, the future purchasing power of 401(k) assets can shrink. Accounting for the effects of increasing prices in a retirement savings strategy is important for ensuring that your money will go as far as you need it to. </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 401(k) plan is a tax-advantaged retirement plan that can be funded with employer and employee contributions.</li><li>Inflation is characterized by an extended period of rising consumer prices for goods and services.</li><li>When inflation exceeds a 401(k)'s rate of return, the portfolio's purchasing power decreases. </li><li>This means the individual will technically be able to purchase less items than before, as the increase in return did not make up for the increase in cost of living expenses. </li><li>Building inflationary hedges into your 401(k) investment and savings strategy can help you to minimize some of the negative impacts of rising prices.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-inflation"></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 Inflation? </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/inflation.asp">Inflation</a> is a general upward trend in the movement of prices for consumer goods and services.<span class="ql-inline-citation" data-cite="1"></span> In the U.S., inflation is measured by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumerpriceindex.asp">Consumer Price Index (CPI)</a>. The CPI measures the average prices paid by consumers for specific categories of goods and services, including food, fuel, and energy.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The Federal Reserve aims for a target inflation rate of 2% or less for any given 12-month period. This threshold is deemed as being ideal for maintaining employment and price stability.<span class="ql-inline-citation" data-cite="3"></span> Most recently, inflation peaked at 9.1% for the year ending June 2022, while the CPI was up 6.4% from a year ago as of January 2023.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>When inflation is accompanied by flatlining economic growth and high unemployment, that can lead to a poor economic condition called stagflation.<span class="ql-inline-citation" data-cite="12"></span></p></div></div></div> <span class="heading-toc" id="toc-how-inflation-affects-401k-retirement-savings"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> How Inflation Affects 401(k) Retirement Savings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Inflation impacts purchasing power. When prices are higher, it costs more money to buy the same things. From a retirement savings perspective, that's problematic, as stocks and other investments do not automatically adjust for inflation. What this means is that extended periods of inflation can erode your <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> returns. </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"> So, for example, if inflation rises to 8.5% and your 401(k) investments return 9%, your net gain actually works out to 0.5%. Although your portfolio's return may seem impressive, you ended up barely keeping pace with rising costs as your retirement fund will now only minimally surpass what you could have previously afforded. </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 your 401(k) returns 7%, on the other hand, your net gain ends up in the negative. Typically, financial advisors and experts aim for a return of 5% to 8% from 401(k) investments. 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> by comparison, posits a historical return of around 10%, which drops to approximately 7% when adjusted for inflation.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Rising inflation means your investments have to work harder to keep pace. How much of a pinch you feel in your 401(k) can depend on how close you are to retirement and what type of investing strategy you're pursuing. </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_3-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>While inflation can negatively impact 401(k) returns, it can take an even bigger bite out of savings, money market, and CD accounts that earn comparatively lower rates of interest.</p></div></div></div> <span class="heading-toc" id="toc-protecting-your-401k-against-inflation"></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"> Protecting Your 401(k) Against Inflation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Inflation is often driven by a variety of complex factors, most of which the average consumer has no control over. There are, however, some things you can do to insulate your 401(k) retirement savings against the most damaging impacts of inflation. </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"> Maintain (or Increase) Contributions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> When prices are rising and your paychecks don't go as far, it's tempting to pull back on contributions to 401(k) plans or other retirement accounts. It's still important to contribute at least enough to get the full company match if one is offered so that your money can continue to grow. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> If possible, you may even consider raising your contribution rate so that more of your money is going into your plan. Remember, for 2022 you can contribute up to $20,500 to your 401(k), with a $6,500 catch-up contribution allowed if you're 50 or older.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="6"></span> In 2023, you can contribute up to $22,500 into your 401(k) with a $7,500 catch-up contribution for qualifying individuals.<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_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"> Diversify Plan Investments </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/d/diversification.asp">Diversification</a> simply means spreading your investment dollars across different types of assets in order to minimize risk. During periods of higher prices, diversification can also help with minimizing inflationary impacts on your 401(k). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> For example, you may choose to allocate more of your investments to mutual funds holding stocks that rise with inflation. Short-term bonds can also be a safer bet when inflation is higher since you're not locked in to lower rates for an extended period. You may also consider funds that hold commodities or real estate, both of which can perform well amid higher inflation.<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-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_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>If you have money saved in <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 (TDFs)</a> in your 401(k), consider whether the fund's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/glide-path.asp">glide path</a> will deliver the kind of returns you need to keep up with inflation.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-subheading__text"> Check Investment Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Minimizing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/11/investors-fees-cheat-sheet.asp">investment fees</a> can be a good move at any time, but especially so when inflation threatens to shrink your 401(k) returns. The less you pay in fees, the more of your returns you get to keep over the long term. When reviewing 401(k) plan fees, consider what you're paying in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">expense ratios</a> for individual funds you hold. For perspective, in 2021, the average equity mutual fund expense ratio was 0.47%, while the average bond fund expense ratio is 0.39%.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <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-does-a-401k-beat-inflation"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does a 401(k) Beat Inflation?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investments in a 401(k) plan are not adjusted for inflation automatically. Whether your plan can beat inflation or not depends on the level of returns you earn each year and how the inflation rate moves up or down over time. Ideally, inflation remains at 2% or less annually while 401(k) returns are in the 5% to 8% range, allowing your savings to outpace rising prices.</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-how-does-a-401k-protect-from-inflation"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does a 401(k) Protect From Inflation?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Continuing to invest in a 401(k) during periods of higher inflation can offer some protection if you hold investments that move in tandem with rising prices. Stocks, for example, can deliver much higher returns to investors than money market accounts, savings accounts, or CD accounts, offering some insulation against the effects of inflation.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-what-should-i-do-with-my-401k-with-inflation"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Should I Do With My 401(k) With Inflation?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When inflation is picking up speed, some of the best things you can do with your 401(k) include maintaining your contribution rate (or increasing it, if possible), diversifying your investments, and finding ways to minimize fees. You can also supplement 401(k) savings with investments in an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">individual retirement account (IRA)</a> and/or a taxable brokerage account.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-how-much-does-a-401k-go-up-each-year"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Does a 401(k) Go Up Each Year?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The increase an investor sees in their 401(k) each year depends on what they've invested in and how the market in general performs. A typical rate of return for a 401(k) plan is 5% to 8%, though it's possible to see returns above or below those thresholds. Tracking your 401(k) returns year over year and the performance of individual funds within the plan can help you fine-tune your investment strategy.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Investing in a 401(k) can be one of the best ways to build wealth over time, particularly if you're able to max out your plan and get the full employer-matching contribution. While <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/081315/3-reasons-your-401k-not-enough-retirement.asp">inflation can be a threat</a> to your retirement savings, there are ways to soften the blow that rising prices may deliver to a 401(k). Keep in mind that a 401(k) isn't your only option for saving, either. If you want to create a comprehensive savings strategy, you may also consider shopping around for an individual retirement account (IRA) or an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-brokers-4587872">online brokerage account</a> to grow your portfolio.<br/> </p></div>

Investing in a 401(k) is a common path to building retirement wealth while enjoying some tax advantages. When inflation is on the rise, the future purchasing power of 401(k) assets can shrink. Accounting for the effects of increasing prices in a retirement savings strategy is important for ensuring that your money will go as far as you need it to. ### Key Takeaways * A 401(k) plan is a tax-advantaged retirement plan that can be funded with employer and employee contributions. * Inflation is characterized by an extended period of rising consumer prices for goods and services. * When inflation exceeds a 401(k)'s rate of return, the portfolio's purchasing power decreases. * This means the individual will technically be able to purchase less items than before, as the increase in return did not make up for the increase in cost of living expenses. * Building inflationary hedges into your 401(k) investment and savings strategy can help you to minimize some of the negative impacts of rising prices. ## What Is Inflation? [Inflation](https://www.investopedia.com/terms/i/inflation.asp) is a general upward trend in the movement of prices for consumer goods and services. In the U.S., inflation is measured by the [Consumer Price Index (CPI)](https://www.investopedia.com/terms/c/consumerpriceindex.asp). The CPI measures the average prices paid by consumers for specific categories of goods and services, including food, fuel, and energy. The Federal Reserve aims for a target inflation rate of 2% or less for any given 12-month period. This threshold is deemed as being ideal for maintaining employment and price stability. Most recently, inflation peaked at 9.1% for the year ending June 2022, while the CPI was up 6.4% from a year ago as of January 2023. ### Important When inflation is accompanied by flatlining economic growth and high unemployment, that can lead to a poor economic condition called stagflation. ## How Inflation Affects 401(k) Retirement Savings Inflation impacts purchasing power. When prices are higher, it costs more money to buy the same things. From a retirement savings perspective, that's problematic, as stocks and other investments do not automatically adjust for inflation. What this means is that extended periods of inflation can erode your [401(k)](https://www.investopedia.com/terms/1/401kplan.asp) returns. So, for example, if inflation rises to 8.5% and your 401(k) investments return 9%, your net gain actually works out to 0.5%. Although your portfolio's return may seem impressive, you ended up barely keeping pace with rising costs as your retirement fund will now only minimally surpass what you could have previously afforded. If your 401(k) returns 7%, on the other hand, your net gain ends up in the negative. Typically, financial advisors and experts aim for a return of 5% to 8% from 401(k) investments. The [S&P 500,](https://www.investopedia.com/terms/s/sp500.asp) by comparison, posits a historical return of around 10%, which drops to approximately 7% when adjusted for inflation. Rising inflation means your investments have to work harder to keep pace. How much of a pinch you feel in your 401(k) can depend on how close you are to retirement and what type of investing strategy you're pursuing. ### Note While inflation can negatively impact 401(k) returns, it can take an even bigger bite out of savings, money market, and CD accounts that earn comparatively lower rates of interest. ## Protecting Your 401(k) Against Inflation Inflation is often driven by a variety of complex factors, most of which the average consumer has no control over. There are, however, some things you can do to insulate your 401(k) retirement savings against the most damaging impacts of inflation. ### Maintain (or Increase) Contributions When prices are rising and your paychecks don't go as far, it's tempting to pull back on contributions to 401(k) plans or other retirement accounts. It's still important to contribute at least enough to get the full company match if one is offered so that your money can continue to grow. If possible, you may even consider raising your contribution rate so that more of your money is going into your plan. Remember, for 2022 you can contribute up to $20,500 to your 401(k), with a $6,500 catch-up contribution allowed if you're 50 or older. In 2023, you can contribute up to $22,500 into your 401(k) with a $7,500 catch-up contribution for qualifying individuals. ### Diversify Plan Investments [Diversification](https://www.investopedia.com/terms/d/diversification.asp) simply means spreading your investment dollars across different types of assets in order to minimize risk. During periods of higher prices, diversification can also help with minimizing inflationary impacts on your 401(k). For example, you may choose to allocate more of your investments to mutual funds holding stocks that rise with inflation. Short-term bonds can also be a safer bet when inflation is higher since you're not locked in to lower rates for an extended period. You may also consider funds that hold commodities or real estate, both of which can perform well amid higher inflation. ### If you have money saved in [target-date funds (TDFs)](https://www.investopedia.com/terms/t/target-date_fund.asp) in your 401(k), consider whether the fund's [glide path](https://www.investopedia.com/terms/g/glide-path.asp) will deliver the kind of returns you need to keep up with inflation. ### Check Investment Fees Minimizing [investment fees](https://www.investopedia.com/articles/basics/11/investors-fees-cheat-sheet.asp) can be a good move at any time, but especially so when inflation threatens to shrink your 401(k) returns. The less you pay in fees, the more of your returns you get to keep over the long term. When reviewing 401(k) plan fees, consider what you're paying in [expense ratios](https://www.investopedia.com/terms/e/expenseratio.asp) for individual funds you hold. For perspective, in 2021, the average equity mutual fund expense ratio was 0.47%, while the average bond fund expense ratio is 0.39%. ## Does a 401(k) Beat Inflation? Investments in a 401(k) plan are not adjusted for inflation automatically. Whether your plan can beat inflation or not depends on the level of returns you earn each year and how the inflation rate moves up or down over time. Ideally, inflation remains at 2% or less annually while 401(k) returns are in the 5% to 8% range, allowing your savings to outpace rising prices. ## How Does a 401(k) Protect From Inflation? Continuing to invest in a 401(k) during periods of higher inflation can offer some protection if you hold investments that move in tandem with rising prices. Stocks, for example, can deliver much higher returns to investors than money market accounts, savings accounts, or CD accounts, offering some insulation against the effects of inflation. ## What Should I Do With My 401(k) With Inflation? When inflation is picking up speed, some of the best things you can do with your 401(k) include maintaining your contribution rate (or increasing it, if possible), diversifying your investments, and finding ways to minimize fees. You can also supplement 401(k) savings with investments in an [individual retirement account (IRA)](https://www.investopedia.com/terms/i/ira.asp) and/or a taxable brokerage account. ## How Much Does a 401(k) Go Up Each Year? The increase an investor sees in their 401(k) each year depends on what they've invested in and how the market in general performs. A typical rate of return for a 401(k) plan is 5% to 8%, though it's possible to see returns above or below those thresholds. Tracking your 401(k) returns year over year and the performance of individual funds within the plan can help you fine-tune your investment strategy. ## The Bottom Line Investing in a 401(k) can be one of the best ways to build wealth over time, particularly if you're able to max out your plan and get the full employer-matching contribution. While [inflation can be a threat](https://www.investopedia.com/articles/personal-finance/081315/3-reasons-your-401k-not-enough-retirement.asp) to your retirement savings, there are ways to soften the blow that rising prices may deliver to a 401(k). Keep in mind that a 401(k) isn't your only option for saving, either. If you want to create a comprehensive savings strategy, you may also consider shopping around for an individual retirement account (IRA) or an [online brokerage account](https://www.investopedia.com/best-online-brokers-4587872) to grow your portfolio.

Investing in a 401(k) is a common path to building retirement wealth while enjoying some tax advantages. When inflation is on the rise, the future purchasing power of 401(k) assets can shrink. Accounting for the effects of increasing prices in a retirement savings strategy is important for ensuring that your money will go as far as you need it to. Key Takeaways A 401(k) plan is a tax-advantaged retirement plan that can be funded with employer and employee contributions.Inflation is characterized by an extended period of rising consumer prices for goods and services.When inflation exceeds a 401(k)'s rate of return, the portfolio's purchasing power decreases. This means the individual will technically be able to purchase less items than before, as the increase in return did not make up for the increase in cost of living expenses. Building inflationary hedges into your 401(k) investment and savings strategy can help you to minimize some of the negative impacts of rising prices. What Is Inflation? Inflation is a general upward trend in the movement of prices for consumer goods and services. In the U.S., inflation is measured by the Consumer Price Index (CPI). The CPI measures the average prices paid by consumers for specific categories of goods and services, including food, fuel, and energy. The Federal Reserve aims for a target inflation rate of 2% or less for any given 12-month period. This threshold is deemed as being ideal for maintaining employment and price stability. Most recently, inflation peaked at 9.1% for the year ending June 2022, while the CPI was up 6.4% from a year ago as of January 2023. Important When inflation is accompanied by flatlining economic growth and high unemployment, that can lead to a poor economic condition called stagflation. How Inflation Affects 401(k) Retirement Savings Inflation impacts purchasing power. When prices are higher, it costs more money to buy the same things. From a retirement savings perspective, that's problematic, as stocks and other investments do not automatically adjust for inflation. What this means is that extended periods of inflation can erode your 401(k) returns. So, for example, if inflation rises to 8.5% and your 401(k) investments return 9%, your net gain actually works out to 0.5%. Although your portfolio's return may seem impressive, you ended up barely keeping pace with rising costs as your retirement fund will now only minimally surpass what you could have previously afforded. If your 401(k) returns 7%, on the other hand, your net gain ends up in the negative. Typically, financial advisors and experts aim for a return of 5% to 8% from 401(k) investments. The S&P 500, by comparison, posits a historical return of around 10%, which drops to approximately 7% when adjusted for inflation. Rising inflation means your investments have to work harder to keep pace. How much of a pinch you feel in your 401(k) can depend on how close you are to retirement and what type of investing strategy you're pursuing. Note While inflation can negatively impact 401(k) returns, it can take an even bigger bite out of savings, money market, and CD accounts that earn comparatively lower rates of interest. Protecting Your 401(k) Against Inflation Inflation is often driven by a variety of complex factors, most of which the average consumer has no control over. There are, however, some things you can do to insulate your 401(k) retirement savings against the most damaging impacts of inflation. Maintain (or Increase) Contributions When prices are rising and your paychecks don't go as far, it's tempting to pull back on contributions to 401(k) plans or other retirement accounts. It's still important to contribute at least enough to get the full company match if one is offered so that your money can continue to grow. If possible, you may even consider raising your contribution rate so that more of your money is going into your plan. Remember, for 2022 you can contribute up to $20,500 to your 401(k), with a $6,500 catch-up contribution allowed if you're 50 or older. In 2023, you can contribute up to $22,500 into your 401(k) with a $7,500 catch-up contribution for qualifying individuals. Diversify Plan Investments Diversification simply means spreading your investment dollars across different types of assets in order to minimize risk. During periods of higher prices, diversification can also help with minimizing inflationary impacts on your 401(k). For example, you may choose to allocate more of your investments to mutual funds holding stocks that rise with inflation. Short-term bonds can also be a safer bet when inflation is higher since you're not locked in to lower rates for an extended period. You may also consider funds that hold commodities or real estate, both of which can perform well amid higher inflation. If you have money saved in target-date funds (TDFs) in your 401(k), consider whether the fund's glide path will deliver the kind of returns you need to keep up with inflation. Check Investment Fees Minimizing investment fees can be a good move at any time, but especially so when inflation threatens to shrink your 401(k) returns. The less you pay in fees, the more of your returns you get to keep over the long term. When reviewing 401(k) plan fees, consider what you're paying in expense ratios for individual funds you hold. For perspective, in 2021, the average equity mutual fund expense ratio was 0.47%, while the average bond fund expense ratio is 0.39%. Does a 401(k) Beat Inflation? Investments in a 401(k) plan are not adjusted for inflation automatically. Whether your plan can beat inflation or not depends on the level of returns you earn each year and how the inflation rate moves up or down over time. Ideally, inflation remains at 2% or less annually while 401(k) returns are in the 5% to 8% range, allowing your savings to outpace rising prices. How Does a 401(k) Protect From Inflation? Continuing to invest in a 401(k) during periods of higher inflation can offer some protection if you hold investments that move in tandem with rising prices. Stocks, for example, can deliver much higher returns to investors than money market accounts, savings accounts, or CD accounts, offering some insulation against the effects of inflation. What Should I Do With My 401(k) With Inflation? When inflation is picking up speed, some of the best things you can do with your 401(k) include maintaining your contribution rate (or increasing it, if possible), diversifying your investments, and finding ways to minimize fees. You can also supplement 401(k) savings with investments in an individual retirement account (IRA) and/or a taxable brokerage account. How Much Does a 401(k) Go Up Each Year? The increase an investor sees in their 401(k) each year depends on what they've invested in and how the market in general performs. A typical rate of return for a 401(k) plan is 5% to 8%, though it's possible to see returns above or below those thresholds. Tracking your 401(k) returns year over year and the performance of individual funds within the plan can help you fine-tune your investment strategy. The Bottom Line Investing in a 401(k) can be one of the best ways to build wealth over time, particularly if you're able to max out your plan and get the full employer-matching contribution. While inflation can be a threat to your retirement savings, there are ways to soften the blow that rising prices may deliver to a 401(k). Keep in mind that a 401(k) isn't your only option for saving, either. If you want to create a comprehensive savings strategy, you may also consider shopping around for an individual retirement account (IRA) or an online brokerage account to grow your portfolio.

https://www.investopedia.com/top-cds-today-april-12-2024-leader-drops-but-new-rate-for-18-23-months-8630906

Top CDs Today, April 12, 2024 - Leader Drops, but New Rate for 18-23 Months

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 highest nationwide CD rate fell today, lowering the top return from 5.65% to a 6-month offer of 5.55% 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://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Newtek Bank</a>.</li> <li>On the upside, a new leading CD was unveiled in the 18-month and 2-year terms, with <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</a> now offering 5.30% on a take-your-pick term of 18-23 months.</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 this week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates.</li> </ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_3-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom: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 12, 2024" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/gVsQR9zUYsvEm91Aoq9bK7JmZmo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-12-6032e11fbce846faa49ef20e9bdf77d5.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/gVsQR9zUYsvEm91Aoq9bK7JmZmo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-12-6032e11fbce846faa49ef20e9bdf77d5.png" data-srcset="https://www.investopedia.com/thmb/StaaKPtat51iWjWzqnJDy2tSATM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-12-6032e11fbce846faa49ef20e9bdf77d5.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 12, 2024" class="img--noscript universal-image__image" height="1888" sizes="750px" src="https://www.investopedia.com/thmb/gVsQR9zUYsvEm91Aoq9bK7JmZmo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-12-6032e11fbce846faa49ef20e9bdf77d5.png" srcset="https://www.investopedia.com/thmb/StaaKPtat51iWjWzqnJDy2tSATM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-12-6032e11fbce846faa49ef20e9bdf77d5.png 750w" width="2480"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_6-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-lock-in-530-to-555-apy-for-3-to-23-months"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Lock In 5.30% to 5.55% APY for 3 to 23 Months </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The highest CD yields continue to be offered on short-term certificates. After presiding at the top of our rankings for just eight days, our 5.65% rate leader disappeared from the market today. That moves runner-up Newtek Bank back into the lead with its <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 offer</a> of 5.55% APY. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> In addition to that top rate, 10 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>. Two of those pay 5.50% APY, on a term 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"> Today saw some good news for those who want to stretch their rate lock a little further into the future. Our rankings of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">best 18-month</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-2-year-cd-rates-4801682">best 2-year CDs</a> got a new leader, with Credit Human's newly unveiled rate of 5.30% on a CD that lets you choose whatever term you like between 18 and 23 months. Yesterday's top rates in those terms were 5.25% and 5.20%, respectively.<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/bna0p/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: 96px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style="width: 102px;"></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">3 months</a></td> <td>5.65% APY</td> <td>5.42% APY</td> <td>- 0.23</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⊂_1=n94ad3eb8b4bf47828ceb340e5d6a8c1013⊂_2=4770214" 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>5.25% APY</td> <td>5.30% APY</td> <td>+ 0.05</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.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>5.20% APY</td> <td>5.30% 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://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/EerMC/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: 98px;"></colgroup> <colgroup span="1" style="width: 144px;"></colgroup> <colgroup span="1" style="width: 158px;"></colgroup> <colgroup span="1" style="width: 155px;"></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>5.15% 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/8eCsX/2/" 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, this 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 30% of traders are currently betting 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>

### Key Takeaways * The highest nationwide CD rate fell today, lowering the top return from 5.65% to a 6-month offer of 5.55% from [Newtek Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ). * On the upside, a new leading CD was unveiled in the 18-month and 2-year terms, with [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) now offering 5.30% on a take-your-pick term of 18-23 months. * 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 this week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates. ![Bar graph showing the top nationally available rate in each CD term, ranging from 4.70% to 5.55% - Rates as of April 12, 2024]() :max_bytes(150000):strip_icc()/4-12-6032e11fbce846faa49ef20e9bdf77d5.png) Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. ## Lock In 5.30% to 5.55% APY for 3 to 23 Months The highest CD yields continue to be offered on short-term certificates. After presiding at the top of our rankings for just eight days, our 5.65% rate leader disappeared from the market today. That moves runner-up Newtek Bank back into the lead with its [6-month offer](https://www.investopedia.com/best-6-month-cd-rates-4783267) of 5.55% APY. In addition to that top rate, 10 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). Two of those pay 5.50% APY, on a term of 5 or 7 months. Today saw some good news for those who want to stretch their rate lock a little further into the future. Our rankings of the [best 18-month](https://www.investopedia.com/best-1-year-cd-rates-4796650) and [best 2-year CDs](https://www.investopedia.com/best-2-year-cd-rates-4801682) got a new leader, with Credit Human's newly unveiled rate of 5.30% on a CD that lets you choose whatever term you like between 18 and 23 months. Yesterday's top rates in those terms were 5.25% and 5.20%, respectively. ## 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** | **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) | 5.65% APY | 5.42% APY | - 0.23 | [TotalDirectBank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.totaldirectbank.com/personal/cds&lender=TotalDirectBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ⊂_1=n94ad3eb8b4bf47828ceb340e5d6a8c1013⊂_2=4770214) | | [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) | 5.25% APY | 5.30% APY | + 0.05 | [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) | | [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) | 5.20% APY | 5.30% APY | + 0.10 | [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 | 5.15% 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, this 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 30% of traders are currently betting 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 highest nationwide CD rate fell today, lowering the top return from 5.65% to a 6-month offer of 5.55% from Newtek Bank. On the upside, a new leading CD was unveiled in the 18-month and 2-year terms, with Credit Human now offering 5.30% on a take-your-pick term of 18-23 months. 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 this week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. Lock In 5.30% to 5.55% APY for 3 to 23 Months The highest CD yields continue to be offered on short-term certificates. After presiding at the top of our rankings for just eight days, our 5.65% rate leader disappeared from the market today. That moves runner-up Newtek Bank back into the lead with its 6-month offer of 5.55% APY. In addition to that top rate, 10 more CDs are paying 5.40% APY or better, with terms of 3 to 12 months. Two of those pay 5.50% APY, on a term of 5 or 7 months. Today saw some good news for those who want to stretch their rate lock a little further into the future. Our rankings of the best 18-month and best 2-year CDs got a new leader, with Credit Human's newly unveiled rate of 5.30% on a CD that lets you choose whatever term you like between 18 and 23 months. Yesterday's top rates in those terms were 5.25% and 5.20%, respectively. 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 Yesterday's Top National Rate Today's Top National Rate Day's Change (percentage points) Top Rate Provider 3 months 5.65% APY 5.42% APY - 0.23 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 5.25% APY 5.30% APY + 0.05 Credit Human 2 years 5.20% APY 5.30% APY + 0.10 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 5.15% 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, this 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 30% of traders are currently betting we'll see three cuts by the end of 2024. Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

https://www.investopedia.com/articles/personal-finance/111915/worst-financial-problems-ultrahighnetworthindividuals-uhnwis-face.asp

Problems Ultra-High-Net-Worth Individuals Face

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 a climate of growing income inequality, where the rich are amassing wealth at unprecedented levels while record numbers of everyday citizens live paycheck to paycheck, it may not seem like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/ultra-high-net-worth-individuals-uhnwi.asp">ultra-high-net-worth individuals</a> (UHNWIs) have much to worry about. </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 UHNWI is defined as a person with a <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> of $30 million or more.<span class="ql-inline-citation" data-cite="15"></span> While it takes a special kind of financial irresponsibility for a person with that kind of wealth to develop the kinds of money troubles that plague the rest of society—think <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankruptcy</a>, foreclosure, or garnishment of wages—the ultra-wealthy deal with their own unique brand of financial problems. </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"> Many argue the financial problems that plague UHNWIs are ones most of the world would love to have, kind of like being too good-looking, too smart, or having too many invitations to choose from on a Saturday night. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> These challenges include ever-evolving tax codes, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/estateplanning.asp">estate planning</a>, sustaining their lifestyles during retirement, and protecting the principal in their financial accounts. While it may sound crazy to someone working an average job for average pay, a UHNWI worth $50 million is often scared to death of descending to simple millionaire status. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_9-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_10-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Ultra-high-net-worth individuals (UNHWIs) have a net worth of $30 million or more.</li><li>The bulk of UHNWIs' problems revolve around managing their financial assets and preserving their wealth.</li><li>Politically charged feelings about the wealthy that spark changes in income, inheritance, and estate taxes can burden UNHWIs.</li><li>Illiquidity—money tied up in hard-to-get-at assets—is another problem for UHNWIs.</li><li>When a bear market or recession hits, the high-growth investments that helped UHNWIs get rich are frequently the first to take a precipitous dive.</li></ul></div></div></div> <span class="heading-toc" id="toc-who-are-ultra-high-net-worth-individuals"></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"> Who Are Ultra-High-Net-Worth Individuals? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> As mentioned above, an ultra-high-net-worth individual (UHNWI) is anyone who has a net worth of over $30 million, including their primary residence. People who fall into this category tend to be the most wealthy people in the world, holding a good portion of global wealth. </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 2019, there were approximately 513,244 UHNWIs around the globe—240,575 of them in the United States alone.<span class="ql-inline-citation" data-cite="20"></span><span class="ql-inline-citation" data-cite="16"></span> Some of the wealthiest people in the world who fall into this category include Amazon founder Jeff Bezos, Meta's (formerly Facebook's) Mark Zuckerberg, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/071801.asp">Warren Buffett</a>, Bill Gates, and members of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/jim-walton.asp">Walton family</a>; heirs to the Walmart fortune.<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_15-0"></div> <span class="heading-toc" id="toc-changing-tax-codes"></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"> Changing Tax Codes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Throughout the 21st century, the tax treatment of the super-wealthy has served as a political football. Few issues in recent memory have more starkly divided politicians and the general public along ideological lines. On one side, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/05/011805.asp">supply-side</a> adherents channel Ronald Reagan, proclaiming that keeping taxes low for the affluent frees up money for them to invest in ways that create jobs and grow the economy for everyone else. </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 line of thinking, known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trickledowntheory.asp">trickle-down economics</a>, advocates cutting taxes for the rich not just for the benefit of the rich, but also because their prosperity then cascades down to the rest of society. </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"> Then there is the other side, which feels the middle class and working poor shoulder too much of the tax burden, and that UHNWIs exploit <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loophole.asp">loopholes</a> and creative accounting practices to pay far less than their fair share. Proponents of higher taxes on the wealthy point specifically to long-term <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>, the method by which many wealthy people amass their fortunes. Taxes on long-term capital gains depend on an individual's income level, with the highest earners paying 20%.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The Trump administration's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/">Tax Cuts and Jobs Act</a>—signed into law on Dec. 22, 2017—made the largest overhaul to the tax code in about 30 years. It retained the structure of seven <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxbracket.asp">tax brackets</a>, keeping two at the same rate and changing five, including the top bracket. The new code dropped that rate from 39.6% to 37%. These changes are temporary and are expected to expire in 2025.<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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The tax rate for ultra-high-net-worth individuals used to be much higher. As recently as 1980, it was 70%. In 1963, the top tax bracket was a staggering 91%.<span class="ql-inline-citation" data-cite="25"></span> Politicians abound who would love to see a return to these high rates on the extremely wealthy. With polarization in politics at an all-time high, UHNWIs live with the constant anxiety of a power shift toward those less friendly to their interests. </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"> Recent Proposals </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> President Biden has proposed a new tax policy aimed at taxing the wealthy more than they are being taxed right now. There would be a new top income tax rate of 39.6%, which is targeted at those making more than $452,700 a year and married couples filing jointly making more than $509,300.<span class="ql-inline-citation" data-cite="27"></span> The goal is for this to start in 2022. Biden intends to also increase the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital_gains_tax.asp">capital gains tax</a> to 39.6% for those earning $1,000,000 or more.<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_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>If Biden's tax proposal is not approved, the 39.6% rate will be re-imposed in 2025, when the provisions in the Tax Cuts and Jobs Act expire.<span class="ql-inline-citation" data-cite="17"></span></p></div></div></div> <span class="heading-toc" id="toc-estate-planning"></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"> Estate Planning </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Ultra-high-net-worth individuals worry about retaining their riches so they can continue to fund their own lifestyles. But most of them also want to bequeath their fortunes to their heirs when they are no longer around. Ideally, they want the government to appropriate as little of this money as possible before it passes to the next generation. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/estatetax.asp">estate tax</a> only applies to the extremely wealthy, with more than 90% of the tax being paid by the top 10% of earners. Roughly 40% of estate taxes are paid by 0.1% of the richest people in the country. The Tax Cuts and Jobs Act increased the estate tax exemption for the 2019 tax year, so $11.4 million of an estate is exempt from taxes. This number was $11.58 million in 2020 and is $11.7 million for 2021. Anything above and beyond that amount is taxed at a rate of 40%.<span class="ql-inline-citation" data-cite="11"></span><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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Although the exemption has been increased over the years, the maximum estate tax rate has effectively dropped. In 1997, anything above the $600,000 exemption was taxed as much as 55%.<span class="ql-inline-citation" data-cite="26"></span> This means that the more the estate is worth—at least it's above the exemption—the more a UHNWI stands to lose in the passing of their estate. Moreover, many states have their own estate taxes, which are imposed on top of the federal estate tax. Some also impose <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inheritancetax.asp">inheritance taxes </a>on beneficiaries. </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"> UHNWIs use many schemes to mitigate the effects of the estate tax. These tactics include leaving their estates to surviving spouses, in which case they are exempt from taxation, making use of charitable contributions, and setting up a variety of trust accounts—all of which can be used to get around the estate tax. </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-sustaining-lifestyle-during-retirement"></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"> Sustaining Lifestyle During Retirement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> For UHNWIs who became rich from investing, basically, there's no distinction between working years and retirement years. These individuals are likely to continue doing what has worked for them, with age being an irrelevant factor. </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"> However, those who became UHNWIs by working, including CEOs and other highly paid professionals, sometimes face a loss of income when they decide to call it quits. While having $30 million or more should be enough to live any kind of retirement lifestyle you want, some UHNWIs do a poor job of managing their money and may have to scale back at some point. </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"> One problem that comes up at times with UHNWIs is<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/illiquid.asp"> illiquidity</a>; they have millions of dollars, but most or all of it is tied up in land, real estate, and other assets they can't easily convert to cash. Other UHNWIs take too many risks with their money, and while they do not feel the effects so much when they still have piles of money coming in, they feel it when they retire, and a big loss is not so easily replenished. </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-protecting-their-wealth"></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"> Protecting Their Wealth </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> During 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> of 2007 to 2009, many UHNWIs became merely high-net-worth individuals (HNWIs), meaning individuals with more than $1 million in net worth but less than $30 million. For a truly unlucky few, their wealth hemorrhaging went beyond losing the ultra label—meaning they lost everything.<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_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Most UHNWIs do not have their money sitting around in <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), money market accounts, cash value life insurance, and other so-called safe investments that provide tepid returns at best. One of the reasons they are so wealthy is they make use of aggressive investment vehicles that consistently beat the market. </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"> In market matters, however, reward and risk often move in lockstep. When a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bearmarket.asp">bear market</a> or recession hits, the high-growth investments that helped UHNWIs get rich are frequently the first to take a precipitous dive. For this reason, UHNWIs who rely on the markets for income often live with the constant stress of another looming crash. </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-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"> UHNWIs are a small percentage of the global population. Their lives appear to be luxurious: The world in which they live is far removed from that of the majority of the population. And their problems reflect that as well—the bulk of them revolving around managing their financial assets and preserving their wealth. </p></div>

In a climate of growing income inequality, where the rich are amassing wealth at unprecedented levels while record numbers of everyday citizens live paycheck to paycheck, it may not seem like [ultra-high-net-worth individuals](https://www.investopedia.com/terms/u/ultra-high-net-worth-individuals-uhnwi.asp) (UHNWIs) have much to worry about. A UHNWI is defined as a person with a [net worth](https://www.investopedia.com/terms/n/networth.asp) of $30 million or more. While it takes a special kind of financial irresponsibility for a person with that kind of wealth to develop the kinds of money troubles that plague the rest of society—think [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp), foreclosure, or garnishment of wages—the ultra-wealthy deal with their own unique brand of financial problems. Many argue the financial problems that plague UHNWIs are ones most of the world would love to have, kind of like being too good-looking, too smart, or having too many invitations to choose from on a Saturday night. These challenges include ever-evolving tax codes, [estate planning](https://www.investopedia.com/terms/e/estateplanning.asp), sustaining their lifestyles during retirement, and protecting the principal in their financial accounts. While it may sound crazy to someone working an average job for average pay, a UHNWI worth $50 million is often scared to death of descending to simple millionaire status. ### Key Takeaways * Ultra-high-net-worth individuals (UNHWIs) have a net worth of $30 million or more. * The bulk of UHNWIs' problems revolve around managing their financial assets and preserving their wealth. * Politically charged feelings about the wealthy that spark changes in income, inheritance, and estate taxes can burden UNHWIs. * Illiquidity—money tied up in hard-to-get-at assets—is another problem for UHNWIs. * When a bear market or recession hits, the high-growth investments that helped UHNWIs get rich are frequently the first to take a precipitous dive. ## Who Are Ultra-High-Net-Worth Individuals? As mentioned above, an ultra-high-net-worth individual (UHNWI) is anyone who has a net worth of over $30 million, including their primary residence. People who fall into this category tend to be the most wealthy people in the world, holding a good portion of global wealth. In 2019, there were approximately 513,244 UHNWIs around the globe—240,575 of them in the United States alone. Some of the wealthiest people in the world who fall into this category include Amazon founder Jeff Bezos, Meta's (formerly Facebook's) Mark Zuckerberg, [Warren Buffett](https://www.investopedia.com/articles/01/071801.asp), Bill Gates, and members of the [Walton family](https://www.investopedia.com/terms/j/jim-walton.asp); heirs to the Walmart fortune. ## Changing Tax Codes Throughout the 21st century, the tax treatment of the super-wealthy has served as a political football. Few issues in recent memory have more starkly divided politicians and the general public along ideological lines. On one side, [supply-side](https://www.investopedia.com/articles/05/011805.asp) adherents channel Ronald Reagan, proclaiming that keeping taxes low for the affluent frees up money for them to invest in ways that create jobs and grow the economy for everyone else. This line of thinking, known as [trickle-down economics](https://www.investopedia.com/terms/t/trickledowntheory.asp), advocates cutting taxes for the rich not just for the benefit of the rich, but also because their prosperity then cascades down to the rest of society. Then there is the other side, which feels the middle class and working poor shoulder too much of the tax burden, and that UHNWIs exploit [loopholes](https://www.investopedia.com/terms/l/loophole.asp) and creative accounting practices to pay far less than their fair share. Proponents of higher taxes on the wealthy point specifically to long-term [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp), the method by which many wealthy people amass their fortunes. Taxes on long-term capital gains depend on an individual's income level, with the highest earners paying 20%. The Trump administration's [Tax Cuts and Jobs Act](https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/)—signed into law on Dec. 22, 2017—made the largest overhaul to the tax code in about 30 years. It retained the structure of seven [tax brackets](https://www.investopedia.com/terms/t/taxbracket.asp), keeping two at the same rate and changing five, including the top bracket. The new code dropped that rate from 39.6% to 37%. These changes are temporary and are expected to expire in 2025. The tax rate for ultra-high-net-worth individuals used to be much higher. As recently as 1980, it was 70%. In 1963, the top tax bracket was a staggering 91%. Politicians abound who would love to see a return to these high rates on the extremely wealthy. With polarization in politics at an all-time high, UHNWIs live with the constant anxiety of a power shift toward those less friendly to their interests. ### Recent Proposals President Biden has proposed a new tax policy aimed at taxing the wealthy more than they are being taxed right now. There would be a new top income tax rate of 39.6%, which is targeted at those making more than $452,700 a year and married couples filing jointly making more than $509,300. The goal is for this to start in 2022. Biden intends to also increase the [capital gains tax](https://www.investopedia.com/terms/c/capital_gains_tax.asp) to 39.6% for those earning $1,000,000 or more. ### If Biden's tax proposal is not approved, the 39.6% rate will be re-imposed in 2025, when the provisions in the Tax Cuts and Jobs Act expire. ## Estate Planning Ultra-high-net-worth individuals worry about retaining their riches so they can continue to fund their own lifestyles. But most of them also want to bequeath their fortunes to their heirs when they are no longer around. Ideally, they want the government to appropriate as little of this money as possible before it passes to the next generation. The [estate tax](https://www.investopedia.com/terms/e/estatetax.asp) only applies to the extremely wealthy, with more than 90% of the tax being paid by the top 10% of earners. Roughly 40% of estate taxes are paid by 0.1% of the richest people in the country. The Tax Cuts and Jobs Act increased the estate tax exemption for the 2019 tax year, so $11.4 million of an estate is exempt from taxes. This number was $11.58 million in 2020 and is $11.7 million for 2021. Anything above and beyond that amount is taxed at a rate of 40%. Although the exemption has been increased over the years, the maximum estate tax rate has effectively dropped. In 1997, anything above the $600,000 exemption was taxed as much as 55%. This means that the more the estate is worth—at least it's above the exemption—the more a UHNWI stands to lose in the passing of their estate. Moreover, many states have their own estate taxes, which are imposed on top of the federal estate tax. Some also impose [inheritance taxes](https://www.investopedia.com/terms/i/inheritancetax.asp) on beneficiaries. UHNWIs use many schemes to mitigate the effects of the estate tax. These tactics include leaving their estates to surviving spouses, in which case they are exempt from taxation, making use of charitable contributions, and setting up a variety of trust accounts—all of which can be used to get around the estate tax. ## Sustaining Lifestyle During Retirement For UHNWIs who became rich from investing, basically, there's no distinction between working years and retirement years. These individuals are likely to continue doing what has worked for them, with age being an irrelevant factor. However, those who became UHNWIs by working, including CEOs and other highly paid professionals, sometimes face a loss of income when they decide to call it quits. While having $30 million or more should be enough to live any kind of retirement lifestyle you want, some UHNWIs do a poor job of managing their money and may have to scale back at some point. One problem that comes up at times with UHNWIs is [illiquidity](https://www.investopedia.com/terms/i/illiquid.asp); they have millions of dollars, but most or all of it is tied up in land, real estate, and other assets they can't easily convert to cash. Other UHNWIs take too many risks with their money, and while they do not feel the effects so much when they still have piles of money coming in, they feel it when they retire, and a big loss is not so easily replenished. ## Protecting Their Wealth During the [Great Recession](https://www.investopedia.com/terms/g/great-recession.asp) of 2007 to 2009, many UHNWIs became merely high-net-worth individuals (HNWIs), meaning individuals with more than $1 million in net worth but less than $30 million. For a truly unlucky few, their wealth hemorrhaging went beyond losing the ultra label—meaning they lost everything. Most UHNWIs do not have their money sitting around in [certificates of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) (CDs), money market accounts, cash value life insurance, and other so-called safe investments that provide tepid returns at best. One of the reasons they are so wealthy is they make use of aggressive investment vehicles that consistently beat the market. In market matters, however, reward and risk often move in lockstep. When a [bear market](https://www.investopedia.com/terms/b/bearmarket.asp) or recession hits, the high-growth investments that helped UHNWIs get rich are frequently the first to take a precipitous dive. For this reason, UHNWIs who rely on the markets for income often live with the constant stress of another looming crash. ## The Bottom Line UHNWIs are a small percentage of the global population. Their lives appear to be luxurious: The world in which they live is far removed from that of the majority of the population. And their problems reflect that as well—the bulk of them revolving around managing their financial assets and preserving their wealth.

In a climate of growing income inequality, where the rich are amassing wealth at unprecedented levels while record numbers of everyday citizens live paycheck to paycheck, it may not seem like ultra-high-net-worth individuals (UHNWIs) have much to worry about. A UHNWI is defined as a person with a net worth of $30 million or more. While it takes a special kind of financial irresponsibility for a person with that kind of wealth to develop the kinds of money troubles that plague the rest of society—think bankruptcy, foreclosure, or garnishment of wages—the ultra-wealthy deal with their own unique brand of financial problems. Many argue the financial problems that plague UHNWIs are ones most of the world would love to have, kind of like being too good-looking, too smart, or having too many invitations to choose from on a Saturday night. These challenges include ever-evolving tax codes, estate planning, sustaining their lifestyles during retirement, and protecting the principal in their financial accounts. While it may sound crazy to someone working an average job for average pay, a UHNWI worth $50 million is often scared to death of descending to simple millionaire status. Key Takeaways Ultra-high-net-worth individuals (UNHWIs) have a net worth of $30 million or more.The bulk of UHNWIs' problems revolve around managing their financial assets and preserving their wealth.Politically charged feelings about the wealthy that spark changes in income, inheritance, and estate taxes can burden UNHWIs.Illiquidity—money tied up in hard-to-get-at assets—is another problem for UHNWIs.When a bear market or recession hits, the high-growth investments that helped UHNWIs get rich are frequently the first to take a precipitous dive. Who Are Ultra-High-Net-Worth Individuals? As mentioned above, an ultra-high-net-worth individual (UHNWI) is anyone who has a net worth of over $30 million, including their primary residence. People who fall into this category tend to be the most wealthy people in the world, holding a good portion of global wealth. In 2019, there were approximately 513,244 UHNWIs around the globe—240,575 of them in the United States alone. Some of the wealthiest people in the world who fall into this category include Amazon founder Jeff Bezos, Meta's (formerly Facebook's) Mark Zuckerberg, Warren Buffett, Bill Gates, and members of the Walton family; heirs to the Walmart fortune. Changing Tax Codes Throughout the 21st century, the tax treatment of the super-wealthy has served as a political football. Few issues in recent memory have more starkly divided politicians and the general public along ideological lines. On one side, supply-side adherents channel Ronald Reagan, proclaiming that keeping taxes low for the affluent frees up money for them to invest in ways that create jobs and grow the economy for everyone else. This line of thinking, known as trickle-down economics, advocates cutting taxes for the rich not just for the benefit of the rich, but also because their prosperity then cascades down to the rest of society. Then there is the other side, which feels the middle class and working poor shoulder too much of the tax burden, and that UHNWIs exploit loopholes and creative accounting practices to pay far less than their fair share. Proponents of higher taxes on the wealthy point specifically to long-term capital gains, the method by which many wealthy people amass their fortunes. Taxes on long-term capital gains depend on an individual's income level, with the highest earners paying 20%. The Trump administration's Tax Cuts and Jobs Act—signed into law on Dec. 22, 2017—made the largest overhaul to the tax code in about 30 years. It retained the structure of seven tax brackets, keeping two at the same rate and changing five, including the top bracket. The new code dropped that rate from 39.6% to 37%. These changes are temporary and are expected to expire in 2025. The tax rate for ultra-high-net-worth individuals used to be much higher. As recently as 1980, it was 70%. In 1963, the top tax bracket was a staggering 91%. Politicians abound who would love to see a return to these high rates on the extremely wealthy. With polarization in politics at an all-time high, UHNWIs live with the constant anxiety of a power shift toward those less friendly to their interests. Recent Proposals President Biden has proposed a new tax policy aimed at taxing the wealthy more than they are being taxed right now. There would be a new top income tax rate of 39.6%, which is targeted at those making more than $452,700 a year and married couples filing jointly making more than $509,300. The goal is for this to start in 2022. Biden intends to also increase the capital gains tax to 39.6% for those earning $1,000,000 or more. If Biden's tax proposal is not approved, the 39.6% rate will be re-imposed in 2025, when the provisions in the Tax Cuts and Jobs Act expire. Estate Planning Ultra-high-net-worth individuals worry about retaining their riches so they can continue to fund their own lifestyles. But most of them also want to bequeath their fortunes to their heirs when they are no longer around. Ideally, they want the government to appropriate as little of this money as possible before it passes to the next generation. The estate tax only applies to the extremely wealthy, with more than 90% of the tax being paid by the top 10% of earners. Roughly 40% of estate taxes are paid by 0.1% of the richest people in the country. The Tax Cuts and Jobs Act increased the estate tax exemption for the 2019 tax year, so $11.4 million of an estate is exempt from taxes. This number was $11.58 million in 2020 and is $11.7 million for 2021. Anything above and beyond that amount is taxed at a rate of 40%. Although the exemption has been increased over the years, the maximum estate tax rate has effectively dropped. In 1997, anything above the $600,000 exemption was taxed as much as 55%. This means that the more the estate is worth—at least it's above the exemption—the more a UHNWI stands to lose in the passing of their estate. Moreover, many states have their own estate taxes, which are imposed on top of the federal estate tax. Some also impose inheritance taxes on beneficiaries. UHNWIs use many schemes to mitigate the effects of the estate tax. These tactics include leaving their estates to surviving spouses, in which case they are exempt from taxation, making use of charitable contributions, and setting up a variety of trust accounts—all of which can be used to get around the estate tax. Sustaining Lifestyle During Retirement For UHNWIs who became rich from investing, basically, there's no distinction between working years and retirement years. These individuals are likely to continue doing what has worked for them, with age being an irrelevant factor. However, those who became UHNWIs by working, including CEOs and other highly paid professionals, sometimes face a loss of income when they decide to call it quits. While having $30 million or more should be enough to live any kind of retirement lifestyle you want, some UHNWIs do a poor job of managing their money and may have to scale back at some point. One problem that comes up at times with UHNWIs is illiquidity; they have millions of dollars, but most or all of it is tied up in land, real estate, and other assets they can't easily convert to cash. Other UHNWIs take too many risks with their money, and while they do not feel the effects so much when they still have piles of money coming in, they feel it when they retire, and a big loss is not so easily replenished. Protecting Their Wealth During the Great Recession of 2007 to 2009, many UHNWIs became merely high-net-worth individuals (HNWIs), meaning individuals with more than $1 million in net worth but less than $30 million. For a truly unlucky few, their wealth hemorrhaging went beyond losing the ultra label—meaning they lost everything. Most UHNWIs do not have their money sitting around in certificates of deposit (CDs), money market accounts, cash value life insurance, and other so-called safe investments that provide tepid returns at best. One of the reasons they are so wealthy is they make use of aggressive investment vehicles that consistently beat the market. In market matters, however, reward and risk often move in lockstep. When a bear market or recession hits, the high-growth investments that helped UHNWIs get rich are frequently the first to take a precipitous dive. For this reason, UHNWIs who rely on the markets for income often live with the constant stress of another looming crash. The Bottom Line UHNWIs are a small percentage of the global population. Their lives appear to be luxurious: The world in which they live is far removed from that of the majority of the population. And their problems reflect that as well—the bulk of them revolving around managing their financial assets and preserving their wealth.

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

Cross Trade

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-cross-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 a Cross Trade? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A cross trade is a practice where buy and sell orders for the same asset are offset without recording the trade on the exchange. It is an activity that is <em>not </em>permitted on most major exchanges. </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 cross trade also occurs legitimately when a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker.asp">broker</a> executes matched buy and a sell orders for the same security across different client accounts and reports them on an exchange. For example, if one client wants to sell and another wants to buy, the broker could match those two orders without sending the orders to the stock exchange to be <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fill.asp">filled</a> but filling them as a cross trade and then reporting the transactions after the fact but in a timely manner and time-stamped with the time and price of the cross. These types of cross trades must also be executed at a price that corresponds to the prevailing <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market-price.asp">market price</a> at the time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>Cross trades are often performed for trades that involve matched buy and sell orders that are linked to a derivatives trade, such as the hedge on a delta-neutral options trade.</p></div></div></div> <span class="heading-toc" id="toc-how-a-cross-trade-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 Cross Trade Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Cross trades have inherent pitfalls due to the lack of proper reporting involved. When the trade doesn't get recorded through the exchange one or both clients may not get the current market price that is available to other (non-cross trade) market participants. Since the orders are never listed publicly, the investors may not be made aware as to whether a better price may have been available. Cross trades are typically not allowed on major exchanges. Orders need to be sent to the exchange and all trades must be recorded. </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"> However, cross trades are permitted in select situations, such as when both the buyer and the seller are clients of the same asset manager and the price of the cross trade is considered to be competitive at the time of the 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"> 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> can effectively move one client's asset to another client that wants it and eliminate the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spread.asp">spread</a> on the trade. The broker and manager must prove a fair <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market-price.asp">market price</a> for the transaction and record the trade as a cross for proper regulatory classification. The asset manager must be able to prove to the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission</a> (SEC) that the trade was beneficial to both parties. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><ul><li>A cross trade is a practice where buy and sell orders for the same asset are offset without recording the trade on the exchange. This is an activity that is not permitted on most major exchanges.</li><li>A cross trade also occurs legitimately when a broker executes matched buy and a sell orders for the same security across different client accounts and reports them on an exchange.</li><li>Cross trades are permitted when brokers are transferring clients assets between accounts, for derivatives trade hedges, and certain block orders.</li></ul></div></div></div> <span class="heading-toc" id="toc-concerns-about-cross-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"> Concerns About Cross Trades </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> While a cross trade does not require each investor to specify a price for the transaction to proceed, matching orders occur when a broker receives a buy and sell order from two different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/11/6-lessons-top-6-investors.asp">investors</a> both listing the same price. Depending on local regulations, trades of this nature may be allowed, since each investor has expressed an interest in completing a transaction at the specified price point. This may be more relevant for investors trading highly <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatile</a> securities where the value may shift dramatically in a short period of time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Cross trades are controversial because they may undermine trust in the market. While some cross trades are technically legal, other market participants were not given the opportunity to interact with those orders. Market participants may have wanted to interact with one of those orders, but was not given the chance because the trade occurred off the exchange. Another concern is that a series of cross trades can be used to '<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paintingthetape.asp">paint the tape</a>,' a form of illegal market manipulation whereby market players attempt to influence the price of a security by buying and selling it among themselves to create the appearance of substantial trading activity. </p></div>

## What Is a Cross Trade? A cross trade is a practice where buy and sell orders for the same asset are offset without recording the trade on the exchange. It is an activity that is *not* permitted on most major exchanges. A cross trade also occurs legitimately when a [broker](https://www.investopedia.com/terms/b/broker.asp) executes matched buy and a sell orders for the same security across different client accounts and reports them on an exchange. For example, if one client wants to sell and another wants to buy, the broker could match those two orders without sending the orders to the stock exchange to be [filled](https://www.investopedia.com/terms/f/fill.asp) but filling them as a cross trade and then reporting the transactions after the fact but in a timely manner and time-stamped with the time and price of the cross. These types of cross trades must also be executed at a price that corresponds to the prevailing [market price](https://www.investopedia.com/terms/m/market-price.asp) at the time. ### Important Cross trades are often performed for trades that involve matched buy and sell orders that are linked to a derivatives trade, such as the hedge on a delta-neutral options trade. ## How a Cross Trade Works Cross trades have inherent pitfalls due to the lack of proper reporting involved. When the trade doesn't get recorded through the exchange one or both clients may not get the current market price that is available to other (non-cross trade) market participants. Since the orders are never listed publicly, the investors may not be made aware as to whether a better price may have been available. Cross trades are typically not allowed on major exchanges. Orders need to be sent to the exchange and all trades must be recorded. However, cross trades are permitted in select situations, such as when both the buyer and the seller are clients of the same asset manager and the price of the cross trade is considered to be competitive at the time of the trade. A [portfolio manager](https://www.investopedia.com/terms/p/portfoliomanager.asp) can effectively move one client's asset to another client that wants it and eliminate the [spread](https://www.investopedia.com/terms/s/spread.asp) on the trade. The broker and manager must prove a fair [market price](https://www.investopedia.com/terms/m/market-price.asp) for the transaction and record the trade as a cross for proper regulatory classification. The asset manager must be able to prove to the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) that the trade was beneficial to both parties. ### Key Takeaways * A cross trade is a practice where buy and sell orders for the same asset are offset without recording the trade on the exchange. This is an activity that is not permitted on most major exchanges. * A cross trade also occurs legitimately when a broker executes matched buy and a sell orders for the same security across different client accounts and reports them on an exchange. * Cross trades are permitted when brokers are transferring clients assets between accounts, for derivatives trade hedges, and certain block orders. ## Concerns About Cross Trades While a cross trade does not require each investor to specify a price for the transaction to proceed, matching orders occur when a broker receives a buy and sell order from two different [investors](https://www.investopedia.com/articles/financial-theory/11/6-lessons-top-6-investors.asp) both listing the same price. Depending on local regulations, trades of this nature may be allowed, since each investor has expressed an interest in completing a transaction at the specified price point. This may be more relevant for investors trading highly [volatile](https://www.investopedia.com/terms/v/volatility.asp) securities where the value may shift dramatically in a short period of time. Cross trades are controversial because they may undermine trust in the market. While some cross trades are technically legal, other market participants were not given the opportunity to interact with those orders. Market participants may have wanted to interact with one of those orders, but was not given the chance because the trade occurred off the exchange. Another concern is that a series of cross trades can be used to '[paint the tape](https://www.investopedia.com/terms/p/paintingthetape.asp),' a form of illegal market manipulation whereby market players attempt to influence the price of a security by buying and selling it among themselves to create the appearance of substantial trading activity.

What Is a Cross Trade? A cross trade is a practice where buy and sell orders for the same asset are offset without recording the trade on the exchange. It is an activity that is not permitted on most major exchanges. A cross trade also occurs legitimately when a broker executes matched buy and a sell orders for the same security across different client accounts and reports them on an exchange. For example, if one client wants to sell and another wants to buy, the broker could match those two orders without sending the orders to the stock exchange to be filled but filling them as a cross trade and then reporting the transactions after the fact but in a timely manner and time-stamped with the time and price of the cross. These types of cross trades must also be executed at a price that corresponds to the prevailing market price at the time. Important Cross trades are often performed for trades that involve matched buy and sell orders that are linked to a derivatives trade, such as the hedge on a delta-neutral options trade. How a Cross Trade Works Cross trades have inherent pitfalls due to the lack of proper reporting involved. When the trade doesn't get recorded through the exchange one or both clients may not get the current market price that is available to other (non-cross trade) market participants. Since the orders are never listed publicly, the investors may not be made aware as to whether a better price may have been available. Cross trades are typically not allowed on major exchanges. Orders need to be sent to the exchange and all trades must be recorded. However, cross trades are permitted in select situations, such as when both the buyer and the seller are clients of the same asset manager and the price of the cross trade is considered to be competitive at the time of the trade. A portfolio manager can effectively move one client's asset to another client that wants it and eliminate the spread on the trade. The broker and manager must prove a fair market price for the transaction and record the trade as a cross for proper regulatory classification. The asset manager must be able to prove to the Securities and Exchange Commission (SEC) that the trade was beneficial to both parties. Key Takeaways A cross trade is a practice where buy and sell orders for the same asset are offset without recording the trade on the exchange. This is an activity that is not permitted on most major exchanges.A cross trade also occurs legitimately when a broker executes matched buy and a sell orders for the same security across different client accounts and reports them on an exchange.Cross trades are permitted when brokers are transferring clients assets between accounts, for derivatives trade hedges, and certain block orders. Concerns About Cross Trades While a cross trade does not require each investor to specify a price for the transaction to proceed, matching orders occur when a broker receives a buy and sell order from two different investors both listing the same price. Depending on local regulations, trades of this nature may be allowed, since each investor has expressed an interest in completing a transaction at the specified price point. This may be more relevant for investors trading highly volatile securities where the value may shift dramatically in a short period of time. Cross trades are controversial because they may undermine trust in the market. While some cross trades are technically legal, other market participants were not given the opportunity to interact with those orders. Market participants may have wanted to interact with one of those orders, but was not given the chance because the trade occurred off the exchange. Another concern is that a series of cross trades can be used to 'paint the tape,' a form of illegal market manipulation whereby market players attempt to influence the price of a security by buying and selling it among themselves to create the appearance of substantial trading activity.

https://www.investopedia.com/april-2024-retail-sales-soft-consumers-reaching-limit-8648861

Do Soft Retail Sales Indicate US Consumers Are Reaching Their Limits?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><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>Retail sales slowed more than expected in April, remaining virtually unchanged from the prior month.</li><li>Consumer spending has fueled the economy in recent months, with retail sales repeatedly coming in hotter than expected before the April data.</li><li>The latest numbers have economists wondering if consumers may be scaling back their spending amid high interest rates, decreased savings and high 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"> U.S. retail sales slowed more than expected in April, leading some economists to ask whether consumers are wearing out after their spending supported surprising economic growth over the past several months. </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 Census Bureau <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-may-15-8648734#toc-2024-05-15t125335372z">reported Wednesday</a> that April retail sales were $705.2 billion, virtually unchanged from the month prior and well below the 0.4% increase economists expected.<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"> “Consumer spending is slowing as elevated interest rates weigh on rate-sensitive spending and as the labor market cools,” said Michael Pearce, deputy chief U.S. economist at Oxford Economics. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Despite interest rates being at their <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">highest levels in decades</a>, consumer spending was <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/consumers-spent-heavily-in-march-fueling-an-already-hot-economy-8631449">strong in the first quarter</a>, with shoppers being one reason the long-forecast recession never arrived. But April's shift in retail sales has some economists asking if consumers are getting tired. </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 fact that retail sales stalled in April is not necessarily a sign the consumer is spent; but for once at least it does not show continued evidence of an unstoppable consumer,” wrote Wells Fargo economists Tim Quinlan and Shannon Seery Grein.<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-depleted-savings-high-debt-and-slowing-job-growth"></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"> Depleted Savings, High Debt and Slowing Job Growth </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The retail sales report was driven by a slowdown for online retailers that economists said could be partly attributed to an Amazon (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN">AMZN</a>) sales event in March. The earlier timing of Easter this year could also affect year-over-year comparisons. </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"> However, several economists also said the data pointed to consumers who are running out of steam. </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"> “Depleted excess savings, record household debt and a significant slowdown in job growth caused consumers to throttle back their spending last month,” said BMO Senior Economist Jay Hawkins.  </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 gains in sales over the past year may be more due to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/111314/what-causes-inflation-and-does-anyone-gain-it.asp">inflation</a> than increasing sales, said Morning Consult Retail &amp; E-Commerce Analyst Claire Tassin. The retail sales report is not adjusted for inflation and Tassin noted the 2.7% increase in sales from last April was below the 3.4% consumer price inflation rate over the same period.  </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"> “That indicates that the sales gains from a year ago are entirely attributable to inflation, not increased consumer demand,” Tassin said.  </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-does-this-affect-the-feds-interest-rate-decisions"></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"> Does This Affect the Fed's Interest Rate Decisions? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> While slowing retail sales may seem like a negative for the broader economy, it could also portend a reduction in inflationary pressure, which would be welcome news for consumers and could prompt the Federal Reserve to consider cutting its benchmark interest rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Fed officials have increased their influential fed funds rate to a 23-year high in order to restrict inflation. High interest rates are designed to slow consumer spending by making it more expensive to borrow money. </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"> Inflation tumbled in 2023 but progress has stalled so far this year, as prices have continued to increase. Officials have said they need to see more data showing interest rates having the desired impact before moving to cut their interest rates. </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"> “Fed officials will likely see this morning’s data as a partial offset to the persistently elevated inflation environment,” wrote Nationwide Financial Markets Economist Oren Klachkin. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737">separate release</a> Wednesday showed that inflation rose at a slower rate in April than the month before. The consumer price index for April rose at an annual rate of 3.4%, down from 3.5% in March but still well above the Fed's long-term annual target of 2%.<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 * Retail sales slowed more than expected in April, remaining virtually unchanged from the prior month. * Consumer spending has fueled the economy in recent months, with retail sales repeatedly coming in hotter than expected before the April data. * The latest numbers have economists wondering if consumers may be scaling back their spending amid high interest rates, decreased savings and high debt. U.S. retail sales slowed more than expected in April, leading some economists to ask whether consumers are wearing out after their spending supported surprising economic growth over the past several months. The Census Bureau [reported Wednesday](https://www.investopedia.com/us-economy-news-today-may-15-8648734#toc-2024-05-15t125335372z) that April retail sales were $705.2 billion, virtually unchanged from the month prior and well below the 0.4% increase economists expected. “Consumer spending is slowing as elevated interest rates weigh on rate-sensitive spending and as the labor market cools,” said Michael Pearce, deputy chief U.S. economist at Oxford Economics. Despite interest rates being at their [highest levels in decades](https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952), consumer spending was [strong in the first quarter](https://www.investopedia.com/consumers-spent-heavily-in-march-fueling-an-already-hot-economy-8631449), with shoppers being one reason the long-forecast recession never arrived. But April's shift in retail sales has some economists asking if consumers are getting tired. “The fact that retail sales stalled in April is not necessarily a sign the consumer is spent; but for once at least it does not show continued evidence of an unstoppable consumer,” wrote Wells Fargo economists Tim Quinlan and Shannon Seery Grein. ## Depleted Savings, High Debt and Slowing Job Growth The retail sales report was driven by a slowdown for online retailers that economists said could be partly attributed to an Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN)) sales event in March. The earlier timing of Easter this year could also affect year-over-year comparisons. However, several economists also said the data pointed to consumers who are running out of steam. “Depleted excess savings, record household debt and a significant slowdown in job growth caused consumers to throttle back their spending last month,” said BMO Senior Economist Jay Hawkins.  The gains in sales over the past year may be more due to [inflation](https://www.investopedia.com/ask/answers/111314/what-causes-inflation-and-does-anyone-gain-it.asp) than increasing sales, said Morning Consult Retail & E-Commerce Analyst Claire Tassin. The retail sales report is not adjusted for inflation and Tassin noted the 2.7% increase in sales from last April was below the 3.4% consumer price inflation rate over the same period.  “That indicates that the sales gains from a year ago are entirely attributable to inflation, not increased consumer demand,” Tassin said.  ## Does This Affect the Fed's Interest Rate Decisions? While slowing retail sales may seem like a negative for the broader economy, it could also portend a reduction in inflationary pressure, which would be welcome news for consumers and could prompt the Federal Reserve to consider cutting its benchmark interest rate. Fed officials have increased their influential fed funds rate to a 23-year high in order to restrict inflation. High interest rates are designed to slow consumer spending by making it more expensive to borrow money. Inflation tumbled in 2023 but progress has stalled so far this year, as prices have continued to increase. Officials have said they need to see more data showing interest rates having the desired impact before moving to cut their interest rates. “Fed officials will likely see this morning’s data as a partial offset to the persistently elevated inflation environment,” wrote Nationwide Financial Markets Economist Oren Klachkin. A [separate release](https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737) Wednesday showed that inflation rose at a slower rate in April than the month before. The consumer price index for April rose at an annual rate of 3.4%, down from 3.5% in March but still well above the Fed's long-term annual target of 2%. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Retail sales slowed more than expected in April, remaining virtually unchanged from the prior month.Consumer spending has fueled the economy in recent months, with retail sales repeatedly coming in hotter than expected before the April data.The latest numbers have economists wondering if consumers may be scaling back their spending amid high interest rates, decreased savings and high debt. U.S. retail sales slowed more than expected in April, leading some economists to ask whether consumers are wearing out after their spending supported surprising economic growth over the past several months. The Census Bureau reported Wednesday that April retail sales were $705.2 billion, virtually unchanged from the month prior and well below the 0.4% increase economists expected. “Consumer spending is slowing as elevated interest rates weigh on rate-sensitive spending and as the labor market cools,” said Michael Pearce, deputy chief U.S. economist at Oxford Economics. Despite interest rates being at their highest levels in decades, consumer spending was strong in the first quarter, with shoppers being one reason the long-forecast recession never arrived. But April's shift in retail sales has some economists asking if consumers are getting tired. “The fact that retail sales stalled in April is not necessarily a sign the consumer is spent; but for once at least it does not show continued evidence of an unstoppable consumer,” wrote Wells Fargo economists Tim Quinlan and Shannon Seery Grein. Depleted Savings, High Debt and Slowing Job Growth The retail sales report was driven by a slowdown for online retailers that economists said could be partly attributed to an Amazon (AMZN) sales event in March. The earlier timing of Easter this year could also affect year-over-year comparisons. However, several economists also said the data pointed to consumers who are running out of steam. “Depleted excess savings, record household debt and a significant slowdown in job growth caused consumers to throttle back their spending last month,” said BMO Senior Economist Jay Hawkins.  The gains in sales over the past year may be more due to inflation than increasing sales, said Morning Consult Retail & E-Commerce Analyst Claire Tassin. The retail sales report is not adjusted for inflation and Tassin noted the 2.7% increase in sales from last April was below the 3.4% consumer price inflation rate over the same period.  “That indicates that the sales gains from a year ago are entirely attributable to inflation, not increased consumer demand,” Tassin said.  Does This Affect the Fed's Interest Rate Decisions? While slowing retail sales may seem like a negative for the broader economy, it could also portend a reduction in inflationary pressure, which would be welcome news for consumers and could prompt the Federal Reserve to consider cutting its benchmark interest rate. Fed officials have increased their influential fed funds rate to a 23-year high in order to restrict inflation. High interest rates are designed to slow consumer spending by making it more expensive to borrow money. Inflation tumbled in 2023 but progress has stalled so far this year, as prices have continued to increase. Officials have said they need to see more data showing interest rates having the desired impact before moving to cut their interest rates. “Fed officials will likely see this morning’s data as a partial offset to the persistently elevated inflation environment,” wrote Nationwide Financial Markets Economist Oren Klachkin. A separate release Wednesday showed that inflation rose at a slower rate in April than the month before. The consumer price index for April rose at an annual rate of 3.4%, down from 3.5% in March but still well above the Fed's long-term annual target of 2%. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

What Is Clearing? Definition, How It Works, and Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-clearing"></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 Clearing? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Clearing is the procedure by which financial trades settle; that is, the correct and timely transfer of funds to the seller and securities to the buyer. Often with clearing, a specialized organization acts as the intermediary and assumes the role of tacit buyer and seller to reconcile orders between transacting parties. </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"> Clearing is necessary for the matching of all buy and sell orders in the market. It provides smoother and more efficient markets as parties can make transfers to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/clearingcorporation.asp">clearing corporation</a> rather than to each individual party with whom they transact. </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>Clearing is the correct and timely transfer of funds to the seller and securities to the buyer.</li><li>A specialized organization often acts as an intermediary known as a clearinghouse and assumes the role of tacit buyer and seller to reconcile orders between transacting parties.</li><li>Clearing is necessary to match all buy and sell orders to ensure smoother and more efficient markets.</li><li>When trades don't clear, the resulting out trades can cause real monetary losses.</li><li>The clearing process protects the parties involved in a transaction by recording the details and validating the availability of funds.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-clearing-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 Clearing Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Clearing is the process of reconciling purchases and sales of various options, futures, or securities, and the direct transfer of funds from one financial institution to another. The process validates the availability of the appropriate funds, records the transfer, and in the case of securities, ensures the delivery of the security to the buyer. Non-cleared trades can result in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/settlementrisk.asp">settlement risk</a>, and, if trades do not clear, accounting errors will arise where real money can be lost. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outtrade.asp">out trade</a> is a trade that cannot be placed because it was received by an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchange.asp">exchange</a> with conflicting information. The associated clearinghouse cannot settle the trade because the data submitted by parties on both sides of the transaction is inconsistent or contradictory. </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"> Stock exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ, have clearing firms. They ensure that stock traders have enough money in their account, whether using cash or broker-provided <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margin.asp">margin</a>, to fund the trades they are taking. The clearing division of these exchanges acts as the middleman, helping facilitate the smooth transfer of funds. </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"> When an investor sells a stock they own, they want to know that the money will be delivered to them. The clearing firms make sure this happens. Similarly, when someone buys a stock, they need to be able to afford it. The clearing firm makes sure that the appropriate amount of funds is set aside for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tplus1.asp">trade settlement</a> when someone buys stocks. </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-clearing-banks"></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"> Clearing Banks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Clearing can have a variety of meanings depending on the instrument with which it is associated. In the case of check clearing, this is the process involved in transferring the funds promised on the check to the recipient's account. Some banks place holds on funds deposited by check since the transfer is not instantaneous and may require time to process. </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 Federal Reserve Banks provide check collection services to depository institutions. When a depository institution receives a check drawn on another institution, it may send the check for collection to the institution directly, deliver the check to the institution through a local clearinghouse exchange, or use the check-collection services of a correspondent institution or a Federal Reserve Bank.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Most of the checks the Federal Reserve Banks receives are collected and settled within one business day.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-clearinghouses"></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"> Clearinghouses </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> For futures and options, a clearinghouse functions as an intermediary for the transaction, acting as the implicit <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/counterparty.asp">counterparty</a> to both the buyer and seller of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">future</a> or option. This extends to the securities market, where the stock exchange validates the trade of the securities through to settlement. </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"> Clearinghouses charge a fee for their services, known as a clearing fee. When an investor pays a commission to the broker, this clearing fee is often already included in that commission amount. This fee supports the centralizing and reconciling of transactions and facilitates the proper delivery of purchased investments. </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"> When a clearinghouse <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dk.asp">encounters an out trade</a>, it gives the counterparties a chance to reconcile the discrepancy independently. If the parties can resolve the matter, they resubmit the trade to the clearinghouse for appropriate settlement. But, if they cannot agree on the terms of the trade, then the matter is sent to the appropriate exchange committee for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arbitration.asp">arbitration</a>. </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"> Automated Clearing House </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> An <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) is an electronic system used for the transfer of funds between entities, often referred to as an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/electronic-transfer-account.asp">electronic funds transfer</a> (EFT). The ACH performs the role of intermediary, processing the sending/receiving of validated funds between institutions. </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"> An ACH is often used for the direct deposit of employee salaries and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/chipsuid.asp">can be used to transfer funds</a> between an individual and a business in exchange for goods and services. </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"> Traditionally, the sending and receiving bank account information needs to be provided, including the account and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/routing_transit_number.asp">routing numbers</a>, to facilitate the transaction. This process may also be seen as an electronic check, as it provides the same information as a written check. </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-example-of-clearing"></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"> Example of Clearing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> As a hypothetical example, assume that one trader buys an index futures contract. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/initialmargin.asp">initial margin</a> required to hold this trade overnight is $6,160. This amount is held as a "good faith" assurance that the trader can afford the trade. This money is held by the clearing firm, within the trader's account, and can't be used for other trades. This helps offset any losses the trader may experience while in a trade. </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"> This process helps reduce the risk to individual traders. For example, if two people agree to trade, and there is no one else to verify and back the trade, it is possible that one party could back out of the agreement or experience financial trouble and be unable to produce the funds to hold up their end of the bargain. </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 clearing firm takes this risk away from the individual trader. Each trader knows that the clearing firm will be collecting enough funds from all trading parties, so they don't need to worry about credit or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/defaultrisk.asp">default risk</a> of the person on the other side of the transaction. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-what-is-clearing-in-the-banking-system"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Clearing in the Banking System?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Clearing in the banking system is the process of settling transactions between banks. Millions of transactions occur every day, so bank clearing tries to minimize the amounts that change hands on a given day. For example, if Bank A owes Bank B $2 million in cleared checks, But Bank B owes Bank A $1 million, Bank A only pays Bank B $1 million.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-which-banks-are-clearing-banks-in-the-united-states"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Banks Are Clearing Banks in the United States?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Clearing banks in the United States include the following: Bank of America; Bank of the West; Barclays; The Bank of New York Mellon; BB&amp;T; Capital One; Citi; Citizens; Comeria; Deutsche Bank; AG Consultants, Fifth Third Bank; HSBC; JP Morgan Chase; Key Bank; M&amp;T Bank; MUFG Union Bank; PNC; Regions Bank; Santander; State Street; SunTrust; TD Bank; UBS; U.S. Bank; and Wells Fargo.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-what-is-an-example-of-a-clearinghouse"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an Example of a Clearinghouse?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An example of a clearinghouse is the London Clearing House, which is the biggest derivatives clearing house followed by the Chicago Mercantile Exchange. Clearing firms are typically big investment banks, such as JP Morgan, Deutsche Bank, and HSBC.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-what-is-a-clearing-process"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Clearing Process?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Clearing is the process of reconciling an options, futures, or securities transaction or the direct transfer of funds from one financial institution to another. The process validates the availability of the appropriate funds, records the transfer, and in the case of securities, ensures the delivery of the security or funds to the buyer.</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"> The process of clearing ensures that the entities or parties engaged in a financial transaction are protected, receive their due amount, and the transaction goes smoothly. The clearinghouse acts as a third party or mediator for the transaction while the clearing process records the details of the transaction and validates the availability of funds. </p></div>

## What Is Clearing? Clearing is the procedure by which financial trades settle; that is, the correct and timely transfer of funds to the seller and securities to the buyer. Often with clearing, a specialized organization acts as the intermediary and assumes the role of tacit buyer and seller to reconcile orders between transacting parties. Clearing is necessary for the matching of all buy and sell orders in the market. It provides smoother and more efficient markets as parties can make transfers to the [clearing corporation](https://www.investopedia.com/terms/c/clearingcorporation.asp) rather than to each individual party with whom they transact. ### Key Takeaways * Clearing is the correct and timely transfer of funds to the seller and securities to the buyer. * A specialized organization often acts as an intermediary known as a clearinghouse and assumes the role of tacit buyer and seller to reconcile orders between transacting parties. * Clearing is necessary to match all buy and sell orders to ensure smoother and more efficient markets. * When trades don't clear, the resulting out trades can cause real monetary losses. * The clearing process protects the parties involved in a transaction by recording the details and validating the availability of funds. ## How Clearing Works Clearing is the process of reconciling purchases and sales of various options, futures, or securities, and the direct transfer of funds from one financial institution to another. The process validates the availability of the appropriate funds, records the transfer, and in the case of securities, ensures the delivery of the security to the buyer. Non-cleared trades can result in [settlement risk](https://www.investopedia.com/terms/s/settlementrisk.asp), and, if trades do not clear, accounting errors will arise where real money can be lost. An [out trade](https://www.investopedia.com/terms/o/outtrade.asp) is a trade that cannot be placed because it was received by an [exchange](https://www.investopedia.com/terms/e/exchange.asp) with conflicting information. The associated clearinghouse cannot settle the trade because the data submitted by parties on both sides of the transaction is inconsistent or contradictory. Stock exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ, have clearing firms. They ensure that stock traders have enough money in their account, whether using cash or broker-provided [margin](https://www.investopedia.com/terms/m/margin.asp), to fund the trades they are taking. The clearing division of these exchanges acts as the middleman, helping facilitate the smooth transfer of funds. When an investor sells a stock they own, they want to know that the money will be delivered to them. The clearing firms make sure this happens. Similarly, when someone buys a stock, they need to be able to afford it. The clearing firm makes sure that the appropriate amount of funds is set aside for [trade settlement](https://www.investopedia.com/terms/t/tplus1.asp) when someone buys stocks. ## Clearing Banks Clearing can have a variety of meanings depending on the instrument with which it is associated. In the case of check clearing, this is the process involved in transferring the funds promised on the check to the recipient's account. Some banks place holds on funds deposited by check since the transfer is not instantaneous and may require time to process. The Federal Reserve Banks provide check collection services to depository institutions. When a depository institution receives a check drawn on another institution, it may send the check for collection to the institution directly, deliver the check to the institution through a local clearinghouse exchange, or use the check-collection services of a correspondent institution or a Federal Reserve Bank. ### Most of the checks the Federal Reserve Banks receives are collected and settled within one business day. ## Clearinghouses For futures and options, a clearinghouse functions as an intermediary for the transaction, acting as the implicit [counterparty](https://www.investopedia.com/terms/c/counterparty.asp) to both the buyer and seller of the [future](https://www.investopedia.com/terms/f/futures.asp) or option. This extends to the securities market, where the stock exchange validates the trade of the securities through to settlement. Clearinghouses charge a fee for their services, known as a clearing fee. When an investor pays a commission to the broker, this clearing fee is often already included in that commission amount. This fee supports the centralizing and reconciling of transactions and facilitates the proper delivery of purchased investments. When a clearinghouse [encounters an out trade](https://www.investopedia.com/terms/d/dk.asp), it gives the counterparties a chance to reconcile the discrepancy independently. If the parties can resolve the matter, they resubmit the trade to the clearinghouse for appropriate settlement. But, if they cannot agree on the terms of the trade, then the matter is sent to the appropriate exchange committee for [arbitration](https://www.investopedia.com/terms/a/arbitration.asp). ### Automated Clearing House An [automated clearing house](https://www.investopedia.com/terms/a/ach.asp) (ACH) is an electronic system used for the transfer of funds between entities, often referred to as an [electronic funds transfer](https://www.investopedia.com/terms/e/electronic-transfer-account.asp) (EFT). The ACH performs the role of intermediary, processing the sending/receiving of validated funds between institutions. An ACH is often used for the direct deposit of employee salaries and [can be used to transfer funds](https://www.investopedia.com/ask/answers/06/chipsuid.asp) between an individual and a business in exchange for goods and services. Traditionally, the sending and receiving bank account information needs to be provided, including the account and [routing numbers](https://www.investopedia.com/terms/r/routing_transit_number.asp), to facilitate the transaction. This process may also be seen as an electronic check, as it provides the same information as a written check. ## Example of Clearing As a hypothetical example, assume that one trader buys an index futures contract. The [initial margin](https://www.investopedia.com/terms/i/initialmargin.asp) required to hold this trade overnight is $6,160. This amount is held as a "good faith" assurance that the trader can afford the trade. This money is held by the clearing firm, within the trader's account, and can't be used for other trades. This helps offset any losses the trader may experience while in a trade. This process helps reduce the risk to individual traders. For example, if two people agree to trade, and there is no one else to verify and back the trade, it is possible that one party could back out of the agreement or experience financial trouble and be unable to produce the funds to hold up their end of the bargain. The clearing firm takes this risk away from the individual trader. Each trader knows that the clearing firm will be collecting enough funds from all trading parties, so they don't need to worry about credit or [default risk](https://www.investopedia.com/terms/d/defaultrisk.asp) of the person on the other side of the transaction. ## What Is Clearing in the Banking System? Clearing in the banking system is the process of settling transactions between banks. Millions of transactions occur every day, so bank clearing tries to minimize the amounts that change hands on a given day. For example, if Bank A owes Bank B $2 million in cleared checks, But Bank B owes Bank A $1 million, Bank A only pays Bank B $1 million. ## Which Banks Are Clearing Banks in the United States? Clearing banks in the United States include the following: Bank of America; Bank of the West; Barclays; The Bank of New York Mellon; BB&T; Capital One; Citi; Citizens; Comeria; Deutsche Bank; AG Consultants, Fifth Third Bank; HSBC; JP Morgan Chase; Key Bank; M&T Bank; MUFG Union Bank; PNC; Regions Bank; Santander; State Street; SunTrust; TD Bank; UBS; U.S. Bank; and Wells Fargo. ## What Is an Example of a Clearinghouse? An example of a clearinghouse is the London Clearing House, which is the biggest derivatives clearing house followed by the Chicago Mercantile Exchange. Clearing firms are typically big investment banks, such as JP Morgan, Deutsche Bank, and HSBC. ## What Is a Clearing Process? Clearing is the process of reconciling an options, futures, or securities transaction or the direct transfer of funds from one financial institution to another. The process validates the availability of the appropriate funds, records the transfer, and in the case of securities, ensures the delivery of the security or funds to the buyer. ## The Bottom Line The process of clearing ensures that the entities or parties engaged in a financial transaction are protected, receive their due amount, and the transaction goes smoothly. The clearinghouse acts as a third party or mediator for the transaction while the clearing process records the details of the transaction and validates the availability of funds.

What Is Clearing? Clearing is the procedure by which financial trades settle; that is, the correct and timely transfer of funds to the seller and securities to the buyer. Often with clearing, a specialized organization acts as the intermediary and assumes the role of tacit buyer and seller to reconcile orders between transacting parties. Clearing is necessary for the matching of all buy and sell orders in the market. It provides smoother and more efficient markets as parties can make transfers to the clearing corporation rather than to each individual party with whom they transact. Key Takeaways Clearing is the correct and timely transfer of funds to the seller and securities to the buyer.A specialized organization often acts as an intermediary known as a clearinghouse and assumes the role of tacit buyer and seller to reconcile orders between transacting parties.Clearing is necessary to match all buy and sell orders to ensure smoother and more efficient markets.When trades don't clear, the resulting out trades can cause real monetary losses.The clearing process protects the parties involved in a transaction by recording the details and validating the availability of funds. How Clearing Works Clearing is the process of reconciling purchases and sales of various options, futures, or securities, and the direct transfer of funds from one financial institution to another. The process validates the availability of the appropriate funds, records the transfer, and in the case of securities, ensures the delivery of the security to the buyer. Non-cleared trades can result in settlement risk, and, if trades do not clear, accounting errors will arise where real money can be lost. An out trade is a trade that cannot be placed because it was received by an exchange with conflicting information. The associated clearinghouse cannot settle the trade because the data submitted by parties on both sides of the transaction is inconsistent or contradictory. Stock exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ, have clearing firms. They ensure that stock traders have enough money in their account, whether using cash or broker-provided margin, to fund the trades they are taking. The clearing division of these exchanges acts as the middleman, helping facilitate the smooth transfer of funds. When an investor sells a stock they own, they want to know that the money will be delivered to them. The clearing firms make sure this happens. Similarly, when someone buys a stock, they need to be able to afford it. The clearing firm makes sure that the appropriate amount of funds is set aside for trade settlement when someone buys stocks. Clearing Banks Clearing can have a variety of meanings depending on the instrument with which it is associated. In the case of check clearing, this is the process involved in transferring the funds promised on the check to the recipient's account. Some banks place holds on funds deposited by check since the transfer is not instantaneous and may require time to process. The Federal Reserve Banks provide check collection services to depository institutions. When a depository institution receives a check drawn on another institution, it may send the check for collection to the institution directly, deliver the check to the institution through a local clearinghouse exchange, or use the check-collection services of a correspondent institution or a Federal Reserve Bank. Most of the checks the Federal Reserve Banks receives are collected and settled within one business day. Clearinghouses For futures and options, a clearinghouse functions as an intermediary for the transaction, acting as the implicit counterparty to both the buyer and seller of the future or option. This extends to the securities market, where the stock exchange validates the trade of the securities through to settlement. Clearinghouses charge a fee for their services, known as a clearing fee. When an investor pays a commission to the broker, this clearing fee is often already included in that commission amount. This fee supports the centralizing and reconciling of transactions and facilitates the proper delivery of purchased investments. When a clearinghouse encounters an out trade, it gives the counterparties a chance to reconcile the discrepancy independently. If the parties can resolve the matter, they resubmit the trade to the clearinghouse for appropriate settlement. But, if they cannot agree on the terms of the trade, then the matter is sent to the appropriate exchange committee for arbitration. Automated Clearing House An automated clearing house (ACH) is an electronic system used for the transfer of funds between entities, often referred to as an electronic funds transfer (EFT). The ACH performs the role of intermediary, processing the sending/receiving of validated funds between institutions. An ACH is often used for the direct deposit of employee salaries and can be used to transfer funds between an individual and a business in exchange for goods and services. Traditionally, the sending and receiving bank account information needs to be provided, including the account and routing numbers, to facilitate the transaction. This process may also be seen as an electronic check, as it provides the same information as a written check. Example of Clearing As a hypothetical example, assume that one trader buys an index futures contract. The initial margin required to hold this trade overnight is $6,160. This amount is held as a "good faith" assurance that the trader can afford the trade. This money is held by the clearing firm, within the trader's account, and can't be used for other trades. This helps offset any losses the trader may experience while in a trade. This process helps reduce the risk to individual traders. For example, if two people agree to trade, and there is no one else to verify and back the trade, it is possible that one party could back out of the agreement or experience financial trouble and be unable to produce the funds to hold up their end of the bargain. The clearing firm takes this risk away from the individual trader. Each trader knows that the clearing firm will be collecting enough funds from all trading parties, so they don't need to worry about credit or default risk of the person on the other side of the transaction. What Is Clearing in the Banking System? Clearing in the banking system is the process of settling transactions between banks. Millions of transactions occur every day, so bank clearing tries to minimize the amounts that change hands on a given day. For example, if Bank A owes Bank B $2 million in cleared checks, But Bank B owes Bank A $1 million, Bank A only pays Bank B $1 million. Which Banks Are Clearing Banks in the United States? Clearing banks in the United States include the following: Bank of America; Bank of the West; Barclays; The Bank of New York Mellon; BB&T; Capital One; Citi; Citizens; Comeria; Deutsche Bank; AG Consultants, Fifth Third Bank; HSBC; JP Morgan Chase; Key Bank; M&T Bank; MUFG Union Bank; PNC; Regions Bank; Santander; State Street; SunTrust; TD Bank; UBS; U.S. Bank; and Wells Fargo. What Is an Example of a Clearinghouse? An example of a clearinghouse is the London Clearing House, which is the biggest derivatives clearing house followed by the Chicago Mercantile Exchange. Clearing firms are typically big investment banks, such as JP Morgan, Deutsche Bank, and HSBC. What Is a Clearing Process? Clearing is the process of reconciling an options, futures, or securities transaction or the direct transfer of funds from one financial institution to another. The process validates the availability of the appropriate funds, records the transfer, and in the case of securities, ensures the delivery of the security or funds to the buyer. The Bottom Line The process of clearing ensures that the entities or parties engaged in a financial transaction are protected, receive their due amount, and the transaction goes smoothly. The clearinghouse acts as a third party or mediator for the transaction while the clearing process records the details of the transaction and validates the availability of funds.

https://www.investopedia.com/microsoft-openai-partnership-could-avoid-formal-eu-probe-here-is-why-that-matters-8634977

Microsoft's OpenAI Partnership Could Avoid Formal EU Probe—Here's Why That Matters

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 European Union (EU) reportedly determined not to pursue a formal competition probe into Microsoft's investments in OpenAI, which could ease investor worries about government action forcing the pair to weaken ties.</li><li>Microsoft's OpenAI investment is expected to avoid a formal investigation as it doesn't meet the standards for the process, Bloomberg reported Wednesday.</li><li>The EU had launched a preliminary investigation into Microsoft's OpenAI investments in January.</li><li>The report comes as government agencies including the U.K.'s Competition and Markets Authority and the Federal Trade Commission in the U.S. raise similar concerns.</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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/europeanunion.asp">European Union (EU)</a> reportedly decided not to pursue a formal probe into Microsoft's (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>) investments in OpenAI, which could ease concerns that regulatory action could force the pair to weaken ties, as the governments consider big tech companies' <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> partnerships and the impacts on competition. </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"> Microsoft's OpenAI investment is expected to avoid a formal EU investigation as it doesn't meet the standards for the process, <em>Bloomberg</em> reported Wednesday citing people familiar with the matter.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Microsoft declined to comment and the EU Commission did not immediately respond to Investopedia's request for a statement. </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 European Commission had launched an investigation into the impacts of agreements between large AI players and their impact on the market and competition on Jan. 9 and named Microsoft's investment in OpenAI in the release.<span class="ql-inline-citation" data-cite="1"></span> The EU later <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-investment-in-mistral-ai-draws-eu-regulator-scrutiny-amid-competition-concerns-8600836">said</a> that Microsoft's investment in French AI startup Mistral AI would be considered as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Microsoft's partnership with OpenAI is a key one for the tech giant and has helped it <a class="pseudoStyle" 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">position</a> itself as an early leader in the AI era. Wedbush analysts recently said they "believe Redmond is just starting to hit its next gear of growth with ChatGPT and AI also adding a new layer of growth to the MSFT story over the coming 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_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> However, Microsoft's OpenAI partnership also attracted scrutiny from the Competition and Markets Authority (CMA) in the U.K. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-openai-partnership-draws-scrutiny-of-uk-competition-watchdog-8413335">at the end of 2023</a> and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ftc.asp">Federal Trade Commission (FTC)</a> in the U.S. <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ftc-opens-inquiry-into-microsoft-google-and-amazon-over-openai-and-anthropic-partnerships-8549836">in January of 2024</a>, raising concerns that OpenAI and Microsoft could face pressure to weaken their ties. </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"> Microsoft shares were down 0.7% at $411.61 around 3 p.m. ET Wednesday. The company's stock has gained about 11% since the start of 2024.<br/> </p></div>

### Key Takeaways * The European Union (EU) reportedly determined not to pursue a formal competition probe into Microsoft's investments in OpenAI, which could ease investor worries about government action forcing the pair to weaken ties. * Microsoft's OpenAI investment is expected to avoid a formal investigation as it doesn't meet the standards for the process, Bloomberg reported Wednesday. * The EU had launched a preliminary investigation into Microsoft's OpenAI investments in January. * The report comes as government agencies including the U.K.'s Competition and Markets Authority and the Federal Trade Commission in the U.S. raise similar concerns. The [European Union (EU)](https://www.investopedia.com/terms/e/europeanunion.asp) reportedly decided not to pursue a formal probe into Microsoft's ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) investments in OpenAI, which could ease concerns that regulatory action could force the pair to weaken ties, as the governments consider big tech companies' [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) partnerships and the impacts on competition. Microsoft's OpenAI investment is expected to avoid a formal EU investigation as it doesn't meet the standards for the process, *Bloomberg* reported Wednesday citing people familiar with the matter. Microsoft declined to comment and the EU Commission did not immediately respond to Investopedia's request for a statement. The European Commission had launched an investigation into the impacts of agreements between large AI players and their impact on the market and competition on Jan. 9 and named Microsoft's investment in OpenAI in the release. The EU later [said](https://www.investopedia.com/microsoft-investment-in-mistral-ai-draws-eu-regulator-scrutiny-amid-competition-concerns-8600836) that Microsoft's investment in French AI startup Mistral AI would be considered as well. Microsoft's partnership with OpenAI is a key one for the tech giant and has helped it [position](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 era. Wedbush analysts recently said they "believe Redmond is just starting to hit its next gear of growth with ChatGPT and AI also adding a new layer of growth to the MSFT story over the coming years." However, Microsoft's OpenAI partnership also attracted scrutiny from the Competition and Markets Authority (CMA) in the U.K. [at the end of 2023](https://www.investopedia.com/microsoft-openai-partnership-draws-scrutiny-of-uk-competition-watchdog-8413335) and the [Federal Trade Commission (FTC)](https://www.investopedia.com/terms/f/ftc.asp) in the U.S. [in January of 2024](https://www.investopedia.com/ftc-opens-inquiry-into-microsoft-google-and-amazon-over-openai-and-anthropic-partnerships-8549836), raising concerns that OpenAI and Microsoft could face pressure to weaken their ties. Microsoft shares were down 0.7% at $411.61 around 3 p.m. ET Wednesday. The company's stock has gained about 11% since the start of 2024.

Key Takeaways The European Union (EU) reportedly determined not to pursue a formal competition probe into Microsoft's investments in OpenAI, which could ease investor worries about government action forcing the pair to weaken ties.Microsoft's OpenAI investment is expected to avoid a formal investigation as it doesn't meet the standards for the process, Bloomberg reported Wednesday.The EU had launched a preliminary investigation into Microsoft's OpenAI investments in January.The report comes as government agencies including the U.K.'s Competition and Markets Authority and the Federal Trade Commission in the U.S. raise similar concerns. The European Union (EU) reportedly decided not to pursue a formal probe into Microsoft's (MSFT) investments in OpenAI, which could ease concerns that regulatory action could force the pair to weaken ties, as the governments consider big tech companies' artificial intelligence (AI) partnerships and the impacts on competition. Microsoft's OpenAI investment is expected to avoid a formal EU investigation as it doesn't meet the standards for the process, Bloomberg reported Wednesday citing people familiar with the matter. Microsoft declined to comment and the EU Commission did not immediately respond to Investopedia's request for a statement. The European Commission had launched an investigation into the impacts of agreements between large AI players and their impact on the market and competition on Jan. 9 and named Microsoft's investment in OpenAI in the release. The EU later said that Microsoft's investment in French AI startup Mistral AI would be considered as well. Microsoft's partnership with OpenAI is a key one for the tech giant and has helped it position itself as an early leader in the AI era. Wedbush analysts recently said they "believe Redmond is just starting to hit its next gear of growth with ChatGPT and AI also adding a new layer of growth to the MSFT story over the coming years." However, Microsoft's OpenAI partnership also attracted scrutiny from the Competition and Markets Authority (CMA) in the U.K. at the end of 2023 and the Federal Trade Commission (FTC) in the U.S. in January of 2024, raising concerns that OpenAI and Microsoft could face pressure to weaken their ties. Microsoft shares were down 0.7% at $411.61 around 3 p.m. ET Wednesday. The company's stock has gained about 11% since the start of 2024.

https://www.investopedia.com/terms/p/paris-agreementcop21.asp

Paris Agreement/Cop21: Meaning, History, Structure

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-paris-agreementcop21"></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 Paris Agreement/COP21? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Paris Agreement, also known as the Paris Climate Accord, is an agreement among the leaders of over 180 countries to reduce greenhouse gas emissions and limit the global temperature increase to below 2 degrees Celsius (3.6 Fahrenheit) above preindustrial levels by the year 2100.<span class="ql-inline-citation" data-cite="6"></span> Ideally, the agreement aims to keep the increases below 1.5 degrees Celsius (2.7 Fahrenheit).<span class="ql-inline-citation" data-cite="3"></span> The agreement is also called the 21st Conference of the Parties to the U.N. Framework Convention on Climate Change (UNFCCC).<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_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The two-week conference leading to the agreement was held in Paris in December 2015.<span class="ql-inline-citation" data-cite="5"></span> As of November 2022, 195 UNFCCC members have signed the agreement, and 194 have become party to it.<span class="ql-inline-citation" data-cite="6"></span> The Paris Agreement is a replacement for the 2005 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/k/kyoto.asp">Kyoto Protocol</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Paris Agreement is a U.N.-sponsored international agreement to reduce greenhouse gas emissions.</li><li>The agreement was formed in 2015 and has over 190 signatory nations.</li><li>The U.S. officially exited the Paris Agreement in November 2020.</li><li>President Joe Biden signed an executive order on Jan. 20, 2021, announcing that the U.S. would rejoin the Paris Agreement.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-paris-agreementcop21"></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 Paris Agreement/COP21 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> One of the most significant results of the 2015 Paris Agreement was that the United States and China initially signed on for it. The U.S. briefly left the agreement in November 2020 but rejoined in February 2021.<span class="ql-inline-citation" data-cite="22"></span><span class="ql-inline-citation" data-cite="5"></span> Together, the U.S. and China are responsible for approximately 38.4% of global carbon emissions: 24.5% from the U.S. and 13.9% from China (2019 data).<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_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> All signatories agreed to the goal of reducing greenhouse gas emissions due to rising temperatures and other risks that affect the entire world. Another significant component of the agreement is that it includes countries that rely on oil and gas production revenue.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Each country that attended the 21st Conference of the Parties agreed to cut its emissions by a particular percentage based on a base year's emissions level. The United States, for example, promised to cut its emissions by up to 28% from 2005 levels. These promises are called intended nationally determined contributions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>It was decided that each participating country would be allowed to determine its own priorities and targets because each country has different circumstances and a different capacity to undertake change.<span class="ql-inline-citation" data-cite="10"></span></p></div></div></div> <span class="heading-toc" id="toc-the-united-states-withdrawal-from-the-paris-agreement"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> The United States Withdrawal From the Paris Agreement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> On June 1, 2017, United States President Donald Trump announced that the U.S. would withdraw from the 2015 Paris Agreement. Trump reasoned that the Paris Accord would undermine the domestic economy and place the nation at a permanent disadvantage.<span class="ql-inline-citation" data-cite="11"></span> The United States' withdrawal could not occur before Nov. 2, 2020, according to Article 28 of the Paris Agreement. Until then, the United States had to meet its commitments under the agreement, such as reporting its emissions to the United Nations.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The decision by the United States to withdraw was met with widespread condemnation from proponents of climate change theory in the United States and worldwide, religious organizations, businesses, political leaders, scientists, and environmentalists.<span class="ql-inline-citation" data-cite="14"></span><span class="ql-inline-citation" data-cite="15"></span> Despite the withdrawal, several U.S. state governors formed the United States Climate Alliance and pledged to continue to adhere to and advance the Paris Agreement.<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> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The Paris Agreement was also an issue during the 2020 presidential campaign. The U.S. formally left the global pact on Nov. 4, 2020.</p></div></div></div> <span class="heading-toc" id="toc-us-reentry-into-the-paris-agreement"></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"> U.S. Reentry Into the Paris Agreement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> On Jan. 20, 2021, President Joe Biden signed an executive order announcing that the U.S. would rejoin the Paris Agreement. Under the terms of the agreement, it took 30 days—or until Feb. 19, 2021—for the U.S. to officially rejoin.<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_26-0"></div> <span class="heading-toc" id="toc-structure-of-the-paris-agreement"></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"> Structure of the Paris Agreement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> For the agreement to be enacted, at least 55 countries representing about 55% of global emissions were required to join. The agreement opened for formal commitment in April 2016 and closed in April 2017.<span class="ql-inline-citation" data-cite="5"></span> After a country's leader decided to join the agreement, domestic government approval or the passing of a domestic law was required for that nation to officially participate.<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_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Scientists have cautioned that the agreement is not sufficient to prevent catastrophic global warming because countries' carbon emissions reduction pledges will not be enough to meet temperature goals.<span class="ql-inline-citation" data-cite="18"></span> Other criticisms relate to the agreement's ability to address climate change-related losses in the most vulnerable countries, such as most African countries, many South Asian countries, and several South and Central American countries.<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_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Every five years, governments must report on their progress toward and plans for cutting greenhouse gas emissions. The Paris Agreement also requires developed countries to send $100 billion a year to developing countries starting in 2020, when the agreement became effective. This amount will increase over time.<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_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_34-0"><span class="heading-toc" id="toc-what-does-the-paris-climate-agreement-actually-do"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does the Paris Climate Agreement Actually Do?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The agreement between signatory countries is to work to reduce emissions output in an attempt to limit rising temperatures to 2 degrees Celsius (3.6 degrees Fahrenheit) or less.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_36-0"><span class="heading-toc" id="toc-what-is-the-paris-climate-agreement-in-simple-terms"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Paris Climate Agreement in Simple Terms?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Paris Climate Agreement is an agreement for countries to work together to keep global temperatures from rising more than 2 degree Celsius.</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-was-the-paris-climate-agreement-successful"></span> <h2 class="mntl-sc-block-questionandanswer__question">Was the Paris Climate Agreement Successful?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The outcome remains to be seen. Countries are still working towards reducing carbon outputs with long-term goals set into 2030 and beyond. Nasa tracks the latest temperature change above or below that of global temperature in 1880—in November 2022, the global average temperature was 1.53 degrees fahrenheit above 1880's average temperature.<span class="ql-inline-citation" data-cite="23"></span></p></div> </div></div>

## What Is the Paris Agreement/COP21? The Paris Agreement, also known as the Paris Climate Accord, is an agreement among the leaders of over 180 countries to reduce greenhouse gas emissions and limit the global temperature increase to below 2 degrees Celsius (3.6 Fahrenheit) above preindustrial levels by the year 2100. Ideally, the agreement aims to keep the increases below 1.5 degrees Celsius (2.7 Fahrenheit). The agreement is also called the 21st Conference of the Parties to the U.N. Framework Convention on Climate Change (UNFCCC). The two-week conference leading to the agreement was held in Paris in December 2015. As of November 2022, 195 UNFCCC members have signed the agreement, and 194 have become party to it. The Paris Agreement is a replacement for the 2005 [Kyoto Protocol](https://www.investopedia.com/terms/k/kyoto.asp). ### Key Takeaways * The Paris Agreement is a U.N.-sponsored international agreement to reduce greenhouse gas emissions. * The agreement was formed in 2015 and has over 190 signatory nations. * The U.S. officially exited the Paris Agreement in November 2020. * President Joe Biden signed an executive order on Jan. 20, 2021, announcing that the U.S. would rejoin the Paris Agreement. ## Understanding the Paris Agreement/COP21 One of the most significant results of the 2015 Paris Agreement was that the United States and China initially signed on for it. The U.S. briefly left the agreement in November 2020 but rejoined in February 2021. Together, the U.S. and China are responsible for approximately 38.4% of global carbon emissions: 24.5% from the U.S. and 13.9% from China (2019 data). All signatories agreed to the goal of reducing greenhouse gas emissions due to rising temperatures and other risks that affect the entire world. Another significant component of the agreement is that it includes countries that rely on oil and gas production revenue. Each country that attended the 21st Conference of the Parties agreed to cut its emissions by a particular percentage based on a base year's emissions level. The United States, for example, promised to cut its emissions by up to 28% from 2005 levels. These promises are called intended nationally determined contributions. ### It was decided that each participating country would be allowed to determine its own priorities and targets because each country has different circumstances and a different capacity to undertake change. ## The United States Withdrawal From the Paris Agreement On June 1, 2017, United States President Donald Trump announced that the U.S. would withdraw from the 2015 Paris Agreement. Trump reasoned that the Paris Accord would undermine the domestic economy and place the nation at a permanent disadvantage. The United States' withdrawal could not occur before Nov. 2, 2020, according to Article 28 of the Paris Agreement. Until then, the United States had to meet its commitments under the agreement, such as reporting its emissions to the United Nations. The decision by the United States to withdraw was met with widespread condemnation from proponents of climate change theory in the United States and worldwide, religious organizations, businesses, political leaders, scientists, and environmentalists. Despite the withdrawal, several U.S. state governors formed the United States Climate Alliance and pledged to continue to adhere to and advance the Paris Agreement. ### The Paris Agreement was also an issue during the 2020 presidential campaign. The U.S. formally left the global pact on Nov. 4, 2020. ## U.S. Reentry Into the Paris Agreement On Jan. 20, 2021, President Joe Biden signed an executive order announcing that the U.S. would rejoin the Paris Agreement. Under the terms of the agreement, it took 30 days—or until Feb. 19, 2021—for the U.S. to officially rejoin. ## Structure of the Paris Agreement For the agreement to be enacted, at least 55 countries representing about 55% of global emissions were required to join. The agreement opened for formal commitment in April 2016 and closed in April 2017. After a country's leader decided to join the agreement, domestic government approval or the passing of a domestic law was required for that nation to officially participate. Scientists have cautioned that the agreement is not sufficient to prevent catastrophic global warming because countries' carbon emissions reduction pledges will not be enough to meet temperature goals. Other criticisms relate to the agreement's ability to address climate change-related losses in the most vulnerable countries, such as most African countries, many South Asian countries, and several South and Central American countries. Every five years, governments must report on their progress toward and plans for cutting greenhouse gas emissions. The Paris Agreement also requires developed countries to send $100 billion a year to developing countries starting in 2020, when the agreement became effective. This amount will increase over time. ## What Does the Paris Climate Agreement Actually Do? The agreement between signatory countries is to work to reduce emissions output in an attempt to limit rising temperatures to 2 degrees Celsius (3.6 degrees Fahrenheit) or less. ## What Is the Paris Climate Agreement in Simple Terms? The Paris Climate Agreement is an agreement for countries to work together to keep global temperatures from rising more than 2 degree Celsius. ## Was the Paris Climate Agreement Successful? The outcome remains to be seen. Countries are still working towards reducing carbon outputs with long-term goals set into 2030 and beyond. Nasa tracks the latest temperature change above or below that of global temperature in 1880—in November 2022, the global average temperature was 1.53 degrees fahrenheit above 1880's average temperature.

What Is the Paris Agreement/COP21? The Paris Agreement, also known as the Paris Climate Accord, is an agreement among the leaders of over 180 countries to reduce greenhouse gas emissions and limit the global temperature increase to below 2 degrees Celsius (3.6 Fahrenheit) above preindustrial levels by the year 2100. Ideally, the agreement aims to keep the increases below 1.5 degrees Celsius (2.7 Fahrenheit). The agreement is also called the 21st Conference of the Parties to the U.N. Framework Convention on Climate Change (UNFCCC). The two-week conference leading to the agreement was held in Paris in December 2015. As of November 2022, 195 UNFCCC members have signed the agreement, and 194 have become party to it. The Paris Agreement is a replacement for the 2005 Kyoto Protocol. Key Takeaways The Paris Agreement is a U.N.-sponsored international agreement to reduce greenhouse gas emissions.The agreement was formed in 2015 and has over 190 signatory nations.The U.S. officially exited the Paris Agreement in November 2020.President Joe Biden signed an executive order on Jan. 20, 2021, announcing that the U.S. would rejoin the Paris Agreement. Understanding the Paris Agreement/COP21 One of the most significant results of the 2015 Paris Agreement was that the United States and China initially signed on for it. The U.S. briefly left the agreement in November 2020 but rejoined in February 2021. Together, the U.S. and China are responsible for approximately 38.4% of global carbon emissions: 24.5% from the U.S. and 13.9% from China (2019 data). All signatories agreed to the goal of reducing greenhouse gas emissions due to rising temperatures and other risks that affect the entire world. Another significant component of the agreement is that it includes countries that rely on oil and gas production revenue. Each country that attended the 21st Conference of the Parties agreed to cut its emissions by a particular percentage based on a base year's emissions level. The United States, for example, promised to cut its emissions by up to 28% from 2005 levels. These promises are called intended nationally determined contributions. It was decided that each participating country would be allowed to determine its own priorities and targets because each country has different circumstances and a different capacity to undertake change. The United States Withdrawal From the Paris Agreement On June 1, 2017, United States President Donald Trump announced that the U.S. would withdraw from the 2015 Paris Agreement. Trump reasoned that the Paris Accord would undermine the domestic economy and place the nation at a permanent disadvantage. The United States' withdrawal could not occur before Nov. 2, 2020, according to Article 28 of the Paris Agreement. Until then, the United States had to meet its commitments under the agreement, such as reporting its emissions to the United Nations. The decision by the United States to withdraw was met with widespread condemnation from proponents of climate change theory in the United States and worldwide, religious organizations, businesses, political leaders, scientists, and environmentalists. Despite the withdrawal, several U.S. state governors formed the United States Climate Alliance and pledged to continue to adhere to and advance the Paris Agreement. The Paris Agreement was also an issue during the 2020 presidential campaign. The U.S. formally left the global pact on Nov. 4, 2020. U.S. Reentry Into the Paris Agreement On Jan. 20, 2021, President Joe Biden signed an executive order announcing that the U.S. would rejoin the Paris Agreement. Under the terms of the agreement, it took 30 days—or until Feb. 19, 2021—for the U.S. to officially rejoin. Structure of the Paris Agreement For the agreement to be enacted, at least 55 countries representing about 55% of global emissions were required to join. The agreement opened for formal commitment in April 2016 and closed in April 2017. After a country's leader decided to join the agreement, domestic government approval or the passing of a domestic law was required for that nation to officially participate. Scientists have cautioned that the agreement is not sufficient to prevent catastrophic global warming because countries' carbon emissions reduction pledges will not be enough to meet temperature goals. Other criticisms relate to the agreement's ability to address climate change-related losses in the most vulnerable countries, such as most African countries, many South Asian countries, and several South and Central American countries. Every five years, governments must report on their progress toward and plans for cutting greenhouse gas emissions. The Paris Agreement also requires developed countries to send $100 billion a year to developing countries starting in 2020, when the agreement became effective. This amount will increase over time. What Does the Paris Climate Agreement Actually Do? The agreement between signatory countries is to work to reduce emissions output in an attempt to limit rising temperatures to 2 degrees Celsius (3.6 degrees Fahrenheit) or less. What Is the Paris Climate Agreement in Simple Terms? The Paris Climate Agreement is an agreement for countries to work together to keep global temperatures from rising more than 2 degree Celsius. Was the Paris Climate Agreement Successful? The outcome remains to be seen. Countries are still working towards reducing carbon outputs with long-term goals set into 2030 and beyond. Nasa tracks the latest temperature change above or below that of global temperature in 1880—in November 2022, the global average temperature was 1.53 degrees fahrenheit above 1880's average temperature.

https://www.investopedia.com/six-types-of-car-insurance-coverage-5088920

Six Types of Car Insurance Coverage

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/auto-insurance.asp">automobile insurance</a> policy can protect you against financial losses if you're involved in an accident, but coverage isn't one-size-fits-all. There are six types of car insurance to choose from. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <li>Bodily Injury Liability (BI)</li><li>Property Damage Liability (PD)</li><li>Medical Payments or Personal Injury Protection (PIP)</li><li>Collision</li><li>Comprehensive</li><li>Underinsured/Uninsured Motorist</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Whether you're required to have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-full-coverage-car-insurance-7496593">all six types of car insurance</a> can depend largely on where you live, as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-does-auto-insurance-cover-7495827">certain coverages may be mandatory</a> while others are optional. Knowing the difference between each type of car insurance can make it easier to choose a policy that provides the level of protection you need. </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 data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-does-car-insurance-work-5180011">Car insurance</a> can protect you financially if you're involved in an accident that results in property damage, injuries, or the death of another person. </li> <li>Car insurance policies are made up of different types of coverage that cover different risks, such as bodily injury, property damage, and uninsured motorists.</li> <li>Some types of car insurance coverage are required by state law, while others are optional. </li> <li>There are also other types of optional coverage that you may want to consider when insuring a vehicle.</li> </ul></div></div></div> <span class="heading-toc" id="toc-six-types-of-car-insurance-coverage-explained"></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"> Six Types of Car Insurance Coverage, Explained </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The six types of car insurance you can get each serve a different purpose, in terms of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/comprehensive-vs-collision-auto-insurance-7496831">what they protect against</a>. Some cover your vehicle or another driver's, while others cover property damage or personal injury. Here's a closer look at how each one works.  </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"> Bodily Injury Liability Insurance (BI) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Bodily injury liability insurance is designed to pay expenses for someone else if you injure them in an accident where you're deemed to be at fault. This coverage can apply to you and to anyone else who's listed as a driver on your policy.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In terms of what this coverage can pay for, the list includes: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li>Medical expenses</li><li>Lost wages</li><li>Pain and suffering<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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> State law can determine the minimum level of bodily injury liability insurance coverage you need.<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-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_22-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>All states require bodily injury insurance, with the exception of Florida, which only requires it for taxi drivers.<span class="ql-inline-citation" data-cite="9"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-subheading__text"> Property Damage Liability Insurance (PD) </span> </h3> <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/what-is-property-damage-liability-insurance-5184803">Property damage liability</a> insurance also covers you in accidents in which you're at fault. It pays for repairs to the other driver's vehicle or other property you may damage.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> For purposes of this coverage, "other property" can 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>Walls</li><li>Fences</li><li>Equipment, including mailboxes<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_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Property damage liability coverage can also pay for damages to someone else's home. For instance, say you're driving through a neighborhood and your brakes suddenly fail. Your car leaves the roadway, traveling into someone's yard and eventually stopping after colliding with their front porch. </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"> In that case, your property damage liability coverage would pay for repairs to the home, up to your policy's coverage limit. The homeowner could then use their homeowner's insurance policy to cover any remaining amount needed to finish the repairs.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_34-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_35-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_3-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>New Hampshire is the only state that doesn't require drivers to have a minimum level of property damage liability coverage.<span class="ql-inline-citation" data-cite="6"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-subheading__text"> Medical Payments or Personal Injury Protection Insurance (PIP) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> If you or a passenger in your vehicle are hurt in an accident, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medical-payments-coverage.asp">medical payments</a> coverage can pay for any resulting medical bills. Benefits are paid out up to the limit stated in your policy and can reduce any amounts that need to be paid by your health insurance coverage.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Adding <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/personal-injury-protection-pip.asp">personal injury protection</a> coverage to your policy can help to replace lost wages if you or an injured passenger are unable to work or funeral expenses if someone in your vehicle dies because of an accident. The amount of coverage you're required to have can depend on where you live. </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 Michigan, for example, drivers can opt out of PIP coverage if covered by Medicare Parts A and B. However, it's also possible to get unlimited PIP coverage for yourself and all passengers in your vehicle at the time an accident occurs.<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_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"> Collision Coverage </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> While property damage liability insurance pays for damage to someone else's vehicle or property following an accident, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collision-insurance.asp">collision coverage</a> pays for damage to your own vehicle or property. That can include damages caused by a collision with another vehicle or hitting a stationary object, such as a tree or fence.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Whether you need to have collision coverage can depend on the state you're getting insured in and if you have a loan on the vehicle. Your state insurance department may not require collision but if you're borrowing money to buy a car, the lender might require you to have it until the loan is paid off.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-subheading__text"> Comprehensive Coverage </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/comprehensive-insurance.asp">Comprehensive coverage</a> reimburses you for loss, theft, or damage to your vehicle caused by something other than a collision with another vehicle or object. </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"> For example, comprehensive coverage can protect you from damage related to: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> <li>Fire</li><li>Theft</li><li>Larceny</li><li>Falling objects or projectiles</li><li>Explosion</li><li>Earthquake</li><li>Windstorm or hail</li><li>Floods</li><li>Malicious mischief</li><li>Civil unrest</li><li>Contact with a bird or animal</li><li>Glass breakage<span class="ql-inline-citation" data-cite="12"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Again, whether you're required to have this coverage or not can depend on where you live and if you still have an outstanding loan on the vehicle. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-subheading__text"> Underinsured/Uninsured Motorist Coverage </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underinsured-motorist-coverage.asp">Underinsured motorist coverage</a> can protect you if you're involved in an accident where the driver who's at fault doesn't have sufficient insurance. Uninsured motorist coverage is meant to protect you if you're in an accident with a driver who has no insurance at all.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Either type of coverage can pay for medical bills or repairs to your vehicle. You might consider adding on this type of coverage if you live in a state with a high number of uninsured or underinsured drivers.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <span class="heading-toc" id="toc-how-insurance-coverage-requirements-vary-by-state"></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"> How Insurance Coverage Requirements Vary by State </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Every state but New Hampshire requires you to have both bodily injury liability and property damage liability coverage. (New Hampshire drivers do have to meet certain financial responsibility requirements to forgo liability coverage.)<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_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> In the remaining states, there are also minimum dollar amounts for the coverage you must carry. Bodily injury liability can have two dollar limits: one per person and another per accident, while there's only one limit for property damage. </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"> Coverage limits are typically expressed in your insurance policy by a sequence of numbers. So, for example, if your policy has a $25,000 bodily injury liability limit per person, a $50,000 bodily injury liability limit per accident, and a $25,000 property damage liability limit, your policy would express it as 25/50/25.<span class="ql-inline-citation" data-cite="12"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> It's important to note that the minimum coverage limits are just that—minimums. You can opt to purchase coverage above those limits, and that's often a smart idea.  Keep in mind that the more coverage you have, the more you might pay for car insurance. </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"> Whether you're legally required to carry medical payments/PIP insurance, collision coverage, comprehensive coverage, or underinsured/uninsured motorist coverage depends on your state. And again, the minimum coverage amounts you're required to have for each one can vary.  </p> <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-other-kinds-of-optional-car-insurance-coverage"></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"> Other Kinds of Optional Car Insurance Coverage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> Depending on the insurance company, you may be able to add other types of car insurance to your policy besides the six listed above.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> For example, that might include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> <li>Roadside assistance insurance</li> <li>New car replacement coverage</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gapinsurance.asp">Gap insurance</a></li> <li>Towing and labor insurance</li> <li>Death and disability coverage</li> <li>Coverage for other vehicles, such as a golf cart</li> <li>Rental car reimbursement insurance<span class="ql-inline-citation" data-cite="12"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> There are also scenarios that may require specialty insurance coverage. For example, if you have a classic or antique car you may need an insurance policy that takes the car's age, value, and how often you drive it into account. You could also purchase specialty coverage for a vehicle that you leave in storage or if you use your car to offer ride-sharing services.  </p> <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-what-happens-if-you-dont-have-car-insurance"></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"> What Happens If You Don't Have Car Insurance? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> Regardless of where you live, it's against the law to drive a vehicle without car insurance or by meeting financial responsibility requirements, in the case of New Hampshire. Financial responsibility laws require you to furnish proof that you can pay damages yourself if you're involved in an accident.<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_84-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> If you drive without insurance and an accident occurs, several things can happen. First, you could be ticketed and/or charged with a driving violation, according to the laws in your state and based on the circumstances of the accident. At a minimum, you may have your driver's license suspended or revoked.<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_86-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> Additionally, you could face a civil lawsuit if you're at fault in the accident and cause physical injury or property damage. Without an insurance policy to pay damages, you could be held financially responsible for covering someone's medical bills and/or for repairs to their vehicle. Depending on the extent of their injuries or the property damage, that could be financially devastating. </p> <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_4-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>If you live in a no fault state, the person who is injured in a car accident is usually obligated to seek compensation from their insurance company for losses even if you technically caused the accident.<span class="ql-inline-citation" data-cite="13"></span></p></div></div></div> <span class="heading-toc" id="toc-shopping-for-car-insurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_91-0"> <span class="mntl-sc-block-heading__text"> Shopping for Car Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> If you need car insurance, it pays to research different companies and policies first to see what kind of coverage is available in your state and what you can expect to pay. Car insurance rates can depend on things like your age, driving record, where you live, the type of car you have and what you use it for (i.e., travel to work or school, leisure travel, etc.). The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-car-insurance-companies-4783675">best car insurance company</a> for you will meet any special needs you have and offer the best price. </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"> Getting quotes from multiple insurers can help you figure out who has the most affordable rates for car insurance. When comparing options, remember to pay close attention to the policies' <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance-premium.asp">premiums</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/071515/why-do-insurance-policies-have-deductibles.asp">deductibles</a> so you can make a fair cost comparison.  </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_5-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Asking about safe driving and other discounts could help you to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/car-insurance-costs.asp">save money on auto insurance</a>.</p></div></div></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-what-is-the-minimum-amount-of-car-insurance-you-need"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Minimum Amount of Car Insurance You Need?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The minimum amount of car insurance and the types of car insurance you need will depend largely on where you live. Other factors that can affect your coverage may include what the vehicle is used for and whether the car still has a loan on it that you're paying down. You can check with your state's insurance department to learn what types of car insurance you're obligated to have and what minimum coverage is required.</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-why-do-you-need-car-insurance"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Do You Need Car Insurance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Car insurance is designed to offer financial protection in case you're injured or your vehicle is damaged as the result of an accident. Auto insurance can also protect you against damages caused to your vehicle in situations other than an accident. If you don't have car insurance, you run the risk of having to pay for repairs or medical expenses out of pocket. You could also face legal trouble if you're driving uninsured or underinsured.</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-where-can-you-get-cheap-car-insurance"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Can You Get Cheap Car Insurance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The best way to get cheap car insurance is to take your time and shop around. Knowing the minimum coverage you need to have in your state and comparing quotes from different insurance companies can help you find a policy that's affordable. You can also ask about different discounts that might be available to help you save money on auto insurance.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_104-0"><span class="heading-toc" id="toc-how-fast-can-i-get-car-insurance-coverage"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Fast Can I Get Car Insurance Coverage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Once you're approved for a car insurance policy, it's possible for it take effect immediately. You may be able to get same-day coverage, assuming that you have all of the information you need to apply for a policy on hand and there are no issues with your driving record that might require the insurance company to take a closer look before issuing coverage.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></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_106-0"> <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_107-0"> Car insurance can cost you money if you're paying monthly premiums but it could save you big in the long run if you're involved in an accident. Knowing the difference between the different types of car insurance is important for ensuring that there are no gaps in coverage that could result in you having to pay for repairs or medical expenses out of pocket. Researching the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-car-insurance-companies-4783675">best car insurance companies</a> is a good place to start when looking for your first policy or your next one.<br/> </p></div>

An [automobile insurance](https://www.investopedia.com/terms/a/auto-insurance.asp) policy can protect you against financial losses if you're involved in an accident, but coverage isn't one-size-fits-all. There are six types of car insurance to choose from. * Bodily Injury Liability (BI) * Property Damage Liability (PD) * Medical Payments or Personal Injury Protection (PIP) * Collision * Comprehensive * Underinsured/Uninsured Motorist Whether you're required to have [all six types of car insurance](https://www.investopedia.com/what-is-full-coverage-car-insurance-7496593) can depend largely on where you live, as [certain coverages may be mandatory](https://www.investopedia.com/what-does-auto-insurance-cover-7495827) while others are optional. Knowing the difference between each type of car insurance can make it easier to choose a policy that provides the level of protection you need. ### Key Takeaways * [Car insurance](https://www.investopedia.com/how-does-car-insurance-work-5180011) can protect you financially if you're involved in an accident that results in property damage, injuries, or the death of another person. * Car insurance policies are made up of different types of coverage that cover different risks, such as bodily injury, property damage, and uninsured motorists. * Some types of car insurance coverage are required by state law, while others are optional. * There are also other types of optional coverage that you may want to consider when insuring a vehicle. ## Six Types of Car Insurance Coverage, Explained The six types of car insurance you can get each serve a different purpose, in terms of [what they protect against](https://www.investopedia.com/comprehensive-vs-collision-auto-insurance-7496831). Some cover your vehicle or another driver's, while others cover property damage or personal injury. Here's a closer look at how each one works.  ### Bodily Injury Liability Insurance (BI) Bodily injury liability insurance is designed to pay expenses for someone else if you injure them in an accident where you're deemed to be at fault. This coverage can apply to you and to anyone else who's listed as a driver on your policy. In terms of what this coverage can pay for, the list includes: * Medical expenses * Lost wages * Pain and suffering State law can determine the minimum level of bodily injury liability insurance coverage you need. ### Important All states require bodily injury insurance, with the exception of Florida, which only requires it for taxi drivers. ### Property Damage Liability Insurance (PD) [Property damage liability](https://www.investopedia.com/what-is-property-damage-liability-insurance-5184803) insurance also covers you in accidents in which you're at fault. It pays for repairs to the other driver's vehicle or other property you may damage. For purposes of this coverage, "other property" can include: * Walls * Fences * Equipment, including mailboxes Property damage liability coverage can also pay for damages to someone else's home. For instance, say you're driving through a neighborhood and your brakes suddenly fail. Your car leaves the roadway, traveling into someone's yard and eventually stopping after colliding with their front porch. In that case, your property damage liability coverage would pay for repairs to the home, up to your policy's coverage limit. The homeowner could then use their homeowner's insurance policy to cover any remaining amount needed to finish the repairs. ### Note New Hampshire is the only state that doesn't require drivers to have a minimum level of property damage liability coverage. ### Medical Payments or Personal Injury Protection Insurance (PIP) If you or a passenger in your vehicle are hurt in an accident, [medical payments](https://www.investopedia.com/terms/m/medical-payments-coverage.asp) coverage can pay for any resulting medical bills. Benefits are paid out up to the limit stated in your policy and can reduce any amounts that need to be paid by your health insurance coverage. Adding [personal injury protection](https://www.investopedia.com/terms/p/personal-injury-protection-pip.asp) coverage to your policy can help to replace lost wages if you or an injured passenger are unable to work or funeral expenses if someone in your vehicle dies because of an accident. The amount of coverage you're required to have can depend on where you live. In Michigan, for example, drivers can opt out of PIP coverage if covered by Medicare Parts A and B. However, it's also possible to get unlimited PIP coverage for yourself and all passengers in your vehicle at the time an accident occurs. ### Collision Coverage While property damage liability insurance pays for damage to someone else's vehicle or property following an accident, [collision coverage](https://www.investopedia.com/terms/c/collision-insurance.asp) pays for damage to your own vehicle or property. That can include damages caused by a collision with another vehicle or hitting a stationary object, such as a tree or fence. Whether you need to have collision coverage can depend on the state you're getting insured in and if you have a loan on the vehicle. Your state insurance department may not require collision but if you're borrowing money to buy a car, the lender might require you to have it until the loan is paid off. ### Comprehensive Coverage [Comprehensive coverage](https://www.investopedia.com/terms/c/comprehensive-insurance.asp) reimburses you for loss, theft, or damage to your vehicle caused by something other than a collision with another vehicle or object. For example, comprehensive coverage can protect you from damage related to: * Fire * Theft * Larceny * Falling objects or projectiles * Explosion * Earthquake * Windstorm or hail * Floods * Malicious mischief * Civil unrest * Contact with a bird or animal * Glass breakage Again, whether you're required to have this coverage or not can depend on where you live and if you still have an outstanding loan on the vehicle. ### Underinsured/Uninsured Motorist Coverage [Underinsured motorist coverage](https://www.investopedia.com/terms/u/underinsured-motorist-coverage.asp) can protect you if you're involved in an accident where the driver who's at fault doesn't have sufficient insurance. Uninsured motorist coverage is meant to protect you if you're in an accident with a driver who has no insurance at all. Either type of coverage can pay for medical bills or repairs to your vehicle. You might consider adding on this type of coverage if you live in a state with a high number of uninsured or underinsured drivers. ## How Insurance Coverage Requirements Vary by State Every state but New Hampshire requires you to have both bodily injury liability and property damage liability coverage. (New Hampshire drivers do have to meet certain financial responsibility requirements to forgo liability coverage.) In the remaining states, there are also minimum dollar amounts for the coverage you must carry. Bodily injury liability can have two dollar limits: one per person and another per accident, while there's only one limit for property damage. Coverage limits are typically expressed in your insurance policy by a sequence of numbers. So, for example, if your policy has a $25,000 bodily injury liability limit per person, a $50,000 bodily injury liability limit per accident, and a $25,000 property damage liability limit, your policy would express it as 25/50/25.  It's important to note that the minimum coverage limits are just that—minimums. You can opt to purchase coverage above those limits, and that's often a smart idea.  Keep in mind that the more coverage you have, the more you might pay for car insurance. Whether you're legally required to carry medical payments/PIP insurance, collision coverage, comprehensive coverage, or underinsured/uninsured motorist coverage depends on your state. And again, the minimum coverage amounts you're required to have for each one can vary.  ## Other Kinds of Optional Car Insurance Coverage Depending on the insurance company, you may be able to add other types of car insurance to your policy besides the six listed above.  For example, that might include: * Roadside assistance insurance * New car replacement coverage * [Gap insurance](https://www.investopedia.com/terms/g/gapinsurance.asp) * Towing and labor insurance * Death and disability coverage * Coverage for other vehicles, such as a golf cart * Rental car reimbursement insurance There are also scenarios that may require specialty insurance coverage. For example, if you have a classic or antique car you may need an insurance policy that takes the car's age, value, and how often you drive it into account. You could also purchase specialty coverage for a vehicle that you leave in storage or if you use your car to offer ride-sharing services.  ## What Happens If You Don't Have Car Insurance? Regardless of where you live, it's against the law to drive a vehicle without car insurance or by meeting financial responsibility requirements, in the case of New Hampshire. Financial responsibility laws require you to furnish proof that you can pay damages yourself if you're involved in an accident. If you drive without insurance and an accident occurs, several things can happen. First, you could be ticketed and/or charged with a driving violation, according to the laws in your state and based on the circumstances of the accident. At a minimum, you may have your driver's license suspended or revoked. Additionally, you could face a civil lawsuit if you're at fault in the accident and cause physical injury or property damage. Without an insurance policy to pay damages, you could be held financially responsible for covering someone's medical bills and/or for repairs to their vehicle. Depending on the extent of their injuries or the property damage, that could be financially devastating. ### Tip If you live in a no fault state, the person who is injured in a car accident is usually obligated to seek compensation from their insurance company for losses even if you technically caused the accident. ## Shopping for Car Insurance If you need car insurance, it pays to research different companies and policies first to see what kind of coverage is available in your state and what you can expect to pay. Car insurance rates can depend on things like your age, driving record, where you live, the type of car you have and what you use it for (i.e., travel to work or school, leisure travel, etc.). The [best car insurance company](https://www.investopedia.com/best-car-insurance-companies-4783675) for you will meet any special needs you have and offer the best price. Getting quotes from multiple insurers can help you figure out who has the most affordable rates for car insurance. When comparing options, remember to pay close attention to the policies' [premiums](https://www.investopedia.com/terms/i/insurance-premium.asp) and [deductibles](https://www.investopedia.com/ask/answers/071515/why-do-insurance-policies-have-deductibles.asp) so you can make a fair cost comparison.  ### Tip Asking about safe driving and other discounts could help you to [save money on auto insurance](https://www.investopedia.com/articles/pf/08/car-insurance-costs.asp). ## What Is the Minimum Amount of Car Insurance You Need? The minimum amount of car insurance and the types of car insurance you need will depend largely on where you live. Other factors that can affect your coverage may include what the vehicle is used for and whether the car still has a loan on it that you're paying down. You can check with your state's insurance department to learn what types of car insurance you're obligated to have and what minimum coverage is required. ## Why Do You Need Car Insurance? Car insurance is designed to offer financial protection in case you're injured or your vehicle is damaged as the result of an accident. Auto insurance can also protect you against damages caused to your vehicle in situations other than an accident. If you don't have car insurance, you run the risk of having to pay for repairs or medical expenses out of pocket. You could also face legal trouble if you're driving uninsured or underinsured. ## Where Can You Get Cheap Car Insurance? The best way to get cheap car insurance is to take your time and shop around. Knowing the minimum coverage you need to have in your state and comparing quotes from different insurance companies can help you find a policy that's affordable. You can also ask about different discounts that might be available to help you save money on auto insurance. ## How Fast Can I Get Car Insurance Coverage? Once you're approved for a car insurance policy, it's possible for it take effect immediately. You may be able to get same-day coverage, assuming that you have all of the information you need to apply for a policy on hand and there are no issues with your driving record that might require the insurance company to take a closer look before issuing coverage. ## Bottom Line Car insurance can cost you money if you're paying monthly premiums but it could save you big in the long run if you're involved in an accident. Knowing the difference between the different types of car insurance is important for ensuring that there are no gaps in coverage that could result in you having to pay for repairs or medical expenses out of pocket. Researching the [best car insurance companies](https://www.investopedia.com/best-car-insurance-companies-4783675) is a good place to start when looking for your first policy or your next one.

An automobile insurance policy can protect you against financial losses if you're involved in an accident, but coverage isn't one-size-fits-all. There are six types of car insurance to choose from. Bodily Injury Liability (BI)Property Damage Liability (PD)Medical Payments or Personal Injury Protection (PIP)CollisionComprehensiveUnderinsured/Uninsured Motorist Whether you're required to have all six types of car insurance can depend largely on where you live, as certain coverages may be mandatory while others are optional. Knowing the difference between each type of car insurance can make it easier to choose a policy that provides the level of protection you need. Key Takeaways Car insurance can protect you financially if you're involved in an accident that results in property damage, injuries, or the death of another person.  Car insurance policies are made up of different types of coverage that cover different risks, such as bodily injury, property damage, and uninsured motorists. Some types of car insurance coverage are required by state law, while others are optional.  There are also other types of optional coverage that you may want to consider when insuring a vehicle. Six Types of Car Insurance Coverage, Explained The six types of car insurance you can get each serve a different purpose, in terms of what they protect against. Some cover your vehicle or another driver's, while others cover property damage or personal injury. Here's a closer look at how each one works.  Bodily Injury Liability Insurance (BI) Bodily injury liability insurance is designed to pay expenses for someone else if you injure them in an accident where you're deemed to be at fault. This coverage can apply to you and to anyone else who's listed as a driver on your policy. In terms of what this coverage can pay for, the list includes: Medical expensesLost wagesPain and suffering State law can determine the minimum level of bodily injury liability insurance coverage you need. Important All states require bodily injury insurance, with the exception of Florida, which only requires it for taxi drivers. Property Damage Liability Insurance (PD) Property damage liability insurance also covers you in accidents in which you're at fault. It pays for repairs to the other driver's vehicle or other property you may damage. For purposes of this coverage, "other property" can include: WallsFencesEquipment, including mailboxes Property damage liability coverage can also pay for damages to someone else's home. For instance, say you're driving through a neighborhood and your brakes suddenly fail. Your car leaves the roadway, traveling into someone's yard and eventually stopping after colliding with their front porch. In that case, your property damage liability coverage would pay for repairs to the home, up to your policy's coverage limit. The homeowner could then use their homeowner's insurance policy to cover any remaining amount needed to finish the repairs. Note New Hampshire is the only state that doesn't require drivers to have a minimum level of property damage liability coverage. Medical Payments or Personal Injury Protection Insurance (PIP) If you or a passenger in your vehicle are hurt in an accident, medical payments coverage can pay for any resulting medical bills. Benefits are paid out up to the limit stated in your policy and can reduce any amounts that need to be paid by your health insurance coverage. Adding personal injury protection coverage to your policy can help to replace lost wages if you or an injured passenger are unable to work or funeral expenses if someone in your vehicle dies because of an accident. The amount of coverage you're required to have can depend on where you live. In Michigan, for example, drivers can opt out of PIP coverage if covered by Medicare Parts A and B. However, it's also possible to get unlimited PIP coverage for yourself and all passengers in your vehicle at the time an accident occurs. Collision Coverage While property damage liability insurance pays for damage to someone else's vehicle or property following an accident, collision coverage pays for damage to your own vehicle or property. That can include damages caused by a collision with another vehicle or hitting a stationary object, such as a tree or fence. Whether you need to have collision coverage can depend on the state you're getting insured in and if you have a loan on the vehicle. Your state insurance department may not require collision but if you're borrowing money to buy a car, the lender might require you to have it until the loan is paid off. Comprehensive Coverage Comprehensive coverage reimburses you for loss, theft, or damage to your vehicle caused by something other than a collision with another vehicle or object. For example, comprehensive coverage can protect you from damage related to: FireTheftLarcenyFalling objects or projectilesExplosionEarthquakeWindstorm or hailFloodsMalicious mischiefCivil unrestContact with a bird or animalGlass breakage Again, whether you're required to have this coverage or not can depend on where you live and if you still have an outstanding loan on the vehicle. Underinsured/Uninsured Motorist Coverage Underinsured motorist coverage can protect you if you're involved in an accident where the driver who's at fault doesn't have sufficient insurance. Uninsured motorist coverage is meant to protect you if you're in an accident with a driver who has no insurance at all. Either type of coverage can pay for medical bills or repairs to your vehicle. You might consider adding on this type of coverage if you live in a state with a high number of uninsured or underinsured drivers. How Insurance Coverage Requirements Vary by State Every state but New Hampshire requires you to have both bodily injury liability and property damage liability coverage. (New Hampshire drivers do have to meet certain financial responsibility requirements to forgo liability coverage.) In the remaining states, there are also minimum dollar amounts for the coverage you must carry. Bodily injury liability can have two dollar limits: one per person and another per accident, while there's only one limit for property damage. Coverage limits are typically expressed in your insurance policy by a sequence of numbers. So, for example, if your policy has a $25,000 bodily injury liability limit per person, a $50,000 bodily injury liability limit per accident, and a $25,000 property damage liability limit, your policy would express it as 25/50/25.  It's important to note that the minimum coverage limits are just that—minimums. You can opt to purchase coverage above those limits, and that's often a smart idea.  Keep in mind that the more coverage you have, the more you might pay for car insurance. Whether you're legally required to carry medical payments/PIP insurance, collision coverage, comprehensive coverage, or underinsured/uninsured motorist coverage depends on your state. And again, the minimum coverage amounts you're required to have for each one can vary.  Other Kinds of Optional Car Insurance Coverage Depending on the insurance company, you may be able to add other types of car insurance to your policy besides the six listed above.  For example, that might include: Roadside assistance insurance New car replacement coverage Gap insurance Towing and labor insurance Death and disability coverage Coverage for other vehicles, such as a golf cart Rental car reimbursement insurance There are also scenarios that may require specialty insurance coverage. For example, if you have a classic or antique car you may need an insurance policy that takes the car's age, value, and how often you drive it into account. You could also purchase specialty coverage for a vehicle that you leave in storage or if you use your car to offer ride-sharing services.  What Happens If You Don't Have Car Insurance? Regardless of where you live, it's against the law to drive a vehicle without car insurance or by meeting financial responsibility requirements, in the case of New Hampshire. Financial responsibility laws require you to furnish proof that you can pay damages yourself if you're involved in an accident. If you drive without insurance and an accident occurs, several things can happen. First, you could be ticketed and/or charged with a driving violation, according to the laws in your state and based on the circumstances of the accident. At a minimum, you may have your driver's license suspended or revoked. Additionally, you could face a civil lawsuit if you're at fault in the accident and cause physical injury or property damage. Without an insurance policy to pay damages, you could be held financially responsible for covering someone's medical bills and/or for repairs to their vehicle. Depending on the extent of their injuries or the property damage, that could be financially devastating. Tip If you live in a no fault state, the person who is injured in a car accident is usually obligated to seek compensation from their insurance company for losses even if you technically caused the accident. Shopping for Car Insurance If you need car insurance, it pays to research different companies and policies first to see what kind of coverage is available in your state and what you can expect to pay. Car insurance rates can depend on things like your age, driving record, where you live, the type of car you have and what you use it for (i.e., travel to work or school, leisure travel, etc.). The best car insurance company for you will meet any special needs you have and offer the best price. Getting quotes from multiple insurers can help you figure out who has the most affordable rates for car insurance. When comparing options, remember to pay close attention to the policies' premiums and deductibles so you can make a fair cost comparison.  Tip Asking about safe driving and other discounts could help you to save money on auto insurance. What Is the Minimum Amount of Car Insurance You Need? The minimum amount of car insurance and the types of car insurance you need will depend largely on where you live. Other factors that can affect your coverage may include what the vehicle is used for and whether the car still has a loan on it that you're paying down. You can check with your state's insurance department to learn what types of car insurance you're obligated to have and what minimum coverage is required. Why Do You Need Car Insurance? Car insurance is designed to offer financial protection in case you're injured or your vehicle is damaged as the result of an accident. Auto insurance can also protect you against damages caused to your vehicle in situations other than an accident. If you don't have car insurance, you run the risk of having to pay for repairs or medical expenses out of pocket. You could also face legal trouble if you're driving uninsured or underinsured. Where Can You Get Cheap Car Insurance? The best way to get cheap car insurance is to take your time and shop around. Knowing the minimum coverage you need to have in your state and comparing quotes from different insurance companies can help you find a policy that's affordable. You can also ask about different discounts that might be available to help you save money on auto insurance. How Fast Can I Get Car Insurance Coverage? Once you're approved for a car insurance policy, it's possible for it take effect immediately. You may be able to get same-day coverage, assuming that you have all of the information you need to apply for a policy on hand and there are no issues with your driving record that might require the insurance company to take a closer look before issuing coverage. Bottom Line Car insurance can cost you money if you're paying monthly premiums but it could save you big in the long run if you're involved in an accident. Knowing the difference between the different types of car insurance is important for ensuring that there are no gaps in coverage that could result in you having to pay for repairs or medical expenses out of pocket. Researching the best car insurance companies is a good place to start when looking for your first policy or your next one.

https://www.investopedia.com/articles/investing/090115/7-best-etf-trading-strategies-beginners.asp

7 Best ETF Trading Strategies for Beginners

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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) are ideal for beginning investors due to their many benefits, which include 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>, instant diversification, and a multitude of investment choices. Unlike some mutual funds, they also tend to have low investing thresholds, so you don't have to be ultra-rich to get started. </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 are the seven best ETF <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trading-strategy.asp">trading strategies</a> for beginners, presented in no particular order.  </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>ETF investors can use the same strategies used in stock investing, such as dollar-cost averaging and sector rotation.</li><li>The most popular ETFs track the S&amp;P 500 Index but other ETFs focus on single sectors or industries.</li><li>Some ETFs offer access to strategies once dominated by professionals, such as leveraged funds that can return a multiple of the underlying index, and inverse ETFs that increase in value when the index falls.</li></ul></div></div></div> <span class="heading-toc" id="toc-1-dollar-cost-averaging"></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"> 1. Dollar-Cost Averaging </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dollarcostaveraging.asp">Dollar-cost averaging</a> (DCA) requires buying a set fixed-dollar amount of an asset on a regular schedule, regardless of the changing cost of the asset. Instead of chasing the market, these investors build a position in a stock. Over time, the average cost of their investment proves to be competitive. </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"> This is a smart strategy for beginner investors, who may be young people in first jobs with a modest sum to invest each month. They'd be better off investing it in an ETF or more than one ETF rather than putting it in a low-interest savings account. </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"> DCA reduces risk and shields the investor from market volatility. By consistently purchasing assets at various price points, it minimizes the impact of short-term market fluctuations on overall investment performance. </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">ETF Categories</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The most popular ETFs are stock funds, but <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/popular-etf-types-for-your-portfolio/">many ETFs</a> invest in bonds, commodities, currencies, and real estate. Since January 2024, there have even been <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/bitcoin-etfs-explained/">bitcoin futures ETFs</a>.</p></div></div></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"> Advantages of Dollar-Cost Averaging </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> There are two major advantages of periodic investing for beginners. The first is that it imparts discipline to the savings process. As many financial planners recommend, it makes eminent sense to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payyourselffirst.asp">pay yourself first</a>, which is what you achieve by saving regularly. </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 second advantage is simple: You'll make more money. By investing the same dollar amount in an ETF every month you will accumulate more units at a low price and fewer units at a high price. Over time, this approach can pay off handsomely, as long as you stick to it. </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-2-asset-allocation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> 2. Asset Allocation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Asset allocation means dividing your investments into broad categories, such as stocks, bonds, and cash, to minimize the impact of a real downturn in one of them. </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 low investment threshold for most ETFs makes it easy for a beginner to implement a basic asset allocation strategy that matches their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/110813/using-time-horizons-investing.asp">investment time horizon</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_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> For example, young investors might be 100% invested in equity ETFs when they are in their 20s. In the long term, they should get the highest return, and in the short term, they can wait out any reverses. </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"> As these same investors reach their 30s they may be looking forward to major changes such as starting a family and buying a house. They would do well to shift to a less aggressive investment mix such as 60% in equities ETFs and 40% in bond ETFs. This way, a major downturn in the stock market won't disrupt their lives. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Many ETFs are naturally structured to be diversified. For example, an ETF that tracks a broad market index, such as the S&amp;P 500, would hold a basket of stocks representing a diverse range of companies from various sectors. </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"> However, it's important to note that not all ETFs are diversified. For instance, some ETFs track a specific industry like technology or energy. A downturn in a whole sector is not unknown. </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-3-swing-trading"></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"> 3. Swing Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Swing trades seek to exploit sizeable price changes in stocks or other assets like currencies or commodities. Unlike day trades, they can take anywhere from a few days to a few weeks to work out. </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 attributes of ETFs that make them suitable for swing trading are their diversification and tight bid/ask spreads. Moreover, ETFs are available for many different investment classes and a wide range of sectors, so a beginner can choose an ETF that is based on a sector or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assetclasses.asp">asset class</a> where they have some expertise or knowledge. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> For example, someone with a technology background may have an advantage in trading a technology ETF like the Invesco QQQ ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=qqq">QQQ</a>), which tracks the Nasdaq-100 Index.<span class="ql-inline-citation" data-cite="2"></span> A novice trader who closely tracks the commodity markets may prefer to trade one of the many commodity ETFs, such as the Invesco DB Commodity Index Tracking Fund (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=dbc">DBC</a>).<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Because ETFs are typically <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/basket.asp">baskets</a> of stocks or other assets, their prices tend not to jump as wildly as single stocks in a bull market. By the same token, they are less susceptible to a sharp drop. </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-4-sector-rotation"></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"> 4. Sector Rotation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Spotting the big economic trends and acting on them is relatively easy for ETF investors. This is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/05/020305.asp">sector rotation</a>, which is adjusting a portfolio to take advantage of a new stage in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economic-cycle.asp">economic cycle</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> For example, assume an investor has been invested in the biotechnology sector through the iShares Biotechnology ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ibb">IBB</a>).<span class="ql-inline-citation" data-cite="9"></span> If it looks like an economic slowdown is coming, the investor might decide to take profits in this ETF and put it in a defensive sector such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumerstaples.asp">consumer staples</a> via The Consumer Staples Select Sector SPDR Fund (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=xlp">XLP</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_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Keep in mind that there are risks to sector rotation. Success hinges on market timing, and economic cycles are not easy for even economists to predict. </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"> Frequent trading also can incur high transaction costs and trigger tax implications, particularly with short-term capital gains taxes. </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-5-short-selling"></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"> 5. Short Selling </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Short selling means selling a stock or other asset that has been borrowed. The investor makes money if the asset declines in value, or owes money if it gains. This is just as risky as it sounds. </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"> However, short-selling ETFs is slightly less risky than shorting individual stocks because of the low risk of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortsqueeze.asp">short squeeze</a> in an ETF. That is a trading scenario in which an asset that has been heavily shorted spikes higher, forcing short sellers to take a loss. </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"> Beginners, and individual investors in general, should stay away from double-leveraged or triple-leveraged <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inverse-etf.asp">inverse ETFs</a>, which seek results equal to two or three times the inverse of the one-day <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-change.asp">price change</a> in an index. High risk is inherent in these ETFs.<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_58-0"></div> <span class="heading-toc" id="toc-6-betting-on-seasonal-trends"></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"> 6. Betting on Seasonal Trends </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> ETFs are good tools for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalize.asp">capitalizing</a> on seasonal trends. Consider two well-known seasonal trends. The first one is called the sell in May and go away phenomenon. U.S. equities historically underperform over the six-month May-October period compared with the November-April period.<span class="ql-inline-citation" data-cite="16"></span> The other seasonal trend is the tendency of gold to gain in September and October, thanks to strong demand from India ahead of the wedding season and the Diwali festival of lights.<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_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> The broad market weakness trend can be exploited by shorting the SPDR S&amp;P 500 ETF around the end of April or the beginning of May and closing out the short position in late October, right after the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market_swoon.asp">market swoons</a> typical of that month have occurred. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> A beginner can similarly take advantage of seasonal gold strength by buying units of a popular gold ETF, like the SPDR Gold Trust (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=gld">GLD</a>), in late summer and closing out the position after a couple of months.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Note that seasonal trends do not always occur as predicted. Stop-loss orders are a wise move. </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-7-hedging"></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"> 7. Hedging </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> A beginner may occasionally need to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedge</a> or protect against <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/downsiderisk.asp">downside risk</a> in a substantial portfolio, perhaps one that has been acquired as an inheritance. </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"> Suppose you have inherited a sizeable portfolio of U.S. blue chips and are concerned about the risk of a large decline in U.S. equities. One solution is to buy <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/putoption.asp">put options</a>. However, since most beginners are not familiar with option trading strategies, an alternate strategy is to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/etfs/062716/hedging-etf-indexes-relevant-strategy-qqq-psq.asp">initiate a short position in broad market ETFs</a> like the SPDR S&amp;P 500 ETF or the SPDR Dow Jones Industrial Average ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=dia">DIA</a>).<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> If the market declines as expected, your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bluechip.asp">blue-chip</a> equity position will be hedged effectively since declines in your portfolio will be offset by gains in the short ETF position. Note that your gains would also be capped if the market rises since gains in your portfolio will be offset by losses in the short ETF position. Nevertheless, ETFs offer beginners a relatively easy and efficient method of hedging. </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-are-all-etfs-diversified-or-do-some-focus-on-specific-sectors"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are All ETFs Diversified, or Do Some Focus on Specific Sectors?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While many ETFs are designed to be diversified, focusing on a broad market index, others may concentrate on specific sectors or themes, leading to variations in diversification. It's essential for investors to understand an ETF's underlying holdings and investment objective to assess its level of diversification.</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-what-is-the-role-of-index-tracking-in-etfs"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Role of Index Tracking in ETFs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The primary role of ETFs is to track the performance of a specific index, and this process is known as index tracking. ETFs use a passive management approach, aiming to replicate the returns of the index they follow.</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-are-there-tax-implications-associated-with-etf-investing"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Tax Implications Associated with ETF Investing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Tax implications of ETF investing depend on factors such as capital gains distributions, capital gains taxes upon selling, and tax efficiency. Additionally, investors can control the timing of capital gains recognition by choosing when to sell ETF shares and in what investment vehicles to hold ETFs in.</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-can-etfs-be-used-for-short-term-or-long-term-investment-strategies"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can ETFs Be Used for Short-Term or Long-Term Investment Strategies?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>ETFs can be used for both short-term and long-term investment strategies, depending on your financial goals, risk tolerance, and time horizon. For short-term strategies, investors might use ETFs for tactical asset allocation or to capitalize on specific market trends. Long-term investors, on the other hand, may use ETFs as core building blocks within a diversified portfolio.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_83-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> The basic strategies used by stock investors are easily adapted to exchange-traded funds. Some may work better since ETFs are by definition more diversified and less volatile than individual stocks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> If you're a beginning investor, start by considering what your financial goals are and what level of risk you can tolerate. Then decide how much you can afford to invest each month. Finally, pick the ETF or two or more ETFs that can get you where you want to go. </p></div>

Exchange-traded funds (ETFs) are ideal for beginning investors due to their many benefits, which include low [expense ratios](https://www.investopedia.com/terms/e/expenseratio.asp), instant diversification, and a multitude of investment choices. Unlike some mutual funds, they also tend to have low investing thresholds, so you don't have to be ultra-rich to get started. Below are the seven best ETF [trading strategies](https://www.investopedia.com/terms/t/trading-strategy.asp) for beginners, presented in no particular order.  ### Key Takeaways * ETF investors can use the same strategies used in stock investing, such as dollar-cost averaging and sector rotation. * The most popular ETFs track the S&P 500 Index but other ETFs focus on single sectors or industries. * Some ETFs offer access to strategies once dominated by professionals, such as leveraged funds that can return a multiple of the underlying index, and inverse ETFs that increase in value when the index falls. ## 1. Dollar-Cost Averaging [Dollar-cost averaging](https://www.investopedia.com/terms/d/dollarcostaveraging.asp) (DCA) requires buying a set fixed-dollar amount of an asset on a regular schedule, regardless of the changing cost of the asset. Instead of chasing the market, these investors build a position in a stock. Over time, the average cost of their investment proves to be competitive. This is a smart strategy for beginner investors, who may be young people in first jobs with a modest sum to invest each month. They'd be better off investing it in an ETF or more than one ETF rather than putting it in a low-interest savings account. DCA reduces risk and shields the investor from market volatility. By consistently purchasing assets at various price points, it minimizes the impact of short-term market fluctuations on overall investment performance. ### ETF Categories The most popular ETFs are stock funds, but [many ETFs](https://www.investopedia.com/investing/popular-etf-types-for-your-portfolio/) invest in bonds, commodities, currencies, and real estate. Since January 2024, there have even been [bitcoin futures ETFs](https://www.investopedia.com/investing/bitcoin-etfs-explained/). ### Advantages of Dollar-Cost Averaging There are two major advantages of periodic investing for beginners. The first is that it imparts discipline to the savings process. As many financial planners recommend, it makes eminent sense to [pay yourself first](https://www.investopedia.com/terms/p/payyourselffirst.asp), which is what you achieve by saving regularly. The second advantage is simple: You'll make more money. By investing the same dollar amount in an ETF every month you will accumulate more units at a low price and fewer units at a high price. Over time, this approach can pay off handsomely, as long as you stick to it. ## 2. Asset Allocation Asset allocation means dividing your investments into broad categories, such as stocks, bonds, and cash, to minimize the impact of a real downturn in one of them. The low investment threshold for most ETFs makes it easy for a beginner to implement a basic asset allocation strategy that matches their [investment time horizon](https://www.investopedia.com/articles/investing/110813/using-time-horizons-investing.asp) and [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp). For example, young investors might be 100% invested in equity ETFs when they are in their 20s. In the long term, they should get the highest return, and in the short term, they can wait out any reverses. As these same investors reach their 30s they may be looking forward to major changes such as starting a family and buying a house. They would do well to shift to a less aggressive investment mix such as 60% in equities ETFs and 40% in bond ETFs. This way, a major downturn in the stock market won't disrupt their lives. Many ETFs are naturally structured to be diversified. For example, an ETF that tracks a broad market index, such as the S&P 500, would hold a basket of stocks representing a diverse range of companies from various sectors. However, it's important to note that not all ETFs are diversified. For instance, some ETFs track a specific industry like technology or energy. A downturn in a whole sector is not unknown. ## 3. Swing Trading Swing trades seek to exploit sizeable price changes in stocks or other assets like currencies or commodities. Unlike day trades, they can take anywhere from a few days to a few weeks to work out. The attributes of ETFs that make them suitable for swing trading are their diversification and tight bid/ask spreads. Moreover, ETFs are available for many different investment classes and a wide range of sectors, so a beginner can choose an ETF that is based on a sector or [asset class](https://www.investopedia.com/terms/a/assetclasses.asp) where they have some expertise or knowledge. For example, someone with a technology background may have an advantage in trading a technology ETF like the Invesco QQQ ETF ([QQQ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=qqq)), which tracks the Nasdaq-100 Index. A novice trader who closely tracks the commodity markets may prefer to trade one of the many commodity ETFs, such as the Invesco DB Commodity Index Tracking Fund ([DBC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=dbc)). Because ETFs are typically [baskets](https://www.investopedia.com/terms/b/basket.asp) of stocks or other assets, their prices tend not to jump as wildly as single stocks in a bull market. By the same token, they are less susceptible to a sharp drop. ## 4. Sector Rotation Spotting the big economic trends and acting on them is relatively easy for ETF investors. This is [sector rotation](https://www.investopedia.com/articles/trading/05/020305.asp), which is adjusting a portfolio to take advantage of a new stage in the [economic cycle](https://www.investopedia.com/terms/e/economic-cycle.asp). For example, assume an investor has been invested in the biotechnology sector through the iShares Biotechnology ETF ([IBB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ibb)). If it looks like an economic slowdown is coming, the investor might decide to take profits in this ETF and put it in a defensive sector such as [consumer staples](https://www.investopedia.com/terms/c/consumerstaples.asp) via The Consumer Staples Select Sector SPDR Fund ([XLP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=xlp)). Keep in mind that there are risks to sector rotation. Success hinges on market timing, and economic cycles are not easy for even economists to predict. Frequent trading also can incur high transaction costs and trigger tax implications, particularly with short-term capital gains taxes. ## 5. Short Selling Short selling means selling a stock or other asset that has been borrowed. The investor makes money if the asset declines in value, or owes money if it gains. This is just as risky as it sounds. However, short-selling ETFs is slightly less risky than shorting individual stocks because of the low risk of a [short squeeze](https://www.investopedia.com/terms/s/shortsqueeze.asp) in an ETF. That is a trading scenario in which an asset that has been heavily shorted spikes higher, forcing short sellers to take a loss. Beginners, and individual investors in general, should stay away from double-leveraged or triple-leveraged [inverse ETFs](https://www.investopedia.com/terms/i/inverse-etf.asp), which seek results equal to two or three times the inverse of the one-day [price change](https://www.investopedia.com/terms/p/price-change.asp) in an index. High risk is inherent in these ETFs. ## 6. Betting on Seasonal Trends ETFs are good tools for [capitalizing](https://www.investopedia.com/terms/c/capitalize.asp) on seasonal trends. Consider two well-known seasonal trends. The first one is called the sell in May and go away phenomenon. U.S. equities historically underperform over the six-month May-October period compared with the November-April period. The other seasonal trend is the tendency of gold to gain in September and October, thanks to strong demand from India ahead of the wedding season and the Diwali festival of lights. The broad market weakness trend can be exploited by shorting the SPDR S&P 500 ETF around the end of April or the beginning of May and closing out the short position in late October, right after the [market swoons](https://www.investopedia.com/terms/m/market_swoon.asp) typical of that month have occurred. A beginner can similarly take advantage of seasonal gold strength by buying units of a popular gold ETF, like the SPDR Gold Trust ([GLD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=gld)), in late summer and closing out the position after a couple of months. Note that seasonal trends do not always occur as predicted. Stop-loss orders are a wise move. ## 7. Hedging A beginner may occasionally need to [hedge](https://www.investopedia.com/terms/h/hedge.asp) or protect against [downside risk](https://www.investopedia.com/terms/d/downsiderisk.asp) in a substantial portfolio, perhaps one that has been acquired as an inheritance. Suppose you have inherited a sizeable portfolio of U.S. blue chips and are concerned about the risk of a large decline in U.S. equities. One solution is to buy [put options](https://www.investopedia.com/terms/p/putoption.asp). However, since most beginners are not familiar with option trading strategies, an alternate strategy is to [initiate a short position in broad market ETFs](https://www.investopedia.com/articles/etfs/062716/hedging-etf-indexes-relevant-strategy-qqq-psq.asp) like the SPDR S&P 500 ETF or the SPDR Dow Jones Industrial Average ETF ([DIA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=dia)). If the market declines as expected, your [blue-chip](https://www.investopedia.com/terms/b/bluechip.asp) equity position will be hedged effectively since declines in your portfolio will be offset by gains in the short ETF position. Note that your gains would also be capped if the market rises since gains in your portfolio will be offset by losses in the short ETF position. Nevertheless, ETFs offer beginners a relatively easy and efficient method of hedging. ## Are All ETFs Diversified, or Do Some Focus on Specific Sectors? While many ETFs are designed to be diversified, focusing on a broad market index, others may concentrate on specific sectors or themes, leading to variations in diversification. It's essential for investors to understand an ETF's underlying holdings and investment objective to assess its level of diversification. ## What Is the Role of Index Tracking in ETFs? The primary role of ETFs is to track the performance of a specific index, and this process is known as index tracking. ETFs use a passive management approach, aiming to replicate the returns of the index they follow. ## Are There Tax Implications Associated with ETF Investing? Tax implications of ETF investing depend on factors such as capital gains distributions, capital gains taxes upon selling, and tax efficiency. Additionally, investors can control the timing of capital gains recognition by choosing when to sell ETF shares and in what investment vehicles to hold ETFs in. ## Can ETFs Be Used for Short-Term or Long-Term Investment Strategies? ETFs can be used for both short-term and long-term investment strategies, depending on your financial goals, risk tolerance, and time horizon. For short-term strategies, investors might use ETFs for tactical asset allocation or to capitalize on specific market trends. Long-term investors, on the other hand, may use ETFs as core building blocks within a diversified portfolio. ## The Bottom Line The basic strategies used by stock investors are easily adapted to exchange-traded funds. Some may work better since ETFs are by definition more diversified and less volatile than individual stocks. If you're a beginning investor, start by considering what your financial goals are and what level of risk you can tolerate. Then decide how much you can afford to invest each month. Finally, pick the ETF or two or more ETFs that can get you where you want to go.

Exchange-traded funds (ETFs) are ideal for beginning investors due to their many benefits, which include low expense ratios, instant diversification, and a multitude of investment choices. Unlike some mutual funds, they also tend to have low investing thresholds, so you don't have to be ultra-rich to get started. Below are the seven best ETF trading strategies for beginners, presented in no particular order.  Key Takeaways ETF investors can use the same strategies used in stock investing, such as dollar-cost averaging and sector rotation.The most popular ETFs track the S&P 500 Index but other ETFs focus on single sectors or industries.Some ETFs offer access to strategies once dominated by professionals, such as leveraged funds that can return a multiple of the underlying index, and inverse ETFs that increase in value when the index falls. 1. Dollar-Cost Averaging Dollar-cost averaging (DCA) requires buying a set fixed-dollar amount of an asset on a regular schedule, regardless of the changing cost of the asset. Instead of chasing the market, these investors build a position in a stock. Over time, the average cost of their investment proves to be competitive. This is a smart strategy for beginner investors, who may be young people in first jobs with a modest sum to invest each month. They'd be better off investing it in an ETF or more than one ETF rather than putting it in a low-interest savings account. DCA reduces risk and shields the investor from market volatility. By consistently purchasing assets at various price points, it minimizes the impact of short-term market fluctuations on overall investment performance. ETF Categories The most popular ETFs are stock funds, but many ETFs invest in bonds, commodities, currencies, and real estate. Since January 2024, there have even been bitcoin futures ETFs. Advantages of Dollar-Cost Averaging There are two major advantages of periodic investing for beginners. The first is that it imparts discipline to the savings process. As many financial planners recommend, it makes eminent sense to pay yourself first, which is what you achieve by saving regularly. The second advantage is simple: You'll make more money. By investing the same dollar amount in an ETF every month you will accumulate more units at a low price and fewer units at a high price. Over time, this approach can pay off handsomely, as long as you stick to it. 2. Asset Allocation Asset allocation means dividing your investments into broad categories, such as stocks, bonds, and cash, to minimize the impact of a real downturn in one of them. The low investment threshold for most ETFs makes it easy for a beginner to implement a basic asset allocation strategy that matches their investment time horizon and risk tolerance. For example, young investors might be 100% invested in equity ETFs when they are in their 20s. In the long term, they should get the highest return, and in the short term, they can wait out any reverses. As these same investors reach their 30s they may be looking forward to major changes such as starting a family and buying a house. They would do well to shift to a less aggressive investment mix such as 60% in equities ETFs and 40% in bond ETFs. This way, a major downturn in the stock market won't disrupt their lives. Many ETFs are naturally structured to be diversified. For example, an ETF that tracks a broad market index, such as the S&P 500, would hold a basket of stocks representing a diverse range of companies from various sectors. However, it's important to note that not all ETFs are diversified. For instance, some ETFs track a specific industry like technology or energy. A downturn in a whole sector is not unknown. 3. Swing Trading Swing trades seek to exploit sizeable price changes in stocks or other assets like currencies or commodities. Unlike day trades, they can take anywhere from a few days to a few weeks to work out. The attributes of ETFs that make them suitable for swing trading are their diversification and tight bid/ask spreads. Moreover, ETFs are available for many different investment classes and a wide range of sectors, so a beginner can choose an ETF that is based on a sector or asset class where they have some expertise or knowledge. For example, someone with a technology background may have an advantage in trading a technology ETF like the Invesco QQQ ETF (QQQ), which tracks the Nasdaq-100 Index. A novice trader who closely tracks the commodity markets may prefer to trade one of the many commodity ETFs, such as the Invesco DB Commodity Index Tracking Fund (DBC). Because ETFs are typically baskets of stocks or other assets, their prices tend not to jump as wildly as single stocks in a bull market. By the same token, they are less susceptible to a sharp drop. 4. Sector Rotation Spotting the big economic trends and acting on them is relatively easy for ETF investors. This is sector rotation, which is adjusting a portfolio to take advantage of a new stage in the economic cycle. For example, assume an investor has been invested in the biotechnology sector through the iShares Biotechnology ETF (IBB). If it looks like an economic slowdown is coming, the investor might decide to take profits in this ETF and put it in a defensive sector such as consumer staples via The Consumer Staples Select Sector SPDR Fund (XLP). Keep in mind that there are risks to sector rotation. Success hinges on market timing, and economic cycles are not easy for even economists to predict. Frequent trading also can incur high transaction costs and trigger tax implications, particularly with short-term capital gains taxes. 5. Short Selling Short selling means selling a stock or other asset that has been borrowed. The investor makes money if the asset declines in value, or owes money if it gains. This is just as risky as it sounds. However, short-selling ETFs is slightly less risky than shorting individual stocks because of the low risk of a short squeeze in an ETF. That is a trading scenario in which an asset that has been heavily shorted spikes higher, forcing short sellers to take a loss. Beginners, and individual investors in general, should stay away from double-leveraged or triple-leveraged inverse ETFs, which seek results equal to two or three times the inverse of the one-day price change in an index. High risk is inherent in these ETFs. 6. Betting on Seasonal Trends ETFs are good tools for capitalizing on seasonal trends. Consider two well-known seasonal trends. The first one is called the sell in May and go away phenomenon. U.S. equities historically underperform over the six-month May-October period compared with the November-April period. The other seasonal trend is the tendency of gold to gain in September and October, thanks to strong demand from India ahead of the wedding season and the Diwali festival of lights. The broad market weakness trend can be exploited by shorting the SPDR S&P 500 ETF around the end of April or the beginning of May and closing out the short position in late October, right after the market swoons typical of that month have occurred. A beginner can similarly take advantage of seasonal gold strength by buying units of a popular gold ETF, like the SPDR Gold Trust (GLD), in late summer and closing out the position after a couple of months. Note that seasonal trends do not always occur as predicted. Stop-loss orders are a wise move. 7. Hedging A beginner may occasionally need to hedge or protect against downside risk in a substantial portfolio, perhaps one that has been acquired as an inheritance. Suppose you have inherited a sizeable portfolio of U.S. blue chips and are concerned about the risk of a large decline in U.S. equities. One solution is to buy put options. However, since most beginners are not familiar with option trading strategies, an alternate strategy is to initiate a short position in broad market ETFs like the SPDR S&P 500 ETF or the SPDR Dow Jones Industrial Average ETF (DIA). If the market declines as expected, your blue-chip equity position will be hedged effectively since declines in your portfolio will be offset by gains in the short ETF position. Note that your gains would also be capped if the market rises since gains in your portfolio will be offset by losses in the short ETF position. Nevertheless, ETFs offer beginners a relatively easy and efficient method of hedging. Are All ETFs Diversified, or Do Some Focus on Specific Sectors? While many ETFs are designed to be diversified, focusing on a broad market index, others may concentrate on specific sectors or themes, leading to variations in diversification. It's essential for investors to understand an ETF's underlying holdings and investment objective to assess its level of diversification. What Is the Role of Index Tracking in ETFs? The primary role of ETFs is to track the performance of a specific index, and this process is known as index tracking. ETFs use a passive management approach, aiming to replicate the returns of the index they follow. Are There Tax Implications Associated with ETF Investing? Tax implications of ETF investing depend on factors such as capital gains distributions, capital gains taxes upon selling, and tax efficiency. Additionally, investors can control the timing of capital gains recognition by choosing when to sell ETF shares and in what investment vehicles to hold ETFs in. Can ETFs Be Used for Short-Term or Long-Term Investment Strategies? ETFs can be used for both short-term and long-term investment strategies, depending on your financial goals, risk tolerance, and time horizon. For short-term strategies, investors might use ETFs for tactical asset allocation or to capitalize on specific market trends. Long-term investors, on the other hand, may use ETFs as core building blocks within a diversified portfolio. The Bottom Line The basic strategies used by stock investors are easily adapted to exchange-traded funds. Some may work better since ETFs are by definition more diversified and less volatile than individual stocks. If you're a beginning investor, start by considering what your financial goals are and what level of risk you can tolerate. Then decide how much you can afford to invest each month. Finally, pick the ETF or two or more ETFs that can get you where you want to go.

https://www.investopedia.com/top-cd-rates-today-may-17-2024-leaders-promise-5-40-or-more-for-up-to-15-months-8650472

Top CD Rates Today, May 17, 2024 - Leaders Promise 5.40% or More for Up to 15 Months

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 nationwide CD rate of 5.65% APY is holding its ground. Available 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://www.mutualone.com/client-services/rates-calculators/deposit-rates/&amp;lender=MutualOne%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">MutualOne Bank</a>, it's offered for a 3-month term.</li> <li>Offering a slightly longer 6-month rate lock, runner-up <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> is paying 5.55% APY.</li> <li>A total of 11 CDs are paying 5.40% to 5.65% on terms ranging from 3 to 15 months.</li> <li>The top CD rates on terms of 2 to 3 years range from 5.00% to 5.25%, while the top 4-year and 5-year CD returns are in upper-4% territory.</li> <li>Today's <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> are slightly below their historic peak of last fall, inching down in anticipation of Fed rate cuts. But recent inflation readings suggest it could be a while before the Fed lowers rates.</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_5-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <span class="heading-toc" id="toc-lock-in-540-to-565on-terms-up-to-15-months"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Lock In 5.40% to 5.65%—On Terms Up to 15 Months </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Today's nation-leading CD rate across terms continues to be MutualOne Bank's 5.65% APY on a 3-month certificate. That offer can secure your rate until mid-August. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Prefer a slightly longer rate gurantee? The runner-up is Newtek Bank. Its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267">nation-leading 6-month CD</a> pays 5.55% APY—extending your rate lock almost to Thanksgiving. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> If you want to grab a rate that's guaranteed all the way to 2025, four CDs are paying 5.40% to 5.50% on terms ranging from 9 to 15 months. That includes the best 1-year CD rate of 5.40% on offer 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://www.nexbankpersonal.com/certificates-of-deposit-cds&amp;lender=NexBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">NexBank</a>.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-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/4EDZo/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Range of the Top 15 CD Rates per Term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-longer-cds-can-guarantee-your-rate-until-2026-or-beyond"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Longer CDs Can Guarantee Your Rate Until 2026 or Beyond </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Choosing a CD term of two years or longer is also a smart option, since it's possible U.S. interest rates could enter a declining period over the next 2-3 years. To lock in a rate that will last far into the future, you can choose <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human's</a> pick-your-term offer of 5.25%. Available for 18 to 23 months, it could stretch your rate guarantee until spring 2026. </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 longest term offering a rate of at least 5.00% is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-2-year-cd-rates-4801682">3 years</a>, letting you secure your rate promise until 2027. Or you can opt to secure a rate in the 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 down the road</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_21-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 92px;"></colgroup> <colgroup span="1" style="width: 110px;"></colgroup> <colgroup span="1" style="width: 102px;"></colgroup> <colgroup span="1" style="width: 118px;"></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>5.65% APY</td> <td>5.65% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&amp;lender=MutualOne%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">MutualOne Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267" rel="noopener noreferrer">6 months</a></td> <td>5.55% APY</td> <td>5.55% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Newtek Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650" rel="noopener noreferrer">1 year</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&amp;lender=NexBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">NexBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348" rel="noopener noreferrer">18 months</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nasafcu.com/personal/checking-savings/certificates/certificates---rates&amp;lender=NASA%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">NASA Federal Credit Union</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&amp;lender=XCEL%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">2 years</a></td> <td>5.25% APY</td> <td>5.25% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938" rel="noopener noreferrer">3 years</a></td> <td>5.00% APY</td> <td>5.00% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&amp;lender=DollarSavingsDirect&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">DollarSavingsDirect</a> and <a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://transfcu.org/share-certificate/&amp;lender=Transportation%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Transportation Federal Credit Union</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473" rel="noopener noreferrer">4 years</a></td> <td>4.86% APY</td> <td>4.86% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.wellbyfinancial.com/savings/certificates/&amp;lender=Wellby%20Financial&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Wellby Financial</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&amp;lender=Lafayette%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">5 years</a></td> <td>4.80% APY</td> <td>4.80% APY</td> <td>No change</td> <td><a class="pseudoStyle" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&amp;lender=BMO%20Alto&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">BMO Alto</a></td> </tr> </tbody> </table> <figcaption>To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-whatyouneedtoknow" 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">Big U.S. Bank is a CD Rate Leader</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The top nationwide CD rates are typically offered by smaller banks and credit unions. But right now, the top 5-year return comes from a large U.S. Bank. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/new-cd-rate-leader-is-a-large-us-bank-8647924">BMO Alto</a> is the online-only arm of banking giant BMO, which operates about 1,000 physical branches and is the 12th-largest U.S. bank by deposits.<span class="ql-inline-citation" data-cite="46"></span> Though it only pays the top nationwide rate in the 5-year term, BMO Alto also has reasonably competitive rates on CDs ranging from 6 months to 4 years.</p></div></div></div> <span class="heading-toc" id="toc-cd-rates-are-still-near-20-year-highs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> CD Rates Are Still Near 20-Year Highs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> CD rates have inched lower since they climbed to a historic peak of 6.50% in October. At the start of February, the number of CDs in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">our daily ranking</a> that paid at least 5.50% APY was 30. Today that count sits at eight. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> But don't lose sight of how much certificates of deposit (CDs) still pay relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> 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_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_32-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/kHcHI/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="CD rates now vs. peak vs. January 2022"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_35-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>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-jumbo-cds-offer-a-rate-bump-in-some-terms"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Jumbo CDs Offer a Rate Bump in Some Terms </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Two of the leading jumbo CDs let you earn even more than you can with the best standard CDs. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while State Department Federal Credit Union offers 5.41% APY for 15 months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Beware that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">the best jumbo CD rates</a> don't <em>always</em> pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the eight terms below, so it's always wise to shop both certificate types before making a final decision. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_41-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 93px;"></colgroup> <colgroup span="1" style="width: 140px;"></colgroup> <colgroup span="1" style="width: 154px;"></colgroup> <colgroup span="1" style="width: 154px;"></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Term</b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-cd-rates-4801462" rel="noopener noreferrer">Today's Top National Bank Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214" rel="noopener noreferrer">Today's Top National Credit Union Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766" rel="noopener noreferrer">Today's Top National Jumbo Rate</a></b></td> </tr> <tr> <td>3 months</td> <td>5.65% APY*</td> <td>5.30% APY</td> <td>5.20% APY</td> </tr> <tr> <td>6 months</td> <td>5.55% APY*</td> <td>5.50% APY</td> <td>5.51% APY</td> </tr> <tr> <td>1 year</td> <td>5.40% APY</td> <td>5.25% APY</td> <td>5.50% APY*</td> </tr> <tr> <td>18 months</td> <td>5.25% APY</td> <td>5.40% APY</td> <td>5.41% APY*</td> </tr> <tr> <td>2 years</td> <td>5.00% APY</td> <td>5.25% APY*</td> <td>4.91% APY</td> </tr> <tr> <td>3 years</td> <td>5.00% APY*</td> <td>5.00% APY*</td> <td>4.97% APY</td> </tr> <tr> <td>4 years</td> <td>4.70% APY</td> <td>4.86% APY*</td> <td>4.48% APY</td> </tr> <tr> <td>5 years</td> <td>4.80% APY*</td> <td>4.65% APY</td> <td>4.38% 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_42-0"></div> <span class="heading-toc" id="toc-where-will-cd-rates-go-in-2024"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_43-0"> <span class="mntl-sc-block-heading__text"> Where Will CD Rates Go in 2024? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> 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_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> As a result, 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_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_48-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/1D1N4/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="CD rates since December 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> But since its last rate hike in July, the Fed has been in a holding pattern. As was almost universally expected, the Federal Reserve's rate-setting committee <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952">announced on May 1</a> that it is maintaining the federal funds rate at its current level.<span class="ql-inline-citation" data-cite="43"></span> It was the sixth meeting in a row in which the central bank has held its benchmark rate steady.<span class="ql-inline-citation" data-cite="32"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> That's because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> has been cooling, allowing the Fed to stop raising interest rates. Yet, further inflation progress has been elusive. That puts the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_54-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/wy3qs/2/" frameborder="0" id="mntl-sc-block-iframe__uri_4-0" title="Inflation proving stubborn"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> The Fed's written statement on May 1 left out discussion of projected rate cuts. When asked about this during his press conference following release of the statement, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-may-1-8641676#toc-2024-05-01t185349358z">longer than originally expected</a> to lower the fed funds rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> "My colleagues and I today said that we didn't see progress in the first quarter," Powell said. "And I've said that it appears then that it's going to take longer for us to reach that point of confidence. So I don't know how long it will take. When we get that confidence, then rate cuts will be in scope."<span class="ql-inline-citation" data-cite="45"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> It therefore seems likely the fed funds rate will stay where it is for some number of months—although with great uncertainty on when exactly the Fed will first cut rates. Following the latest Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take until Sept. 18 for the first rate cut to be implemented, according to CME Group's FedWatch Tool.<span class="ql-inline-citation" data-cite="44"></span> That's three meetings away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> New inflation data was reported Wednesday, with the eagerly awaited release of April's Consumer Price Index (CPI). The latest monthly reading <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737">came in at 3.4%</a>. That's down from March's 3.5% level but represents only a minor change. As a result, Fed officials are expected to remain <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-officials-in-wait-and-see-mode-on-rate-cuts-ahead-of-next-weeks-inflation-data-8646908">watching and waiting</a> for further data to come in. </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"> That also means CD rates will likely continue their current plateau. When at some point the Fed signals it's ready to start cutting rates, that will begin driving CD yields down more quickly. But it appears that could be months away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> The central bank will hold five more rate-setting meetings in 2024, with the next one scheduled to conclude June 12.<span class="ql-inline-citation" data-cite="42"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_69-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-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_71-0"><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_73-0"><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_74-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_75-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_76-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><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_77-0"> <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_78-0"> 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_79-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>.<br/> </p></div>

### Key Takeaways * The best nationwide CD rate of 5.65% APY is holding its ground. Available from [MutualOne Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&lender=MutualOne%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ), it's offered for a 3-month term. * Offering a slightly longer 6-month rate lock, runner-up [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) is paying 5.55% APY. * A total of 11 CDs are paying 5.40% to 5.65% on terms ranging from 3 to 15 months. * The top CD rates on terms of 2 to 3 years range from 5.00% to 5.25%, while the top 4-year and 5-year CD returns are in upper-4% territory. * Today's [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) are slightly below their historic peak of last fall, inching down in anticipation of Fed rate cuts. But recent inflation readings suggest it could be a while before the Fed lowers rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. ## Lock In 5.40% to 5.65%—On Terms Up to 15 Months Today's nation-leading CD rate across terms continues to be MutualOne Bank's 5.65% APY on a 3-month certificate. That offer can secure your rate until mid-August. Prefer a slightly longer rate gurantee? The runner-up is Newtek Bank. Its [nation-leading 6-month CD](https://www.investopedia.com/best-6-month-cd-rates-4783267) pays 5.55% APY—extending your rate lock almost to Thanksgiving. If you want to grab a rate that's guaranteed all the way to 2025, four CDs are paying 5.40% to 5.50% on terms ranging from 9 to 15 months. That includes the best 1-year CD rate of 5.40% on offer from [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). ## Longer CDs Can Guarantee Your Rate Until 2026 or Beyond Choosing a CD term of two years or longer is also a smart option, since it's possible U.S. interest rates could enter a declining period over the next 2-3 years. To lock in a rate that will last far into the future, you can choose [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) pick-your-term offer of 5.25%. Available for 18 to 23 months, it could stretch your rate guarantee until spring 2026. The longest term offering a rate of at least 5.00% is [3 years](https://www.investopedia.com/best-2-year-cd-rates-4801682), letting you secure your rate promise until 2027. Or you can opt to secure a rate in the high-4% range for as far as 4 or [5 years down the road](https://www.investopedia.com/best-5-year-cd-rates-4801473). | **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) | 5.65% APY | 5.65% APY | No change | [MutualOne Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&lender=MutualOne%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [6 months](https://www.investopedia.com/best-6-month-cd-rates-4783267) | 5.55% APY | 5.55% APY | No change | [Newtek Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [1 year](https://www.investopedia.com/best-1-year-cd-rates-4796650) | 5.40% APY | 5.40% APY | No change | [NexBank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&lender=NexBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.40% APY | 5.40% APY | No change | [NASA Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nasafcu.com/personal/checking-savings/certificates/certificates---rates&lender=NASA%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [2 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.25% APY | 5.25% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [3 years](https://www.investopedia.com/best-3-year-cd-rates-4782938) | 5.00% APY | 5.00% APY | No change | [DollarSavingsDirect](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&lender=DollarSavingsDirect&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) and [Transportation Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://transfcu.org/share-certificate/&lender=Transportation%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [4 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) | 4.86% APY | 4.86% APY | No change | [Wellby Financial](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.wellbyfinancial.com/savings/certificates/&lender=Wellby%20Financial&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [5 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&lender=Lafayette%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.80% APY | 4.80% APY | No change | [BMO Alto](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&lender=BMO%20Alto&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. ### Big U.S. Bank is a CD Rate Leader The top nationwide CD rates are typically offered by smaller banks and credit unions. But right now, the top 5-year return comes from a large U.S. Bank. [BMO Alto](https://www.investopedia.com/new-cd-rate-leader-is-a-large-us-bank-8647924) is the online-only arm of banking giant BMO, which operates about 1,000 physical branches and is the 12th-largest U.S. bank by deposits. Though it only pays the top nationwide rate in the 5-year term, BMO Alto also has reasonably competitive rates on CDs ranging from 6 months to 4 years. ## CD Rates Are Still Near 20-Year Highs CD rates have inched lower since they climbed to a historic peak of 6.50% in October. At the start of February, the number of CDs in [our daily ranking](https://www.investopedia.com/best-cd-rates-4770214) that paid at least 5.50% APY was 30. Today that count sits at eight. But don't lose sight of how much certificates of deposit (CDs) still pay relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute *highest* APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. ### 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). ## Jumbo CDs Offer a Rate Bump in Some Terms Two of the leading jumbo CDs let you earn even more than you can with the best standard CDs. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while State Department Federal Credit Union offers 5.41% APY for 15 months. Beware that [the best jumbo CD rates](https://www.investopedia.com/best-jumbo-cd-rates-4797766) don't *always* pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the eight terms below, so it's always wise to shop both certificate types before making a final decision. | **CD Term** | **[Today's Top National Bank Rate](https://www.investopedia.com/best-bank-cd-rates-4801462)** | **[Today's Top National Credit Union Rate](https://www.investopedia.com/best-cd-rates-4770214)** | **[Today's Top National Jumbo Rate](https://www.investopedia.com/best-jumbo-cd-rates-4797766)** | | --- | --- | --- | --- | | 3 months | 5.65% APY\* | 5.30% APY | 5.20% APY | | 6 months | 5.55% APY\* | 5.50% APY | 5.51% APY | | 1 year | 5.40% APY | 5.25% APY | 5.50% APY\* | | 18 months | 5.25% APY | 5.40% APY | 5.41% APY\* | | 2 years | 5.00% APY | 5.25% APY\* | 4.91% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.70% APY | 4.86% APY\* | 4.48% APY | | 5 years | 4.80% APY\* | 4.65% APY | 4.38% APY | \*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. ## Where Will CD Rates Go in 2024? To combat decades-high inflation, the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) aggressively hiked the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a [high-yield savings](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) or [money market account](https://www.investopedia.com/best-money-market-accounts-5096917). Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. As was almost universally expected, the Federal Reserve's rate-setting committee [announced on May 1](https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952) that it is maintaining the federal funds rate at its current level. It was the sixth meeting in a row in which the central bank has held its benchmark rate steady. That's because [inflation](https://www.investopedia.com/terms/i/inflation.asp) has been cooling, allowing the Fed to stop raising interest rates. Yet, further inflation progress has been elusive. That puts the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. The Fed's written statement on May 1 left out discussion of projected rate cuts. When asked about this during his press conference following release of the statement, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take [longer than originally expected](https://www.investopedia.com/us-economy-news-today-may-1-8641676#toc-2024-05-01t185349358z) to lower the fed funds rate. "My colleagues and I today said that we didn't see progress in the first quarter," Powell said. "And I've said that it appears then that it's going to take longer for us to reach that point of confidence. So I don't know how long it will take. When we get that confidence, then rate cuts will be in scope." It therefore seems likely the fed funds rate will stay where it is for some number of months—although with great uncertainty on when exactly the Fed will first cut rates. Following the latest Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take until Sept. 18 for the first rate cut to be implemented, according to CME Group's FedWatch Tool. That's three meetings away. New inflation data was reported Wednesday, with the eagerly awaited release of April's Consumer Price Index (CPI). The latest monthly reading [came in at 3.4%](https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737). That's down from March's 3.5% level but represents only a minor change. As a result, Fed officials are expected to remain [watching and waiting](https://www.investopedia.com/fed-officials-in-wait-and-see-mode-on-rate-cuts-ahead-of-next-weeks-inflation-data-8646908) for further data to come in. That also means CD rates will likely continue their current plateau. When at some point the Fed signals it's ready to start cutting rates, that will begin driving CD yields down more quickly. But it appears that could be months away. The central bank will hold five more rate-setting meetings in 2024, with the next one scheduled to conclude June 12. [Best High-Yield Savings Accounts for May 2024—Up to 5.55%](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) [Best CD Rates for May 2024: Up to 5.51%](https://www.investopedia.com/best-cd-rates-4770214) [Best Money Market Account Rates for May 2024—Up to 5.35%](https://www.investopedia.com/best-money-market-accounts-5096917) ### Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. ## How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured ([FDIC](https://www.investopedia.com/terms/f/fdic-insured-account.asp) for banks, [NCUA](https://www.investopedia.com/terms/n/ncua-insured-institution.asp) for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, [read our full methodology](https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816).

Key Takeaways The best nationwide CD rate of 5.65% APY is holding its ground. Available from MutualOne Bank, it's offered for a 3-month term. Offering a slightly longer 6-month rate lock, runner-up Newtek Bank is paying 5.55% APY. A total of 11 CDs are paying 5.40% to 5.65% on terms ranging from 3 to 15 months. The top CD rates on terms of 2 to 3 years range from 5.00% to 5.25%, while the top 4-year and 5-year CD returns are in upper-4% territory. Today's best CD rates are slightly below their historic peak of last fall, inching down in anticipation of Fed rate cuts. But recent inflation readings suggest it could be a while before the Fed lowers rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. Lock In 5.40% to 5.65%—On Terms Up to 15 Months Today's nation-leading CD rate across terms continues to be MutualOne Bank's 5.65% APY on a 3-month certificate. That offer can secure your rate until mid-August. Prefer a slightly longer rate gurantee? The runner-up is Newtek Bank. Its nation-leading 6-month CD pays 5.55% APY—extending your rate lock almost to Thanksgiving. If you want to grab a rate that's guaranteed all the way to 2025, four CDs are paying 5.40% to 5.50% on terms ranging from 9 to 15 months. That includes the best 1-year CD rate of 5.40% on offer from NexBank. Longer CDs Can Guarantee Your Rate Until 2026 or Beyond Choosing a CD term of two years or longer is also a smart option, since it's possible U.S. interest rates could enter a declining period over the next 2-3 years. To lock in a rate that will last far into the future, you can choose Credit Human's pick-your-term offer of 5.25%. Available for 18 to 23 months, it could stretch your rate guarantee until spring 2026. The longest term offering a rate of at least 5.00% is 3 years, letting you secure your rate promise until 2027. Or you can opt to secure a rate in the 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 5.65% APY 5.65% APY No change MutualOne Bank 6 months 5.55% APY 5.55% APY No change Newtek Bank 1 year 5.40% APY 5.40% APY No change NexBank 18 months 5.40% APY 5.40% APY No change NASA Federal Credit Union 2 years 5.25% APY 5.25% APY No change Credit Human 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect and Transportation Federal Credit Union 4 years 4.86% APY 4.86% APY No change Wellby Financial 5 years 4.80% APY 4.80% APY No change BMO Alto To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. Big U.S. Bank is a CD Rate Leader The top nationwide CD rates are typically offered by smaller banks and credit unions. But right now, the top 5-year return comes from a large U.S. Bank. BMO Alto is the online-only arm of banking giant BMO, which operates about 1,000 physical branches and is the 12th-largest U.S. bank by deposits. Though it only pays the top nationwide rate in the 5-year term, BMO Alto also has reasonably competitive rates on CDs ranging from 6 months to 4 years. CD Rates Are Still Near 20-Year Highs CD rates have inched lower since they climbed to a historic peak of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid at least 5.50% APY was 30. Today that count sits at eight. But don't lose sight of how much certificates of deposit (CDs) still pay relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute highest APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. 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. Jumbo CDs Offer a Rate Bump in Some Terms Two of the leading jumbo CDs let you earn even more than you can with the best standard CDs. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while State Department Federal Credit Union offers 5.41% APY for 15 months. Beware that the best jumbo CD rates don't always pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the eight terms below, so it's always wise to shop both certificate types before making a final decision. CD Term Today's Top National Bank Rate Today's Top National Credit Union Rate Today's Top National Jumbo Rate 3 months 5.65% APY* 5.30% APY 5.20% APY 6 months 5.55% APY* 5.50% APY 5.51% APY 1 year 5.40% APY 5.25% APY 5.50% APY* 18 months 5.25% APY 5.40% APY 5.41% APY* 2 years 5.00% APY 5.25% APY* 4.91% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.70% APY 4.86% APY* 4.48% APY 5 years 4.80% APY* 4.65% APY 4.38% APY *Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. Where Will CD Rates Go in 2024? To combat decades-high inflation, the Federal Reserve aggressively hiked the federal funds rate between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a high-yield savings or money market account. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. As was almost universally expected, the Federal Reserve's rate-setting committee announced on May 1 that it is maintaining the federal funds rate at its current level. It was the sixth meeting in a row in which the central bank has held its benchmark rate steady. That's because inflation has been cooling, allowing the Fed to stop raising interest rates. Yet, further inflation progress has been elusive. That puts the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. The Fed's written statement on May 1 left out discussion of projected rate cuts. When asked about this during his press conference following release of the statement, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take longer than originally expected to lower the fed funds rate. "My colleagues and I today said that we didn't see progress in the first quarter," Powell said. "And I've said that it appears then that it's going to take longer for us to reach that point of confidence. So I don't know how long it will take. When we get that confidence, then rate cuts will be in scope." It therefore seems likely the fed funds rate will stay where it is for some number of months—although with great uncertainty on when exactly the Fed will first cut rates. Following the latest Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take until Sept. 18 for the first rate cut to be implemented, according to CME Group's FedWatch Tool. That's three meetings away. New inflation data was reported Wednesday, with the eagerly awaited release of April's Consumer Price Index (CPI). The latest monthly reading came in at 3.4%. That's down from March's 3.5% level but represents only a minor change. As a result, Fed officials are expected to remain watching and waiting for further data to come in. That also means CD rates will likely continue their current plateau. When at some point the Fed signals it's ready to start cutting rates, that will begin driving CD yields down more quickly. But it appears that could be months away. The central bank will hold five more rate-setting meetings in 2024, with the next one scheduled to conclude June 12. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

https://www.investopedia.com/articles/personal-finance/061314/dont-sign-legal-pitfalls-signatures.asp

Major Legal Pitfalls of Signatures

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Signing your name on a document or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/check.asp">check</a> seems a pretty straightforward process. So does <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-endorse-a-check-5188585">endorsing a check</a> for a spouse or child who's out of town. But in fact, all of these actions can have <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/questioned-document-investigation.asp">unpleasant legal ramifications </a>depending on how you do them. </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>Using the wrong color ink could keep your signature from being scanned correctly.</li><li>Even with joint accounts, it's illegal to endorse your spouse's signature.</li><li>It is also illegal to sign your child's name on the back of a check.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-ink-color-question"></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 Ink-Color Question </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Think twice about the pen you use to sign a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-application.asp">credit card application</a> or check. Opt for a pen with the wrong-color ink, and you could trigger a fraud alert or nullify the check. </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"> Surprisingly, the wrong-color ink can be black, says <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://aegisfinserv.com/about/" rel="nofollow">Jim Angleton</a>, president of Aegis, a corporate prepaid debit- and<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chargecard.asp"> charge-card issuer.</a> “If you’re applying for a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit card</a> in person, your bank may ask you to sign the application in blue ink.” </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"> That’s because blue ink is harder to reproduce and easier to spot on paper that’s typically filled with lots of black (fine) print. And, Angleton says, because black ink is the most widely used printer-ink color, it’s the easiest color to duplicate or copy via home software and printers. </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"> “Blue ink is preferred because when black ink is used, someone at the bank or credit card company may not be able to tell whether they are looking at a photocopy of a signature or an originally inked signature,” says <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="http://www.cinawongforgeryexpert.com/" rel="nofollow">Cina L. Won</a>g, CDE, a certified and court-qualified forensic handwriting expert. “It's easier to assume that the document is 'original' if it is signed in blue ink.” </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 advise signers of our documents to use blue ink as it offers a contrast to our applications, which is especially beneficial should there be any ID issues in the future,” says Angleton. </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"> Ink Color on Checks </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Signing a check or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/endorsement.asp">endorsing</a> the back of a check in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/red-ink.asp">red ink</a> could trigger trouble by delaying payment of the check. In extreme instances of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fraud.asp">fraud</a> prevention, it could even void the check’s validity. </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"> “Red ink has been considered a warning color since the Cold War era,” says Angleton. “And the thinking that red is a warning color lingers today.” Long ago, bank proofers used a red pen to circle the signature on a check if they suspected it to be fraudulent. As a result, the color remains stigmatized in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial_sector.asp">financial industry</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> In the days before color copying, red didn’t photocopy well, either. Because it would appear faint or non-existent on a photocopy, red pens were considered taboo for signing or endorsing checks, says Wong. </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"> “Today, scanners that read documents use a red laser light,” Wong explains. “When the red laser light scans the document, it turns the entire document a red color. So a signature written in red ink appears to vanish.” </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"> Stay Away From 'Fun' Ink Colors </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Trendy and fun ink colors such as green, pink, or purple can be problematic on checks, too. In general, most checks are imaged, or scanned, using a super high-speed scanner. Some types of scanners are unable to detect or decipher such unusual colors, which means that a check might not be properly applied or might have processing issues. </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"> Wong says that’s one possible explanation for why most government documents state "please sign in black or blue ink." </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-signing-for-your-spouse"></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"> Signing for Your Spouse </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The color of ink you use isn't the only potential legal pitfall signatures can bring. Let's say your spouse is out of town and you want to deposit an expense check or rebate made out to your mate. You could find yourself in legal trouble. </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"> Even if you're legally married and have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/jointaccount.asp">joint bank account</a>, it’s illegal to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/joint-endorsement.asp">endorse your spouse’s name</a> on the back of a check, says <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.attorneyoffices.org/firm-profiles" rel="nofollow">Charles R. Gallagher III</a>, an attorney at Gallagher &amp; Associates in St. Petersburg, Florida. Technically, signing someone else’s name is fraud. And that could lead to the check being denied for payment and even to your arrest if your spouse were to press charges. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-subheading__text"> No Workaround </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Many think the workaround to fraud is simply signing "For Deposit Only" on the back of the check. But Gallagher says that tactic is far from foolproof.<span class="ql-inline-citation" data-cite="1"></span> If your spouse gets angry, they still could press the legal issue and claim you stole the money. </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 safest approach is getting written authorization stating that it’s OK to sign a spouse’s name on checks when they are unable to. “You can always obtain a formal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/powerofattorney.asp" rel="noopener noreferrer">power of attorney</a> to ensure the bank won't give you a hassle,” says Gallagher. </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-letting-someone-sign-for-you"></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"> Letting Someone Sign for You </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Got a taste for take-out Chinese but don’t feel like picking up the food? Don’t send your child or friend to the restaurant with your credit card. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> “You sign a legal contract with the credit card provider that authorizes only you to use the credit card. You’re breaching that contract when you give another permission to use your card,” says attorney <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://lhtlg.net/attorneys/stephen-lesavich/" rel="nofollow">Stephen Lesavich, Ph.D</a>., author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards.” </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"> “That breach may result in the cancelation of the card based on the terms of the credit-card contract you signed,” Lesavich adds. </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"> Your credit card company may never know you gave your spouse, BFF, or kid your credit card to use. So the charge may sail through the system without any issues. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_49-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_50-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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>It's best to use blue or black ink for signatures. Avoid colors like red, purple, and green.</p></div></div></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"> Being Accused of Fraud </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> But the person you send to pick up your food could hit a snag if the merchant asks for identification, especially if the signature on the card doesn’t match the one on the receipt. “A merchant could report fraudulent use to the credit-card company,” says Lesavich. Being accused of making or permitting fraudulent credit card charges could be embarrassing to both of you.<span class="ql-inline-citation" data-cite="2"></span> It can also result in the credit-card company canceling the card and/or putting a hold on it based on a purchase you would normally not make. </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"> You’re also opening yourself up to potential loss. Frequently permitting a child or pal to use your credit card may be viewed as authorizing that person to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal-agent-relationship.asp">act as your "agent."</a> "That person may incur additional charges you are responsible for, but did not initially authorize them to make or intend for them to make,” says Lesavich. “That’s why it’s important to remember that you are financially responsible for all charges for any authorized use of your own credit card by you or another person.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <span class="heading-toc" id="toc-signing-your-childs-name"></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"> Signing Your Child’s Name </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Even if you’re depositing the money into your child’s personal bank account, it’s illegal to sign your or your child’s name on the back of that check Grandma sends to a minor for a holiday or birthday present. </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"> “Banks usually have policies on how they want a check made out to a minor to be endorsed,” says attorney <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.legaladvice.com/attorney/lawyers/matthew-reischer-1493">Matt Reischer</a>, Esq., CEO, LegalAdvice.com. “Some banking institutions want the child’s name spelled out and designated parenthetically as a minor with the parent’s signature underneath.” </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"> Other banks may want the check endorsed “For Deposit Only,” followed by the child’s bank <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/account-number.asp">account number</a>. That’s why it’s best to verify with your bank about its endorsement policy to prevent Grandma from having to issue a new check. </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"> Once your child is over 18, check-signing rules are the same as for your spouse. Unless you have a power of attorney or written authorization, signing your child’s name on the back of a check could be viewed as fraud and lead to the bank or your child taking legal action. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_65-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Let your spouse and grown-up child sign their own checks—never in red ink—and get authorization if you need to bank on their behalf. Stock up on blue-ink pens and save the fancy ink colors for birthday cards. You'll stay out of legal trouble. </p></div>

Signing your name on a document or [check](https://www.investopedia.com/terms/c/check.asp) seems a pretty straightforward process. So does [endorsing a check](https://www.investopedia.com/how-to-endorse-a-check-5188585) for a spouse or child who's out of town. But in fact, all of these actions can have [unpleasant legal ramifications](https://www.investopedia.com/terms/q/questioned-document-investigation.asp) depending on how you do them. ### Key Takeaways * Using the wrong color ink could keep your signature from being scanned correctly. * Even with joint accounts, it's illegal to endorse your spouse's signature. * It is also illegal to sign your child's name on the back of a check. ## The Ink-Color Question Think twice about the pen you use to sign a [credit card application](https://www.investopedia.com/terms/c/credit-application.asp) or check. Opt for a pen with the wrong-color ink, and you could trigger a fraud alert or nullify the check. Surprisingly, the wrong-color ink can be black, says [Jim Angleton](https://aegisfinserv.com/about/), president of Aegis, a corporate prepaid debit- and [charge-card issuer.](https://www.investopedia.com/terms/c/chargecard.asp) “If you’re applying for a [credit card](https://www.investopedia.com/terms/c/creditcard.asp) in person, your bank may ask you to sign the application in blue ink.” That’s because blue ink is harder to reproduce and easier to spot on paper that’s typically filled with lots of black (fine) print. And, Angleton says, because black ink is the most widely used printer-ink color, it’s the easiest color to duplicate or copy via home software and printers. “Blue ink is preferred because when black ink is used, someone at the bank or credit card company may not be able to tell whether they are looking at a photocopy of a signature or an originally inked signature,” says [Cina L. Won](http://www.cinawongforgeryexpert.com/)g, CDE, a certified and court-qualified forensic handwriting expert. “It's easier to assume that the document is 'original' if it is signed in blue ink.” “We advise signers of our documents to use blue ink as it offers a contrast to our applications, which is especially beneficial should there be any ID issues in the future,” says Angleton. ### Ink Color on Checks Signing a check or [endorsing](https://www.investopedia.com/terms/e/endorsement.asp) the back of a check in [red ink](https://www.investopedia.com/terms/r/red-ink.asp) could trigger trouble by delaying payment of the check. In extreme instances of [fraud](https://www.investopedia.com/terms/f/fraud.asp) prevention, it could even void the check’s validity. “Red ink has been considered a warning color since the Cold War era,” says Angleton. “And the thinking that red is a warning color lingers today.” Long ago, bank proofers used a red pen to circle the signature on a check if they suspected it to be fraudulent. As a result, the color remains stigmatized in the [financial industry](https://www.investopedia.com/terms/f/financial_sector.asp). In the days before color copying, red didn’t photocopy well, either. Because it would appear faint or non-existent on a photocopy, red pens were considered taboo for signing or endorsing checks, says Wong. “Today, scanners that read documents use a red laser light,” Wong explains. “When the red laser light scans the document, it turns the entire document a red color. So a signature written in red ink appears to vanish.” ### Stay Away From 'Fun' Ink Colors Trendy and fun ink colors such as green, pink, or purple can be problematic on checks, too. In general, most checks are imaged, or scanned, using a super high-speed scanner. Some types of scanners are unable to detect or decipher such unusual colors, which means that a check might not be properly applied or might have processing issues. Wong says that’s one possible explanation for why most government documents state "please sign in black or blue ink." ## Signing for Your Spouse The color of ink you use isn't the only potential legal pitfall signatures can bring. Let's say your spouse is out of town and you want to deposit an expense check or rebate made out to your mate. You could find yourself in legal trouble. Even if you're legally married and have a [joint bank account](https://www.investopedia.com/terms/j/jointaccount.asp), it’s illegal to [endorse your spouse’s name](https://www.investopedia.com/terms/j/joint-endorsement.asp) on the back of a check, says [Charles R. Gallagher III](https://www.attorneyoffices.org/firm-profiles), an attorney at Gallagher & Associates in St. Petersburg, Florida. Technically, signing someone else’s name is fraud. And that could lead to the check being denied for payment and even to your arrest if your spouse were to press charges. ### No Workaround Many think the workaround to fraud is simply signing "For Deposit Only" on the back of the check. But Gallagher says that tactic is far from foolproof. If your spouse gets angry, they still could press the legal issue and claim you stole the money. The safest approach is getting written authorization stating that it’s OK to sign a spouse’s name on checks when they are unable to. “You can always obtain a formal [power of attorney](https://www.investopedia.com/terms/p/powerofattorney.asp) to ensure the bank won't give you a hassle,” says Gallagher. ## Letting Someone Sign for You Got a taste for take-out Chinese but don’t feel like picking up the food? Don’t send your child or friend to the restaurant with your credit card. “You sign a legal contract with the credit card provider that authorizes only you to use the credit card. You’re breaching that contract when you give another permission to use your card,” says attorney [Stephen Lesavich, Ph.D](https://lhtlg.net/attorneys/stephen-lesavich/)., author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards.” “That breach may result in the cancelation of the card based on the terms of the credit-card contract you signed,” Lesavich adds. Your credit card company may never know you gave your spouse, BFF, or kid your credit card to use. So the charge may sail through the system without any issues. ### It's best to use blue or black ink for signatures. Avoid colors like red, purple, and green. ### Being Accused of Fraud But the person you send to pick up your food could hit a snag if the merchant asks for identification, especially if the signature on the card doesn’t match the one on the receipt. “A merchant could report fraudulent use to the credit-card company,” says Lesavich. Being accused of making or permitting fraudulent credit card charges could be embarrassing to both of you. It can also result in the credit-card company canceling the card and/or putting a hold on it based on a purchase you would normally not make. You’re also opening yourself up to potential loss. Frequently permitting a child or pal to use your credit card may be viewed as authorizing that person to [act as your "agent."](https://www.investopedia.com/terms/p/principal-agent-relationship.asp) "That person may incur additional charges you are responsible for, but did not initially authorize them to make or intend for them to make,” says Lesavich. “That’s why it’s important to remember that you are financially responsible for all charges for any authorized use of your own credit card by you or another person.” ## Signing Your Child’s Name Even if you’re depositing the money into your child’s personal bank account, it’s illegal to sign your or your child’s name on the back of that check Grandma sends to a minor for a holiday or birthday present. “Banks usually have policies on how they want a check made out to a minor to be endorsed,” says attorney [Matt Reischer](https://www.legaladvice.com/attorney/lawyers/matthew-reischer-1493), Esq., CEO, LegalAdvice.com. “Some banking institutions want the child’s name spelled out and designated parenthetically as a minor with the parent’s signature underneath.” Other banks may want the check endorsed “For Deposit Only,” followed by the child’s bank [account number](https://www.investopedia.com/terms/a/account-number.asp). That’s why it’s best to verify with your bank about its endorsement policy to prevent Grandma from having to issue a new check. Once your child is over 18, check-signing rules are the same as for your spouse. Unless you have a power of attorney or written authorization, signing your child’s name on the back of a check could be viewed as fraud and lead to the bank or your child taking legal action. ## The Bottom Line Let your spouse and grown-up child sign their own checks—never in red ink—and get authorization if you need to bank on their behalf. Stock up on blue-ink pens and save the fancy ink colors for birthday cards. You'll stay out of legal trouble.

Signing your name on a document or check seems a pretty straightforward process. So does endorsing a check for a spouse or child who's out of town. But in fact, all of these actions can have unpleasant legal ramifications depending on how you do them. Key Takeaways Using the wrong color ink could keep your signature from being scanned correctly.Even with joint accounts, it's illegal to endorse your spouse's signature.It is also illegal to sign your child's name on the back of a check. The Ink-Color Question Think twice about the pen you use to sign a credit card application or check. Opt for a pen with the wrong-color ink, and you could trigger a fraud alert or nullify the check. Surprisingly, the wrong-color ink can be black, says Jim Angleton, president of Aegis, a corporate prepaid debit- and charge-card issuer. “If you’re applying for a credit card in person, your bank may ask you to sign the application in blue ink.” That’s because blue ink is harder to reproduce and easier to spot on paper that’s typically filled with lots of black (fine) print. And, Angleton says, because black ink is the most widely used printer-ink color, it’s the easiest color to duplicate or copy via home software and printers. “Blue ink is preferred because when black ink is used, someone at the bank or credit card company may not be able to tell whether they are looking at a photocopy of a signature or an originally inked signature,” says Cina L. Wong, CDE, a certified and court-qualified forensic handwriting expert. “It's easier to assume that the document is 'original' if it is signed in blue ink.” “We advise signers of our documents to use blue ink as it offers a contrast to our applications, which is especially beneficial should there be any ID issues in the future,” says Angleton. Ink Color on Checks Signing a check or endorsing the back of a check in red ink could trigger trouble by delaying payment of the check. In extreme instances of fraud prevention, it could even void the check’s validity. “Red ink has been considered a warning color since the Cold War era,” says Angleton. “And the thinking that red is a warning color lingers today.” Long ago, bank proofers used a red pen to circle the signature on a check if they suspected it to be fraudulent. As a result, the color remains stigmatized in the financial industry. In the days before color copying, red didn’t photocopy well, either. Because it would appear faint or non-existent on a photocopy, red pens were considered taboo for signing or endorsing checks, says Wong. “Today, scanners that read documents use a red laser light,” Wong explains. “When the red laser light scans the document, it turns the entire document a red color. So a signature written in red ink appears to vanish.” Stay Away From 'Fun' Ink Colors Trendy and fun ink colors such as green, pink, or purple can be problematic on checks, too. In general, most checks are imaged, or scanned, using a super high-speed scanner. Some types of scanners are unable to detect or decipher such unusual colors, which means that a check might not be properly applied or might have processing issues. Wong says that’s one possible explanation for why most government documents state "please sign in black or blue ink." Signing for Your Spouse The color of ink you use isn't the only potential legal pitfall signatures can bring. Let's say your spouse is out of town and you want to deposit an expense check or rebate made out to your mate. You could find yourself in legal trouble. Even if you're legally married and have a joint bank account, it’s illegal to endorse your spouse’s name on the back of a check, says Charles R. Gallagher III, an attorney at Gallagher & Associates in St. Petersburg, Florida. Technically, signing someone else’s name is fraud. And that could lead to the check being denied for payment and even to your arrest if your spouse were to press charges. No Workaround Many think the workaround to fraud is simply signing "For Deposit Only" on the back of the check. But Gallagher says that tactic is far from foolproof. If your spouse gets angry, they still could press the legal issue and claim you stole the money. The safest approach is getting written authorization stating that it’s OK to sign a spouse’s name on checks when they are unable to. “You can always obtain a formal power of attorney to ensure the bank won't give you a hassle,” says Gallagher. Letting Someone Sign for You Got a taste for take-out Chinese but don’t feel like picking up the food? Don’t send your child or friend to the restaurant with your credit card. “You sign a legal contract with the credit card provider that authorizes only you to use the credit card. You’re breaching that contract when you give another permission to use your card,” says attorney Stephen Lesavich, Ph.D., author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards.” “That breach may result in the cancelation of the card based on the terms of the credit-card contract you signed,” Lesavich adds. Your credit card company may never know you gave your spouse, BFF, or kid your credit card to use. So the charge may sail through the system without any issues. It's best to use blue or black ink for signatures. Avoid colors like red, purple, and green. Being Accused of Fraud But the person you send to pick up your food could hit a snag if the merchant asks for identification, especially if the signature on the card doesn’t match the one on the receipt. “A merchant could report fraudulent use to the credit-card company,” says Lesavich. Being accused of making or permitting fraudulent credit card charges could be embarrassing to both of you. It can also result in the credit-card company canceling the card and/or putting a hold on it based on a purchase you would normally not make. You’re also opening yourself up to potential loss. Frequently permitting a child or pal to use your credit card may be viewed as authorizing that person to act as your "agent." "That person may incur additional charges you are responsible for, but did not initially authorize them to make or intend for them to make,” says Lesavich. “That’s why it’s important to remember that you are financially responsible for all charges for any authorized use of your own credit card by you or another person.” Signing Your Child’s Name Even if you’re depositing the money into your child’s personal bank account, it’s illegal to sign your or your child’s name on the back of that check Grandma sends to a minor for a holiday or birthday present. “Banks usually have policies on how they want a check made out to a minor to be endorsed,” says attorney Matt Reischer, Esq., CEO, LegalAdvice.com. “Some banking institutions want the child’s name spelled out and designated parenthetically as a minor with the parent’s signature underneath.” Other banks may want the check endorsed “For Deposit Only,” followed by the child’s bank account number. That’s why it’s best to verify with your bank about its endorsement policy to prevent Grandma from having to issue a new check. Once your child is over 18, check-signing rules are the same as for your spouse. Unless you have a power of attorney or written authorization, signing your child’s name on the back of a check could be viewed as fraud and lead to the bank or your child taking legal action. The Bottom Line Let your spouse and grown-up child sign their own checks—never in red ink—and get authorization if you need to bank on their behalf. Stock up on blue-ink pens and save the fancy ink colors for birthday cards. You'll stay out of legal trouble.

https://www.investopedia.com/bb-t-bank-review-5070334

BB&T 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: 537px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp figure-article figure-2x1 upscaleImg 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="BBT" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/SKfHdBB931-o0AdkCMzgfwPWMXs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/bbt-d6ab86de2fa849909af3dc705d51f5cd.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDgAFAPIAAAAAAHsACooAJYsAJ4wAKQAAAAAAAAAAACH5BAEAAAAALAAAAAAOAAUAQggjAAEIECCw4ECCBAUiFEjgYEGFAgMAGJDwIcKFFRNehKgRQEAAOw==')" width="1500"/> <noscript> <img alt="BBT" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/SKfHdBB931-o0AdkCMzgfwPWMXs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/bbt-d6ab86de2fa849909af3dc705d51f5cd.png" 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>BBT</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article figure-2x1 upscaleImg 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.truist.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"> BB&amp;T Bank/Truist is one of the largest financial services companies in the U.S. It is headquartered in Winston-Salem, N.C., and operates more than 2,800 financial centers across 17 states and Washington, D.C.. It began as a small bank in 1872 and now has more than $230 billion in assets. </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 2019 BB&amp;T merged with SunTrust, another southeastern regional bank. This merger of equals created the seventh largest commercial bank in the U.S. The banks have integrated and renamed themselves Truist Bank. This in-depth review can help you decide if its deposit accounts are 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_1-0-3"> <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>Open a checking or savings account with $100 or less</p></li> <li><p>Savings account with no minimum deposit or monthly fees</p></li> <li><p>Flexible options with 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>Uncompetitive interest rates on deposit accounts</p></li> <li><p>Limited geographic footprint</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_1-0-5"> <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"> 1872 </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"> https://www.truist.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, checking, CDs, 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 Support</span> <span class="definition-list__item-content definition-list__item-content-3"> Phone line: Monday–Friday, 8 a.m. to 8 p.m. (EST); Saturday, 8 a.m. to noon (EST): 1-800-226-5228 </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="BBT" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/SKfHdBB931-o0AdkCMzgfwPWMXs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/bbt-d6ab86de2fa849909af3dc705d51f5cd.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDgAFAPIAAAAAAHsACooAJYsAJ4wAKQAAAAAAAAAAACH5BAEAAAAALAAAAAAOAAUAQggjAAEIECCw4ECCBAUiFEjgYEGFAgMAGJDwIcKFFRNehKgRQEAAOw==')" width="1500"/> <noscript> <img alt="BBT" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/SKfHdBB931-o0AdkCMzgfwPWMXs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/bbt-d6ab86de2fa849909af3dc705d51f5cd.png" 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>BBT</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.truist.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-BB&amp;T 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"> BB&amp;T 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-bbt-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-bbt-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-Other Products" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-other-financial-products-offered-by-bbt-bank" 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-bbt-bank-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-with-bbt-bank" 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-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_3-0-7" 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_3-0-8"> <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>Open a checking or savings account with $100 or less</strong>: Aside from the premium accounts, customers can open a checking or savings account with a required minimum deposit of $100 or less. This low minimum opening deposit makes it easier for customers to transition from their existing bank.</li> <li><strong>Savings account with no minimum deposit or monthly fees</strong>: In today’s low-interest-rate environment, it is important to be able to have a savings account without monthly fees offsetting the interest that you earn. The online-only eSavings account has no minimum balance requirements, and there is no minimum opening deposit.</li> <li><strong>Flexible options with CDs</strong>: Customers have several options when opening a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit (CD)</a>. They can open a standard CD, use promotional pricing, take advantage of rate changes, or lock in guaranteed annual rate increases.</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>Uncompetitive interest rates on deposit accounts</strong>: Although BB&amp;T Bank offers tiered pricing on some of its deposit products, the interest rates that it offers are not competitive with other banks.</li><li><strong>Limited geographic footprint</strong>: The bank is growing its presence through acquisition, but it does not have any branches west of Texas.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-who-is-bbt-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 BB&amp;T 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"> BB&amp;T Bank should appeal to consumers living within the 17 states (and Washington, D.C.) where it has branches. 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>Live in one of those states</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/banking-4427754" rel="noopener noreferrer">Want a full-service bank</a> that offers loans, deposits, and investments</li> <li>Are looking to open a checking or savings account with $100 or less</li> <li>Want a checking account with a low monthly fee</li> <li>Desire a savings account with no monthly fee</li> <li>Want flexible options with your CDs</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp sc-block-iframe--datawrapper mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_2-0-7"> <iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp lazyload mntl-sc-block-iframe__uri mntl-block" data-src="https://datawrapper.dwcdn.net/RUfi0/2/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="BB&amp;T Bank Branches by State"></iframe><!-- end: comp lazyload mntl-sc-block-iframe__uri mntl-block --> </div><!-- end: comp sc-block-iframe--datawrapper mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block --> <span class="heading-toc" id="toc-what-does-bbt-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_2-0-8"> <span class="mntl-sc-block-heading__text"> What Does BB&amp;T Bank 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_2-0-9"> As a large full-service regional bank, BB&amp;T offers an extensive menu of accounts and services to its customers. For most deposit accounts customers can choose from several options that fit their needs and budget. </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_2-0-10"> <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"> BB&amp;T Bank customers have several options for their checking needs. These include two standard checking accounts, a student account, a senior account, and a premium 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_2-0-12"> <li><strong>BB&amp;T Fundamentals</strong>: This checking account is designed for people who are concerned about meeting balance or <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> requirements. It requires a $50 minimum opening deposit and offers a flat monthly fee of $5.</li> <li><strong>Bright Banking</strong>: This checking account allows customers to waive the $12 monthly fee by keeping a $1,500 average balance or having direct deposits of $500 or more. There is a $50 minimum opening deposit.</li> <li><strong>Student Checking</strong>: Students can open a checking account with no minimum opening deposit and no monthly fees. Additionally, this account waives up to two non-BB&amp;T ATM fees each statement cycle. Students can also open an eSavings account and have the monthly maintenance fee waived.<br/></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-13"> Customers using the bank’s ATM card can use any of its 2,400 ATMs without a fee. If you use another bank’s ATM, BB&amp;T Bank will charge you $3 per transaction. </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_2-0-14"> <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">BB&amp;T/Truist BANK CHECKING ACCOUNTS</th> </tr> <tr> <th>ACCOUNT NAME</th> <th>MINIMUM OPENING DEPOSIT</th> <th>MONTHLY FEE</th> <th>ANNUAL PERCENTAGE YIELD (APY)</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Fundamentals Checking</td> <td>$50</td> <td>$5</td> <td>None</td> </tr> <tr> <td>Bright Checking</td> <td>$50</td> <td>$12</td> <td>None</td> </tr> <tr> <td>Student Checking</td> <td>$0</td> <td>$0</td> <td>None</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 --> <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"> 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_2-0-16"> There is one money market account available from BB&amp;T/Truist.<br> </br></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> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">BB&amp;T/Truist BANK MONEY MARKET ACCOUNTS</th> </tr> <tr> <th>ACCOUNT NAME</th> <th>MINIMUM OPENING DEPOSIT</th> <th>MONTHLY FEE</th> <th>ANNUAL PERCENTAGE YIELD (APY)</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Truist One Money Market Account</td> <td>$50</td> <td>$12</td> <td>0.01%</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 --> <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"> 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_2-0-19"> There are two savings accounts offered by BB&amp;T.<br/> </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> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">BB&amp;T/Truist BANK SAVINGS ACCOUNTS</th> </tr> <tr> <th>ACCOUNT NAME</th> <th>MINIMUM OPENING DEPOSIT</th> <th>MONTHLY FEE</th> <th>ANNUAL PERCENTAGE YIELD (APY)</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Truist One Savings</td> <td>$50</td> <td>$5</td> <td>0.01%</td> </tr> <tr> <td>Truist Confidence Savings</td> <td>$25</td> <td>$0</td> <td>Not disclosed</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 --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-21"> <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_2-0-22"> There are four types of CDs to choose from at BB&amp;T. </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>Personal CDs</strong>: These offer a guaranteed rate of return for up to five years.</li><li><strong>Personal CD Specials</strong>: These are available for a limited time and the rates and terms vary.</li><li><strong>Can’t Lose CDs</strong>: These protect customers whether rates rise or fall.</li><li><strong>Stepped Rate CDs</strong>: These provide interest rates that are guaranteed to rise once a year, every year.</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_2-0-24"> CDs renew automatically at maturity at the current rates. For terms less than 32 days, there is a one-day grace period to withdraw or change the term without penalty. All other CDs have a 10-calendar-day grace period. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-25"> The bank charges an early withdrawal penalty if you withdraw money before the CD matures. Penalties vary depending upon the length of the CD term. </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_2-0-26"> <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">BB&amp;T/Truist BANK CD RATES</th> </tr> <tr> <th>Term</th> <th>Tier</th> <th>APY</th> <th>Minimum Deposit</th> </tr> </thead> <tbody data-check="0"> <tr> <td>7 months</td> <td>$0–$9,999</td> <td>5.00%</td> <td>$1,000</td> </tr> <tr> <td>7 months </td> <td>$10,000–$49,999 </td> <td>5.00%</td> <td>$1,000 </td> </tr> <tr> <td>7 months </td> <td>$50,000–$99,999 </td> <td>5.00%</td> <td>$1,000 </td> </tr> <tr> <td>7 months </td> <td>$100,000–$99,999,999 </td> <td>5.00%</td> <td>$1,000 </td> </tr> <tr> <td>12 months </td> <td>$0–$9,999 </td> <td>4.50%</td> <td>$1,000 </td> </tr> <tr> <td>12 months </td> <td>$10,000–$49,999 </td> <td>4.50%</td> <td>$1,000 </td> </tr> <tr> <td>12 months </td> <td>$50,000–$99,999 </td> <td>4.50%</td> <td>$1,000 </td> </tr> <tr> <td>12 months </td> <td>$100,000–$99,999,999 </td> <td>4.50%</td> <td>$1,000<span data-cite="5"></span></td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <span class="heading-toc" id="toc-other-financial-products-offered-by-bbt-bank"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-27"> <span class="mntl-sc-block-heading__text"> Other Financial Products Offered by BB&amp;T 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_2-0-28"> As a large regional bank, BB&amp;T Bank offers a variety of accounts and services to meet the needs of its customers: </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>Auto loans</li> <li>Boat and recreational vehicle loans</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/truist-personal-loans-review-5210721" rel="noopener noreferrer">Personal loans</a></li> <li>Personal Lines of Credit</li> <li>Purchase mortgages</li> <li>Refinance mortgages</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/heloc/" rel="noopener noreferrer">Home Equity Loans and Lines of Credit (HELOCs)</a></li> <li>Individual Retirement Accounts (IRAs)</li> <li>College savings accounts</li> <li>Self-directed trading</li> <li>Managed investment portfolios</li> <li>Financial advisors</li> <li>Insurance</li> <li>Business loans</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-bbt-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_2-0-30"> <span class="mntl-sc-block-heading__text"> BB&amp;T 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_2-0-31"> Customer service is available by phone at 1-800-226-5228, Monday through Friday from 8 a.m. to 8 p.m. EST. and Saturday from 8 a.m. to noon EST. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/10-banks-soaring-dividend-payouts/">It is closed on Sundays</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_2-0-32"> There are more than 2,900 branches across 17 states (and Washington, D.C.) for you to speak with a banker in person. Branches are located along the East Coast and as far west as Texas. </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"> Your account is available 24 hours a day online and through BB&amp;T’s mobile app, which is available for both Apple (4.8 stars, 346,400 ratings) and Android (4.7 stars, 56,699 ratings) mobile devices.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="2"></span> The app allows you to view transaction history, personalize your accounts, pay bills, deposit checks, and more. It even has a budget feature that tracks your spending against your goals. </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"> General questions can be answered through BB&amp;T Bank’s X (formerly Twitter) account.<span class="ql-inline-citation" data-cite="4"></span> However, for security reasons, do not include your account number, Social Security number, or any other personally identifiable information. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-bank-with-bbt-bank"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-35"> <span class="mntl-sc-block-heading__text"> How to Bank With BB&amp;T 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_2-0-36"> You can open an account online, over the phone, or at a branch, of which there are more than 2,900 available in Washington, D.C., and the following states: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-37"> <li>Alabama</li><li>Arkansas</li><li>Florida</li><li>Georgia</li><li>Indiana</li><li>Kentucky</li><li>Maryland</li><li>Mississippi</li><li>New Jersey</li><li>North Carolina</li><li>Ohio</li><li>Pennsylvania</li><li>South Carolina</li><li>Tennessee</li><li>Texas</li><li>Virginia</li><li>West Virginia</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_2-0-38"> <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_2-0-39"> BB&amp;T Bank is a full-service regional bank well suited for customers who live near one of its branches. It has most of the account types that a customer would want, but its interest rates are not competitive with other banks. That being said, the bank does offer multiple checking account options to meet your needs and budget. It would do well as a primary bank for day-to-day needs. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-40"> Customers looking for <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>, money market accounts, and CDs should look elsewhere. BB&amp;T Bank does offer tiered pricing for higher deposit levels, but the interest rates are much lower than the alternatives. </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_2-0-41"> <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_2-0-42"> 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_2-0-43"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="none" data-tracking-container="true" href="https://www.truist.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. 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"<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.truist.com/savings/certificate-of-deposit/disclosures-and-fees" rel="nofollow sponsored">Certificates of Deposit (CDs) Disclosure Information</a>."</p></li> <li class="mntl-sources__source" id="citation-3"><p>Apple.com. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://apps.apple.com/us/app/u-digital-banking/id995112030" rel="noopener noreferrer nofollow sponsored">U by BB&amp;T</a>."</p></li> <li class="mntl-sources__source" id="citation-2"><p>Google.com. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://play.google.com/store/apps/details?id=com.bbt.myfi&amp;hl=en" rel="noopener noreferrer nofollow sponsored">U by BB&amp;T</a>."</p></li> <li class="mntl-sources__source" id="citation-4"><p>Twitter.com. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://twitter.com/bbt" rel="noopener noreferrer">@BBT</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="" href="https://www.investopedia.com/regions-bank-review-8644041" id="mntl-card-list-items_1-0"> <div class="card__media" 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href="https://www.investopedia.com/ally-bank-review-4842316" id="mntl-card-list-items_6-0"> <div class="card__media" data-tag="Bank Reviews"> <img alt="Ally Bank" class="lazyload card__img" data-dim-ratio="1.5" data-src="https://www.investopedia.com/thmb/3siI4XST-0qS1MGL15zN9fi_nP4=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Ally_Recirc-272498b45041423caa1ffeb99428385e.jpg" height="300" width="400"/> <noscript> <img alt="Ally Bank" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/3siI4XST-0qS1MGL15zN9fi_nP4=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Ally_Recirc-272498b45041423caa1ffeb99428385e.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Bank Reviews"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">Ally Bank Review</span></span> <div class="card__byline mntl-card__byline" data-byline="By Kevin Payne"></div> </div> </a></div> </div></section></div> 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:fill(white):max_bytes(150000):strip_icc()/bbt-d6ab86de2fa849909af3dc705d51f5cd.png) :fill(white):max_bytes(150000):strip_icc()/bbt-d6ab86de2fa849909af3dc705d51f5cd.png) BBT [Open Account](https://www.truist.com/) BB&T Bank/Truist is one of the largest financial services companies in the U.S. It is headquartered in Winston-Salem, N.C., and operates more than 2,800 financial centers across 17 states and Washington, D.C.. It began as a small bank in 1872 and now has more than $230 billion in assets. In 2019 BB&T merged with SunTrust, another southeastern regional bank. This merger of equals created the seventh largest commercial bank in the U.S. The banks have integrated and renamed themselves Truist Bank. This in-depth review can help you decide if its deposit accounts are right for you. * Pros & Cons * Company Overview Pros & Cons Pros * Open a checking or savings account with $100 or less * Savings account with no minimum deposit or monthly fees * Flexible options with CDs Cons * Uncompetitive interest rates on deposit accounts * Limited geographic footprint Company Overview * Year Founded 1872 * Official Website https://www.truist.com/ * Banking Products Offered Savings, checking, CDs, MMA, credit cards * Customer Support Phone line: Monday–Friday, 8 a.m. to 8 p.m. (EST); Saturday, 8 a.m. to noon (EST): 1-800-226-5228 :fill(white):max_bytes(150000):strip_icc()/bbt-d6ab86de2fa849909af3dc705d51f5cd.png) :fill(white):max_bytes(150000):strip_icc()/bbt-d6ab86de2fa849909af3dc705d51f5cd.png) BBT [Open Account](https://www.truist.com/) Table of Contents View All BB&T Bank Review * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Best for](#toc-who-is-bbt-bank-best-for) * [Bank Offerings](#toc-what-does-bbt-bank-offer) * [Other Products](#toc-other-financial-products-offered-by-bbt-bank) * [Customer Service](#toc-bbt-bank-customer-service) * [How to Bank](#toc-how-to-bank-with-bbt-bank) * [Final Verdict](#toc-final-verdict) * [Methodology](#toc-methodology) ## Pros Explained * **Open a checking or savings account with $100 or less**: Aside from the premium accounts, customers can open a checking or savings account with a required minimum deposit of $100 or less. This low minimum opening deposit makes it easier for customers to transition from their existing bank. * **Savings account with no minimum deposit or monthly fees**: In today’s low-interest-rate environment, it is important to be able to have a savings account without monthly fees offsetting the interest that you earn. The online-only eSavings account has no minimum balance requirements, and there is no minimum opening deposit. * **Flexible options with CDs**: Customers have several options when opening a [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp). They can open a standard CD, use promotional pricing, take advantage of rate changes, or lock in guaranteed annual rate increases. ## Cons Explained * **Uncompetitive interest rates on deposit accounts**: Although BB&T Bank offers tiered pricing on some of its deposit products, the interest rates that it offers are not competitive with other banks. * **Limited geographic footprint**: The bank is growing its presence through acquisition, but it does not have any branches west of Texas. ## Who Is BB&T Bank Best for? BB&T Bank should appeal to consumers living within the 17 states (and Washington, D.C.) where it has branches. It may be a good fit if you: * Live in one of those states * [Want a full-service bank](https://www.investopedia.com/banking-4427754) that offers loans, deposits, and investments * Are looking to open a checking or savings account with $100 or less * Want a checking account with a low monthly fee * Desire a savings account with no monthly fee * Want flexible options with your CDs ## What Does BB&T Bank Offer? As a large full-service regional bank, BB&T offers an extensive menu of accounts and services to its customers. For most deposit accounts customers can choose from several options that fit their needs and budget. ### Checking Accounts BB&T Bank customers have several options for their checking needs. These include two standard checking accounts, a student account, a senior account, and a premium account. * **BB&T Fundamentals**: This checking account is designed for people who are concerned about meeting balance or [direct-deposit](https://www.investopedia.com/terms/d/directdeposit.asp) requirements. It requires a $50 minimum opening deposit and offers a flat monthly fee of $5. * **Bright Banking**: This checking account allows customers to waive the $12 monthly fee by keeping a $1,500 average balance or having direct deposits of $500 or more. There is a $50 minimum opening deposit. * **Student Checking**: Students can open a checking account with no minimum opening deposit and no monthly fees. Additionally, this account waives up to two non-BB&T ATM fees each statement cycle. Students can also open an eSavings account and have the monthly maintenance fee waived. Customers using the bank’s ATM card can use any of its 2,400 ATMs without a fee. If you use another bank’s ATM, BB&T Bank will charge you $3 per transaction. | BB&T/Truist BANK CHECKING ACCOUNTS | | | | | --- | --- | --- | --- | | ACCOUNT NAME | MINIMUM OPENING DEPOSIT | MONTHLY FEE | ANNUAL PERCENTAGE YIELD (APY) | | Fundamentals Checking | $50 | $5 | None | | Bright Checking | $50 | $12 | None | | Student Checking | $0 | $0 | None | ### Money Market Accounts There is one money market account available from BB&T/Truist. | BB&T/Truist BANK MONEY MARKET ACCOUNTS | | | | | --- | --- | --- | --- | | ACCOUNT NAME | MINIMUM OPENING DEPOSIT | MONTHLY FEE | ANNUAL PERCENTAGE YIELD (APY) | | Truist One Money Market Account | $50 | $12 | 0.01% | ### Savings Accounts There are two savings accounts offered by BB&T. | BB&T/Truist BANK SAVINGS ACCOUNTS | | | | | --- | --- | --- | --- | | ACCOUNT NAME | MINIMUM OPENING DEPOSIT | MONTHLY FEE | ANNUAL PERCENTAGE YIELD (APY) | | Truist One Savings | $50 | $5 | 0.01% | | Truist Confidence Savings | $25 | $0 | Not disclosed | ### CDs There are four types of CDs to choose from at BB&T. * **Personal CDs**: These offer a guaranteed rate of return for up to five years. * **Personal CD Specials**: These are available for a limited time and the rates and terms vary. * **Can’t Lose CDs**: These protect customers whether rates rise or fall. * **Stepped Rate CDs**: These provide interest rates that are guaranteed to rise once a year, every year. CDs renew automatically at maturity at the current rates. For terms less than 32 days, there is a one-day grace period to withdraw or change the term without penalty. All other CDs have a 10-calendar-day grace period. The bank charges an early withdrawal penalty if you withdraw money before the CD matures. Penalties vary depending upon the length of the CD term. | BB&T/Truist BANK CD RATES | | | | | --- | --- | --- | --- | | Term | Tier | APY | Minimum Deposit | | 7 months | $0–$9,999 | 5.00% | $1,000 | | 7 months | $10,000–$49,999 | 5.00% | $1,000 | | 7 months | $50,000–$99,999 | 5.00% | $1,000 | | 7 months | $100,000–$99,999,999 | 5.00% | $1,000 | | 12 months | $0–$9,999 | 4.50% | $1,000 | | 12 months | $10,000–$49,999 | 4.50% | $1,000 | | 12 months | $50,000–$99,999 | 4.50% | $1,000 | | 12 months | $100,000–$99,999,999 | 4.50% | $1,000 | ## Other Financial Products Offered by BB&T Bank As a large regional bank, BB&T Bank offers a variety of accounts and services to meet the needs of its customers: * Auto loans * Boat and recreational vehicle loans * [Personal loans](https://www.investopedia.com/truist-personal-loans-review-5210721) * Personal Lines of Credit * Purchase mortgages * Refinance mortgages * [Home Equity Loans and Lines of Credit (HELOCs)](https://www.investopedia.com/mortgage/heloc/) * Individual Retirement Accounts (IRAs) * College savings accounts * Self-directed trading * Managed investment portfolios * Financial advisors * Insurance * Business loans ## BB&T Bank Customer Service Customer service is available by phone at 1-800-226-5228, Monday through Friday from 8 a.m. to 8 p.m. EST. and Saturday from 8 a.m. to noon EST. [It is closed on Sundays](https://www.investopedia.com/news/10-banks-soaring-dividend-payouts/). There are more than 2,900 branches across 17 states (and Washington, D.C.) for you to speak with a banker in person. Branches are located along the East Coast and as far west as Texas. Your account is available 24 hours a day online and through BB&T’s mobile app, which is available for both Apple (4.8 stars, 346,400 ratings) and Android (4.7 stars, 56,699 ratings) mobile devices. The app allows you to view transaction history, personalize your accounts, pay bills, deposit checks, and more. It even has a budget feature that tracks your spending against your goals. General questions can be answered through BB&T Bank’s X (formerly Twitter) account. However, for security reasons, do not include your account number, Social Security number, or any other personally identifiable information. ## How to Bank With BB&T Bank You can open an account online, over the phone, or at a branch, of which there are more than 2,900 available in Washington, D.C., and the following states: * Alabama * Arkansas * Florida * Georgia * Indiana * Kentucky * Maryland * Mississippi * New Jersey * North Carolina * Ohio * Pennsylvania * South Carolina * Tennessee * Texas * Virginia * West Virginia ## Final Verdict BB&T Bank is a full-service regional bank well suited for customers who live near one of its branches. It has most of the account types that a customer would want, but its interest rates are not competitive with other banks. That being said, the bank does offer multiple checking account options to meet your needs and budget. It would do well as a primary bank for day-to-day needs. Customers looking for [high-yield savings accounts](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp), money market accounts, and CDs should look elsewhere. BB&T Bank does offer tiered pricing for higher deposit levels, but the interest rates are much lower than the alternatives. ## 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.truist.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. Truist. "[Certificates of Deposit (CDs) Disclosure Information](https://www.truist.com/savings/certificate-of-deposit/disclosures-and-fees)." 2. Apple.com. "[U by BB&T](https://apps.apple.com/us/app/u-digital-banking/id995112030)." 3. Google.com. "[U by BB&T](https://play.google.com/store/apps/details?id=com.bbt.myfi&hl=en)." 4. Twitter.com. "[@BBT](https://twitter.com/bbt)." 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BBT Open Account BB&T Bank/Truist is one of the largest financial services companies in the U.S. It is headquartered in Winston-Salem, N.C., and operates more than 2,800 financial centers across 17 states and Washington, D.C.. It began as a small bank in 1872 and now has more than $230 billion in assets. In 2019 BB&T merged with SunTrust, another southeastern regional bank. This merger of equals created the seventh largest commercial bank in the U.S. The banks have integrated and renamed themselves Truist Bank. This in-depth review can help you decide if its deposit accounts are right for you. Pros & Cons Company Overview Pros & Cons Pros Open a checking or savings account with $100 or less Savings account with no minimum deposit or monthly fees Flexible options with CDs Cons Uncompetitive interest rates on deposit accounts Limited geographic footprint Company Overview Year Founded 1872 Official Website https://www.truist.com/ Banking Products Offered Savings, checking, CDs, MMA, credit cards Customer Support Phone line: Monday–Friday, 8 a.m. to 8 p.m. (EST); Saturday, 8 a.m. to noon (EST): 1-800-226-5228 BBT Open Account Table of Contents View All BB&T Bank Review Pros Explained Cons Explained Best for Bank Offerings Other Products Customer Service How to Bank Final Verdict Methodology Pros Explained Open a checking or savings account with $100 or less: Aside from the premium accounts, customers can open a checking or savings account with a required minimum deposit of $100 or less. This low minimum opening deposit makes it easier for customers to transition from their existing bank. Savings account with no minimum deposit or monthly fees: In today’s low-interest-rate environment, it is important to be able to have a savings account without monthly fees offsetting the interest that you earn. The online-only eSavings account has no minimum balance requirements, and there is no minimum opening deposit. Flexible options with CDs: Customers have several options when opening a certificate of deposit (CD). They can open a standard CD, use promotional pricing, take advantage of rate changes, or lock in guaranteed annual rate increases. Cons Explained Uncompetitive interest rates on deposit accounts: Although BB&T Bank offers tiered pricing on some of its deposit products, the interest rates that it offers are not competitive with other banks.Limited geographic footprint: The bank is growing its presence through acquisition, but it does not have any branches west of Texas. Who Is BB&T Bank Best for? BB&T Bank should appeal to consumers living within the 17 states (and Washington, D.C.) where it has branches. It may be a good fit if you: Live in one of those states Want a full-service bank that offers loans, deposits, and investments Are looking to open a checking or savings account with $100 or less Want a checking account with a low monthly fee Desire a savings account with no monthly fee Want flexible options with your CDs What Does BB&T Bank Offer? As a large full-service regional bank, BB&T offers an extensive menu of accounts and services to its customers. For most deposit accounts customers can choose from several options that fit their needs and budget. Checking Accounts BB&T Bank customers have several options for their checking needs. These include two standard checking accounts, a student account, a senior account, and a premium account. BB&T Fundamentals: This checking account is designed for people who are concerned about meeting balance or direct-deposit requirements. It requires a $50 minimum opening deposit and offers a flat monthly fee of $5. Bright Banking: This checking account allows customers to waive the $12 monthly fee by keeping a $1,500 average balance or having direct deposits of $500 or more. There is a $50 minimum opening deposit. Student Checking: Students can open a checking account with no minimum opening deposit and no monthly fees. Additionally, this account waives up to two non-BB&T ATM fees each statement cycle. Students can also open an eSavings account and have the monthly maintenance fee waived. Customers using the bank’s ATM card can use any of its 2,400 ATMs without a fee. If you use another bank’s ATM, BB&T Bank will charge you $3 per transaction. BB&T/Truist BANK CHECKING ACCOUNTS ACCOUNT NAME MINIMUM OPENING DEPOSIT MONTHLY FEE ANNUAL PERCENTAGE YIELD (APY) Fundamentals Checking $50 $5 None Bright Checking $50 $12 None Student Checking $0 $0 None Money Market Accounts There is one money market account available from BB&T/Truist. BB&T/Truist BANK MONEY MARKET ACCOUNTS ACCOUNT NAME MINIMUM OPENING DEPOSIT MONTHLY FEE ANNUAL PERCENTAGE YIELD (APY) Truist One Money Market Account $50 $12 0.01% Savings Accounts There are two savings accounts offered by BB&T. BB&T/Truist BANK SAVINGS ACCOUNTS ACCOUNT NAME MINIMUM OPENING DEPOSIT MONTHLY FEE ANNUAL PERCENTAGE YIELD (APY) Truist One Savings $50 $5 0.01% Truist Confidence Savings $25 $0 Not disclosed CDs There are four types of CDs to choose from at BB&T. Personal CDs: These offer a guaranteed rate of return for up to five years.Personal CD Specials: These are available for a limited time and the rates and terms vary.Can’t Lose CDs: These protect customers whether rates rise or fall.Stepped Rate CDs: These provide interest rates that are guaranteed to rise once a year, every year. CDs renew automatically at maturity at the current rates. For terms less than 32 days, there is a one-day grace period to withdraw or change the term without penalty. All other CDs have a 10-calendar-day grace period. The bank charges an early withdrawal penalty if you withdraw money before the CD matures. Penalties vary depending upon the length of the CD term. BB&T/Truist BANK CD RATES Term Tier APY Minimum Deposit 7 months $0–$9,999 5.00% $1,000 7 months  $10,000–$49,999  5.00% $1,000  7 months  $50,000–$99,999  5.00% $1,000  7 months  $100,000–$99,999,999  5.00% $1,000  12 months  $0–$9,999  4.50% $1,000  12 months  $10,000–$49,999  4.50% $1,000  12 months  $50,000–$99,999  4.50% $1,000  12 months  $100,000–$99,999,999  4.50% $1,000 Other Financial Products Offered by BB&T Bank As a large regional bank, BB&T Bank offers a variety of accounts and services to meet the needs of its customers: Auto loans Boat and recreational vehicle loans Personal loans Personal Lines of Credit Purchase mortgages Refinance mortgages Home Equity Loans and Lines of Credit (HELOCs) Individual Retirement Accounts (IRAs) College savings accounts Self-directed trading Managed investment portfolios Financial advisors Insurance Business loans BB&T Bank Customer Service Customer service is available by phone at 1-800-226-5228, Monday through Friday from 8 a.m. to 8 p.m. EST. and Saturday from 8 a.m. to noon EST. It is closed on Sundays. There are more than 2,900 branches across 17 states (and Washington, D.C.) for you to speak with a banker in person. Branches are located along the East Coast and as far west as Texas. Your account is available 24 hours a day online and through BB&T’s mobile app, which is available for both Apple (4.8 stars, 346,400 ratings) and Android (4.7 stars, 56,699 ratings) mobile devices. The app allows you to view transaction history, personalize your accounts, pay bills, deposit checks, and more. It even has a budget feature that tracks your spending against your goals. General questions can be answered through BB&T Bank’s X (formerly Twitter) account. However, for security reasons, do not include your account number, Social Security number, or any other personally identifiable information. How to Bank With BB&T Bank You can open an account online, over the phone, or at a branch, of which there are more than 2,900 available in Washington, D.C., and the following states: AlabamaArkansasFloridaGeorgiaIndianaKentuckyMarylandMississippiNew JerseyNorth CarolinaOhioPennsylvaniaSouth CarolinaTennesseeTexasVirginiaWest Virginia Final Verdict BB&T Bank is a full-service regional bank well suited for customers who live near one of its branches. It has most of the account types that a customer would want, but its interest rates are not competitive with other banks. That being said, the bank does offer multiple checking account options to meet your needs and budget. It would do well as a primary bank for day-to-day needs. Customers looking for high-yield savings accounts, money market accounts, and CDs should look elsewhere. BB&T Bank does offer tiered pricing for higher deposit levels, but the interest rates are much lower than the alternatives. 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. Truist. "Certificates of Deposit (CDs) Disclosure Information." Apple.com. "U by BB&T." Google.com. "U by BB&T." Twitter.com. "@BBT." Related Articles Regions Bank Review 2024 M&T Bank Review 2024 KeyBank Review 2024 BMO Bank Review CIBC Bank USA Review Ally Bank Review

https://www.investopedia.com/top-cd-rates-today-leading-1-year-return-falls-to-5-43-8608785

Top CD Rates March 13, 2024: Leading 1-Year Return Falls to 5.43%

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 top nationally available rate for a 1-year certificate dropped today from 5.50% to 5.43% APY. The new leader is <a class="pseudoStyle" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://myfinancialresources.org/home/borrow/rates/&amp;lender=Financial%20Resources%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Financial Resources Federal Credit Union</a>.</li> <li>The top nationwide rate in our daily CD rankings remains 5.75% APY on a 6-month offer from <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.andrewsfcu.org/Learn/Resources/Rates/Share-Certificate-Rates&amp;lender=Andrews%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Andrews Federal Credit Union</a>.</li> <li>Able to stretch to a jumbo deposit? <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.hughesfcu.org/products/detail/certificate-accounts&amp;lender=Hughes%20Federal%20Credit%20Uniontype=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Hughes Federal Credit Union</a> is paying 5.65% for 17 months.</li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">CD rates</a> have been inching lower for the past few months. But they'll likely start falling faster once the Fed appears ready to make a rate cut.</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-square figure-high-res" id="mntl-sc-block_3-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:83.7%;"> <img alt="Line graph showing the top 1-year CD rate from before the Fed's first rate hike to the present" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/gHtCDzh9i0bH1qb_7CvyWjwBJ_E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2024-03-13at3.27.57PM-4a53b1033be648a3a0c1437cdbf56f14.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/gHtCDzh9i0bH1qb_7CvyWjwBJ_E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2024-03-13at3.27.57PM-4a53b1033be648a3a0c1437cdbf56f14.png" data-srcset="https://www.investopedia.com/thmb/E26QifdIdhY7oM9yWr-c8ywyRH0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2024-03-13at3.27.57PM-4a53b1033be648a3a0c1437cdbf56f14.png 750w" data-tracking-container="true" height="2076" id="mntl-sc-block-image_1-0" width="2478"/> <noscript> <img alt="Line graph showing the top 1-year CD rate from before the Fed's first rate hike to the present" class="img--noscript universal-image__image" height="2076" sizes="750px" src="https://www.investopedia.com/thmb/gHtCDzh9i0bH1qb_7CvyWjwBJ_E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2024-03-13at3.27.57PM-4a53b1033be648a3a0c1437cdbf56f14.png" srcset="https://www.investopedia.com/thmb/E26QifdIdhY7oM9yWr-c8ywyRH0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2024-03-13at3.27.57PM-4a53b1033be648a3a0c1437cdbf56f14.png 750w" width="2478"/> </noscript> </div> </div> </figure> <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-cds-are-still-paying-historically-high-rates"></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"> CDs Are Still Paying Historically High Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The top yield for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">1-year nationwide CD</a> dropped today, slipping from 5.50% to a new leading rate of 5.43% APY. That offer comes from Financial Resources Federal Credit Union with a 13-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"> All other term leaders held their ground today. That includes the overall leader in 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 nationwide CDs</a>: a 5.75% APY offer on 6 months, available from Andrews Federal Credit Union. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_13-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 99px;"></colgroup> <colgroup span="1" style="width: 113px;"></colgroup> <colgroup span="1" style="width: 106px;"></colgroup> <colgroup span="1" style="width: 116px;"></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-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" rel="noopener noreferrer">6 months</a></td> <td>5.75% APY</td> <td>5.75% 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.andrewsfcu.org/Learn/Resources/Rates/Share-Certificate-Rates&amp;lender=Andrews%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Andrews Federal Credit Union</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650" rel="noopener noreferrer">1 year</a></td> <td>5.50% APY</td> <td>5.43% APY</td> <td>- 0.07</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://myfinancialresources.org/home/borrow/rates/&amp;lender=Financial%20Resources%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Financial Resources Federal Credit Union</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348" rel="noopener noreferrer">18 months</a></td> <td>5.35% APY</td> <td>5.35% 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://forteracu.com/banking/personal/savings/certificates/fixed-rate-share-certificate&amp;lender=Fortera%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Fortera Credit Union</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&amp;lender=XCEL%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">2 years</a></td> <td>5.27% APY</td> <td>5.27% 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.pelicanstatecu.com/rates&amp;lender=Pelican%20State%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Pelican State Credit Union</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938" rel="noopener noreferrer">3 years</a></td> <td>5.00% APY</td> <td>5.00% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&amp;lender=DollarSavingsDirect&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">DollarSavingsDirect</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="noopener noreferrer nofollow">4 years</a></td> <td>4.60% APY</td> <td>4.60% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473" rel="noopener noreferrer">5 years</a></td> <td>4.60% APY</td> <td>4.60% 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://alto.bmo.com/en-us/high-yield-cd/&amp;lender=BMO%20Alto&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">BMO Alto</a></td> </tr> </tbody> </table> <figcaption>To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. Today that count dropped to just 8. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great opportunity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_19-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/MJLyI/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Ranges of Top 15 CD Rates by Term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Also keep in mind that snagging the <em>highest</em> APY isn't the only way to win with today's CDs. Since CD rates could fall much further in 2024 and 2025, locking in a rate soon that's guaranteed far into the future could prove to be a smart move.<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-todays-top-bank-credit-union-and-jumbo-cd-rates"></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"> Today's Top Bank, Credit Union, and Jumbo CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Today's best jumbo CD rate remains 5.65% APY on a 17-month term, available from Hughes Federal Credit Union. All other jumbo leading rates held steady today as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> As always, 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 every term but two 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_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="width: 94px;"></colgroup> <colgroup span="1" style="width: 148px;"></colgroup> <colgroup span="1" style="width: 156px;"></colgroup> <colgroup span="1" style="width: 152px;"></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>5.75% APY*</td> <td>5.51% APY</td> </tr> <tr> <td>1 year</td> <td>5.40% APY</td> <td>5.43% APY</td> <td>5.51% APY*</td> </tr> <tr> <td>18 months</td> <td>5.08% APY</td> <td>5.35% APY</td> <td>5.65% APY*</td> </tr> <tr> <td>2 years</td> <td>4.91% APY</td> <td>5.27% APY*</td> <td>5.06% 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>4.60% APY*</td> <td>4.60% APY*</td> <td>4.52% APY</td> </tr> <tr> <td>5 years</td> <td>4.60% APY*</td> <td>4.60% APY*</td> <td>4.42% 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_29-0"></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_30-0"> <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_31-0"> The Federal Reserve announced at its Jan. 31 meeting that it is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-interest-rate-decision-january-2024-8553695">maintaining rates at their current level</a>, the fourth meeting in a row it's done so.<span class="ql-inline-citation" data-cite="32"></span> To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising 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> to its highest level in 22 years. </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"> This in turn created 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 continued rising to a peak this fall, reaching their highest levels in two decades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_35-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/krpWZ/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" 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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> But inflation has been cooling, putting the Fed in a holding pattern since July. The central bank also signaled after its January meeting that it was most likely finished with its rate-hike campaign.<span class="ql-inline-citation" data-cite="32"></span> This means we've entered a new phase, where the Fed committee is focused on deciding the right timing to pull the trigger on a first rate cut. </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"> Financial markets are currently forecasting more than one rate cut in 2024, according to the CME Group's FedWatch Tool, with a majority of traders believing the first cut will arrive by June.<span class="ql-inline-citation" data-cite="39"></span> But what markets predict and what the Fed ultimately does may or may not align. </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"> Indeed, Fed Chair <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/jerome-powell-5210572">Jerome Powell</a> testified to Congress last week and indicated the rate-setting committee still thinks it's likely they will cut their benchmark rate this year. But his remarks also <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-chair-powell-sticks-to-script-in-first-congress-appearance-this-week-8605176">conveyed caution</a> that predictions at this time are merely best guesses. </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 economic outlook is uncertain, and ongoing progress toward our 2% objective for inflation is not assured," Powell said in his prepared comments. "Reducing policy restraint too soon or too much could result in a reversal of progress we have seen." </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"> Indeed, inflation is proving more stubborn than the Fed and most economists have been anticipating. Inflation data released yesterday showed February's reading was <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/february-2024-cpi-8607820">higher than expected</a> and slightly above January's reading, which itself came in ahead of expectations last month.<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_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> The Fed's next rate-setting meeting is next week, and the central bank will almost certainly announce another rate hold Wednesday. But this announcement will also come with the release of a new "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dot-plot-4581755">dot plot</a>" chart, which indicates how many rate cuts—if any—each Fed member expects we'll see by the end of 2024. </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"> If the dot plot shows that central bankers still expect to make multiple rate cuts this year, CD rates would probably continue drifting gradually lower. But if instead next week's report shows that 2024 rate cuts are far less certain, then CD rates may plateau until it seems a Fed rate decrease is more forthcoming.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_52-0"><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_54-0"><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_56-0"><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_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_58-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_59-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_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 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_60-0"> <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_61-0"> 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_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>.<br/> </p></div>

### Key Takeaways * The top nationally available rate for a 1-year certificate dropped today from 5.50% to 5.43% APY. The new leader is [Financial Resources Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://myfinancialresources.org/home/borrow/rates/&lender=Financial%20Resources%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ). * The top nationwide rate in our daily CD rankings remains 5.75% APY on a 6-month offer from [Andrews Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.andrewsfcu.org/Learn/Resources/Rates/Share-Certificate-Rates&lender=Andrews%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ). * Able to stretch to a jumbo deposit? [Hughes Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.hughesfcu.org/products/detail/certificate-accounts&lender=Hughes%20Federal%20Credit%20Uniontype=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) is paying 5.65% for 17 months. * [CD rates](https://www.investopedia.com/best-cd-rates-4770214) have been inching lower for the past few months. But they'll likely start falling faster once the Fed appears ready to make a rate cut. ![Line graph showing the top 1-year CD rate from before the Fed's first rate hike to the present]() :max_bytes(150000):strip_icc()/ScreenShot2024-03-13at3.27.57PM-4a53b1033be648a3a0c1437cdbf56f14.png) Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. ## CDs Are Still Paying Historically High Rates The top yield for [1-year nationwide CD](https://www.investopedia.com/best-1-year-cd-rates-4796650) dropped today, slipping from 5.50% to a new leading rate of 5.43% APY. That offer comes from Financial Resources Federal Credit Union with a 13-month term. All other term leaders held their ground today. That includes the overall leader in our [daily ranking of the best nationwide CDs](https://www.investopedia.com/best-cd-rates-4770214): a 5.75% APY offer on 6 months, available from Andrews Federal Credit Union. | **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://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) | 5.75% APY | 5.75% APY | No change | [Andrews Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.andrewsfcu.org/Learn/Resources/Rates/Share-Certificate-Rates&lender=Andrews%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [1 year](https://www.investopedia.com/best-1-year-cd-rates-4796650) | 5.50% APY | 5.43% APY | - 0.07 | [Financial Resources Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://myfinancialresources.org/home/borrow/rates/&lender=Financial%20Resources%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.35% APY | 5.35% APY | No change | [Fortera Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://forteracu.com/banking/personal/savings/certificates/fixed-rate-share-certificate&lender=Fortera%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [2 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.27% APY | 5.27% APY | No change | [Pelican State Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.pelicanstatecu.com/rates&lender=Pelican%20State%20Credit%20Union&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://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) | 4.60% APY | 4.60% 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://www.investopedia.com/best-5-year-cd-rates-4801473) | 4.60% APY | 4.60% APY | No change | [BMO Alto](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&lender=BMO%20Alto&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. Today that count dropped to just 8. But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great opportunity. Also keep in mind that snagging the *highest* APY isn't the only way to win with today's CDs. Since CD rates could fall much further in 2024 and 2025, locking in a rate soon that's guaranteed far into the future could prove to be a smart move. ## Today's Top Bank, Credit Union, and Jumbo CD Rates Today's best jumbo CD rate remains 5.65% APY on a 17-month term, available from Hughes Federal Credit Union. All other jumbo leading rates held steady today as well. As always, 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 every term but two 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 | 5.75% APY\* | 5.51% APY | | 1 year | 5.40% APY | 5.43% APY | 5.51% APY\* | | 18 months | 5.08% APY | 5.35% APY | 5.65% APY\* | | 2 years | 4.91% APY | 5.27% APY\* | 5.06% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.60% APY\* | 4.60% APY\* | 4.52% APY | | 5 years | 4.60% APY\* | 4.60% APY\* | 4.42% 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? The Federal Reserve announced at its Jan. 31 meeting that it is [maintaining rates at their current level](https://www.investopedia.com/fed-interest-rate-decision-january-2024-8553695), the fourth meeting in a row it's done so. To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) to its highest level in 22 years. This in turn created 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 continued rising to a peak this fall, reaching their highest levels in two decades. But inflation has been cooling, putting the Fed in a holding pattern since July. The central bank also signaled after its January meeting that it was most likely finished with its rate-hike campaign. This means we've entered a new phase, where the Fed committee is focused on deciding the right timing to pull the trigger on a first rate cut. Financial markets are currently forecasting more than one rate cut in 2024, according to the CME Group's FedWatch Tool, with a majority of traders believing the first cut will arrive by June. But what markets predict and what the Fed ultimately does may or may not align. Indeed, Fed Chair [Jerome Powell](https://www.investopedia.com/jerome-powell-5210572) testified to Congress last week and indicated the rate-setting committee still thinks it's likely they will cut their benchmark rate this year. But his remarks also [conveyed caution](https://www.investopedia.com/fed-chair-powell-sticks-to-script-in-first-congress-appearance-this-week-8605176) that predictions at this time are merely best guesses. "The economic outlook is uncertain, and ongoing progress toward our 2% objective for inflation is not assured," Powell said in his prepared comments. "Reducing policy restraint too soon or too much could result in a reversal of progress we have seen." Indeed, inflation is proving more stubborn than the Fed and most economists have been anticipating. Inflation data released yesterday showed February's reading was [higher than expected](https://www.investopedia.com/february-2024-cpi-8607820) and slightly above January's reading, which itself came in ahead of expectations last month. The Fed's next rate-setting meeting is next week, and the central bank will almost certainly announce another rate hold Wednesday. But this announcement will also come with the release of a new "[dot plot](https://www.investopedia.com/dot-plot-4581755)" chart, which indicates how many rate cuts—if any—each Fed member expects we'll see by the end of 2024. If the dot plot shows that central bankers still expect to make multiple rate cuts this year, CD rates would probably continue drifting gradually lower. But if instead next week's report shows that 2024 rate cuts are far less certain, then CD rates may plateau until it seems a Fed rate decrease is more forthcoming. [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 top nationally available rate for a 1-year certificate dropped today from 5.50% to 5.43% APY. The new leader is Financial Resources Federal Credit Union. The top nationwide rate in our daily CD rankings remains 5.75% APY on a 6-month offer from Andrews Federal Credit Union. Able to stretch to a jumbo deposit? Hughes Federal Credit Union is paying 5.65% for 17 months. CD rates have been inching lower for the past few months. But they'll likely start falling faster once the Fed appears ready to make a rate cut. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. CDs Are Still Paying Historically High Rates The top yield for 1-year nationwide CD dropped today, slipping from 5.50% to a new leading rate of 5.43% APY. That offer comes from Financial Resources Federal Credit Union with a 13-month term. All other term leaders held their ground today. That includes the overall leader in our daily ranking of the best nationwide CDs: a 5.75% APY offer on 6 months, available from Andrews Federal Credit Union. 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 5.75% APY 5.75% APY No change Andrews Federal Credit Union 1 year 5.50% APY 5.43% APY - 0.07 Financial Resources Federal Credit Union 18 months 5.35% APY 5.35% APY No change Fortera Credit Union 2 years 5.27% APY 5.27% APY No change Pelican State Credit Union 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect 4 years 4.60% APY 4.60% APY No change Credit Human 5 years 4.60% APY 4.60% APY No change BMO Alto To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. Today that count dropped to just 8. But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great opportunity. Also keep in mind that snagging the highest APY isn't the only way to win with today's CDs. Since CD rates could fall much further in 2024 and 2025, locking in a rate soon that's guaranteed far into the future could prove to be a smart move. Today's Top Bank, Credit Union, and Jumbo CD Rates Today's best jumbo CD rate remains 5.65% APY on a 17-month term, available from Hughes Federal Credit Union. All other jumbo leading rates held steady today as well. As always, 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 every term but two 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 5.75% APY* 5.51% APY 1 year 5.40% APY 5.43% APY 5.51% APY* 18 months 5.08% APY 5.35% APY 5.65% APY* 2 years 4.91% APY 5.27% APY* 5.06% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.60% APY* 4.60% APY* 4.52% APY 5 years 4.60% APY* 4.60% APY* 4.42% 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? The Federal Reserve announced at its Jan. 31 meeting that it is maintaining rates at their current level, the fourth meeting in a row it's done so. To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising the federal funds rate to its highest level in 22 years. This in turn created 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 continued rising to a peak this fall, reaching their highest levels in two decades. But inflation has been cooling, putting the Fed in a holding pattern since July. The central bank also signaled after its January meeting that it was most likely finished with its rate-hike campaign. This means we've entered a new phase, where the Fed committee is focused on deciding the right timing to pull the trigger on a first rate cut. Financial markets are currently forecasting more than one rate cut in 2024, according to the CME Group's FedWatch Tool, with a majority of traders believing the first cut will arrive by June. But what markets predict and what the Fed ultimately does may or may not align. Indeed, Fed Chair Jerome Powell testified to Congress last week and indicated the rate-setting committee still thinks it's likely they will cut their benchmark rate this year. But his remarks also conveyed caution that predictions at this time are merely best guesses. "The economic outlook is uncertain, and ongoing progress toward our 2% objective for inflation is not assured," Powell said in his prepared comments. "Reducing policy restraint too soon or too much could result in a reversal of progress we have seen." Indeed, inflation is proving more stubborn than the Fed and most economists have been anticipating. Inflation data released yesterday showed February's reading was higher than expected and slightly above January's reading, which itself came in ahead of expectations last month. The Fed's next rate-setting meeting is next week, and the central bank will almost certainly announce another rate hold Wednesday. But this announcement will also come with the release of a new "dot plot" chart, which indicates how many rate cuts—if any—each Fed member expects we'll see by the end of 2024. If the dot plot shows that central bankers still expect to make multiple rate cuts this year, CD rates would probably continue drifting gradually lower. But if instead next week's report shows that 2024 rate cuts are far less certain, then CD rates may plateau until it seems a Fed rate decrease is more forthcoming. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

https://www.investopedia.com/terms/l/legal-tender.asp

Legal Tender: Definition, Economic Functions, 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-legal-tender"></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 Legal Tender? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Legal tender is anything recognized by law as a means to settle a public or private debt or meet a financial obligation, including tax payments, contracts, and legal fines or damages. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/national-currency.asp">national currency</a> is legal <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tender.asp">tender</a> in practically every country. A creditor is legally obligated to accept legal tender toward repayment of a debt. </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>Legal tender is the legally recognized money within a given political jurisdiction.</li><li>Legal tender laws effectively prevent the use of anything other than the existing legal tender as money in the economy. </li><li>Legal tender serves the economic functions of money plus a few additional functions, such as making monetary policy and currency manipulation possible.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-legal-tender"></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 Legal Tender </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Legal tender is established by a statute that specifies the thing to be used as legal tender and the institution that is authorized to produce and issue it to the public, such as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/ustreasury.asp">U.S. Treasury</a> in the United States and the Royal Canadian Mint in Canada. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> In the U.S., the recognized legal tender consists of <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> notes and coins. Creditors are required to accept them as payment offered to discharge a debt; however, except where prohibited by state law, private businesses may refuse to accept some or all forms of cash tender provided that a transaction has not already occurred and debt has not been incurred by the customer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> By default (and design), legal tender laws prevent the widespread adoption of anything other than the existing legal tender as money in the economy. A check, or a credit swipe, is not legal tender; it functions as a money substitute and merely represents a means by which the holder of the check can eventually receive legal tender for the debt. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Cryptocurrencies are not generally accepted for use as money largely because they lack legal tender status. However, El Salvador became the first country in the world to accept bitcoin as legal tender in June 2021.<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"> In May 2013, the governor of Arizona vetoed a bill that would have made gold and silver coins legal tender in the state, in addition to existing U.S. currency.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Some currencies, such as the U.S. dollar and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/euro.asp">euro</a>, are used as legal tender in countries that either does not issue currencies of their own or have found the stable dollar preferable to their own currency. For example, Ecuador adopted the U.S. dollar as legal tender in 2000 after the Ecuadorian-issued currency, the sucre, depreciated rapidly such that $1 was worth 25,000 sucres.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Adopting the U.S. dollar as the primary legal tender is colloquially known as "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dollarization.asp">dollarization</a>," although the practice generally is called currency substitution.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> In general, a legal tender can be in two fundamental forms. A government can simply ratify market-determined commodity <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/money.asp">money</a>, such as gold, to be legal tender and agree to accept tax payments and enforce contracts denominated in that commodity. Alternatively, a government can declare an adulterated commodity or valueless token to be legal tender, which then takes on the characteristics of a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiatmoney.asp">fiat currency</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-economic-function-of-legal-tender"></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"> Economic Function of Legal Tender </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Legal tender serves several purposes. By default, it is used by market participants to fulfill the functions of money in the economy: a medium of indirect exchange, a unit of account, a store of value, and a standard of deferred payment. </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"> Proponents of legal tender laws argue that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketfailure.asp">markets generally fail</a> to produce the optimal type, quality, and quantity of money and that legal tender enhances the usefulness of money as a means to reduce transaction costs. Specifically, having a legal tender can allow flexibility in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneysupply.asp">money supply</a> and a single currency can eliminate the transaction costs associated with the use of multiple competing currencies. The imposition of legal tender is one way to achieve a single currency. </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 legal tender also makes <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/monetarypolicy.asp">monetary policy</a> possible. From the point of view of the issuer, legal tender allows the manipulation, debasement, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/devaluation.asp">devaluation</a> of the currency by the issuer to obtain <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seigniorage.asp">seigniorage</a> and facilitates the issuance of fiduciary media by the banking system to meet the needs of trade. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> In the absence of legal tender laws, Gresham's Law would make monetary policy, seigniorage, currency manipulation, and fiduciary media issuance much more difficult as good money tends to drive out bad money in that case. </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-cryptocurrency-and-legal-tender"></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"> Cryptocurrency and Legal Tender </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> The popularity of cross-border and online shopping is increasing the demand for more forms of money, such as popular cryptocurrency alternatives like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">bitcoin</a>, to be recognized as legal tender. However, given official objection to such alternatives except in a few minor cases, these may still be some years away, and they do not represent legal tender in the U.S. or most other countries. </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_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 El Salvador became the first country (in June 2021) in the world to accept bitcoin as legal tender.<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_38-0"> Many online services accept cryptocurrencies, and this practice is perfectly legal. Due to their status as unofficial competitors to legal tender, cryptocurrencies are mostly limited to use in gray and black market activity or as speculative investments. </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"> However, there are a few exceptions. In 2018, facing devastating hyperinflation, Venezuelan President Nicolas Madura ordered all federal institutions to accept a new electronic currency, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/petro-cryptocurrency.asp">petro</a>, as legal tender. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> The Venezuelan petro is controlled centrally by the Venezuelan government, based on their own estimation of the value of their natural resources. The petro was claimed to be backed by Venezuela's natural gas, mineral, and oil reserves.<span class="ql-inline-citation" data-cite="2"></span> Venezuela's experiment with the petro has not made much progress, however, and the petro does not circulate generally as money despite its legal tender status. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> The tiny Republic of the Marshall Islands (RMI) also announced that it would adopt a new cryptocurrency, the sovereign, as legal tender. The sovereign will be pegged to an existing, decentralized peer-to-peer cryptocurrency market. Currently, the U.S. dollar functions as money and legal tender in the RMI and will continue to do so alongside the new legal tender when the government begins issuing sovereigns.<span class="ql-inline-citation" data-cite="4"></span> </p></div>

## What Is Legal Tender? Legal tender is anything recognized by law as a means to settle a public or private debt or meet a financial obligation, including tax payments, contracts, and legal fines or damages. The [national currency](https://www.investopedia.com/terms/n/national-currency.asp) is legal [tender](https://www.investopedia.com/terms/t/tender.asp) in practically every country. A creditor is legally obligated to accept legal tender toward repayment of a debt. ### Key Takeaways * Legal tender is the legally recognized money within a given political jurisdiction. * Legal tender laws effectively prevent the use of anything other than the existing legal tender as money in the economy. * Legal tender serves the economic functions of money plus a few additional functions, such as making monetary policy and currency manipulation possible. ## Understanding Legal Tender Legal tender is established by a statute that specifies the thing to be used as legal tender and the institution that is authorized to produce and issue it to the public, such as the [U.S. Treasury](https://www.investopedia.com/terms/u/ustreasury.asp) in the United States and the Royal Canadian Mint in Canada. In the U.S., the recognized legal tender consists of [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) notes and coins. Creditors are required to accept them as payment offered to discharge a debt; however, except where prohibited by state law, private businesses may refuse to accept some or all forms of cash tender provided that a transaction has not already occurred and debt has not been incurred by the customer. By default (and design), legal tender laws prevent the widespread adoption of anything other than the existing legal tender as money in the economy. A check, or a credit swipe, is not legal tender; it functions as a money substitute and merely represents a means by which the holder of the check can eventually receive legal tender for the debt. Cryptocurrencies are not generally accepted for use as money largely because they lack legal tender status. However, El Salvador became the first country in the world to accept bitcoin as legal tender in June 2021. In May 2013, the governor of Arizona vetoed a bill that would have made gold and silver coins legal tender in the state, in addition to existing U.S. currency. ## Special Considerations Some currencies, such as the U.S. dollar and [euro](https://www.investopedia.com/terms/e/euro.asp), are used as legal tender in countries that either does not issue currencies of their own or have found the stable dollar preferable to their own currency. For example, Ecuador adopted the U.S. dollar as legal tender in 2000 after the Ecuadorian-issued currency, the sucre, depreciated rapidly such that $1 was worth 25,000 sucres. ### Adopting the U.S. dollar as the primary legal tender is colloquially known as "[dollarization](https://www.investopedia.com/terms/d/dollarization.asp)," although the practice generally is called currency substitution. In general, a legal tender can be in two fundamental forms. A government can simply ratify market-determined commodity [money](https://www.investopedia.com/terms/m/money.asp), such as gold, to be legal tender and agree to accept tax payments and enforce contracts denominated in that commodity. Alternatively, a government can declare an adulterated commodity or valueless token to be legal tender, which then takes on the characteristics of a [fiat currency](https://www.investopedia.com/terms/f/fiatmoney.asp). ## Economic Function of Legal Tender Legal tender serves several purposes. By default, it is used by market participants to fulfill the functions of money in the economy: a medium of indirect exchange, a unit of account, a store of value, and a standard of deferred payment. Proponents of legal tender laws argue that [markets generally fail](https://www.investopedia.com/terms/m/marketfailure.asp) to produce the optimal type, quality, and quantity of money and that legal tender enhances the usefulness of money as a means to reduce transaction costs. Specifically, having a legal tender can allow flexibility in the [money supply](https://www.investopedia.com/terms/m/moneysupply.asp) and a single currency can eliminate the transaction costs associated with the use of multiple competing currencies. The imposition of legal tender is one way to achieve a single currency. The legal tender also makes [monetary policy](https://www.investopedia.com/terms/m/monetarypolicy.asp) possible. From the point of view of the issuer, legal tender allows the manipulation, debasement, and [devaluation](https://www.investopedia.com/terms/d/devaluation.asp) of the currency by the issuer to obtain [seigniorage](https://www.investopedia.com/terms/s/seigniorage.asp) and facilitates the issuance of fiduciary media by the banking system to meet the needs of trade. In the absence of legal tender laws, Gresham's Law would make monetary policy, seigniorage, currency manipulation, and fiduciary media issuance much more difficult as good money tends to drive out bad money in that case. ## Cryptocurrency and Legal Tender The popularity of cross-border and online shopping is increasing the demand for more forms of money, such as popular cryptocurrency alternatives like [bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp), to be recognized as legal tender. However, given official objection to such alternatives except in a few minor cases, these may still be some years away, and they do not represent legal tender in the U.S. or most other countries. ### Note that El Salvador became the first country (in June 2021) in the world to accept bitcoin as legal tender. Many online services accept cryptocurrencies, and this practice is perfectly legal. Due to their status as unofficial competitors to legal tender, cryptocurrencies are mostly limited to use in gray and black market activity or as speculative investments. However, there are a few exceptions. In 2018, facing devastating hyperinflation, Venezuelan President Nicolas Madura ordered all federal institutions to accept a new electronic currency, the [petro](https://www.investopedia.com/terms/p/petro-cryptocurrency.asp), as legal tender. The Venezuelan petro is controlled centrally by the Venezuelan government, based on their own estimation of the value of their natural resources. The petro was claimed to be backed by Venezuela's natural gas, mineral, and oil reserves. Venezuela's experiment with the petro has not made much progress, however, and the petro does not circulate generally as money despite its legal tender status. The tiny Republic of the Marshall Islands (RMI) also announced that it would adopt a new cryptocurrency, the sovereign, as legal tender. The sovereign will be pegged to an existing, decentralized peer-to-peer cryptocurrency market. Currently, the U.S. dollar functions as money and legal tender in the RMI and will continue to do so alongside the new legal tender when the government begins issuing sovereigns.

What Is Legal Tender? Legal tender is anything recognized by law as a means to settle a public or private debt or meet a financial obligation, including tax payments, contracts, and legal fines or damages. The national currency is legal tender in practically every country. A creditor is legally obligated to accept legal tender toward repayment of a debt. Key Takeaways Legal tender is the legally recognized money within a given political jurisdiction.Legal tender laws effectively prevent the use of anything other than the existing legal tender as money in the economy. Legal tender serves the economic functions of money plus a few additional functions, such as making monetary policy and currency manipulation possible. Understanding Legal Tender Legal tender is established by a statute that specifies the thing to be used as legal tender and the institution that is authorized to produce and issue it to the public, such as the U.S. Treasury in the United States and the Royal Canadian Mint in Canada. In the U.S., the recognized legal tender consists of Federal Reserve notes and coins. Creditors are required to accept them as payment offered to discharge a debt; however, except where prohibited by state law, private businesses may refuse to accept some or all forms of cash tender provided that a transaction has not already occurred and debt has not been incurred by the customer. By default (and design), legal tender laws prevent the widespread adoption of anything other than the existing legal tender as money in the economy. A check, or a credit swipe, is not legal tender; it functions as a money substitute and merely represents a means by which the holder of the check can eventually receive legal tender for the debt. Cryptocurrencies are not generally accepted for use as money largely because they lack legal tender status. However, El Salvador became the first country in the world to accept bitcoin as legal tender in June 2021. In May 2013, the governor of Arizona vetoed a bill that would have made gold and silver coins legal tender in the state, in addition to existing U.S. currency. Special Considerations Some currencies, such as the U.S. dollar and euro, are used as legal tender in countries that either does not issue currencies of their own or have found the stable dollar preferable to their own currency. For example, Ecuador adopted the U.S. dollar as legal tender in 2000 after the Ecuadorian-issued currency, the sucre, depreciated rapidly such that $1 was worth 25,000 sucres. Adopting the U.S. dollar as the primary legal tender is colloquially known as "dollarization," although the practice generally is called currency substitution. In general, a legal tender can be in two fundamental forms. A government can simply ratify market-determined commodity money, such as gold, to be legal tender and agree to accept tax payments and enforce contracts denominated in that commodity. Alternatively, a government can declare an adulterated commodity or valueless token to be legal tender, which then takes on the characteristics of a fiat currency. Economic Function of Legal Tender Legal tender serves several purposes. By default, it is used by market participants to fulfill the functions of money in the economy: a medium of indirect exchange, a unit of account, a store of value, and a standard of deferred payment. Proponents of legal tender laws argue that markets generally fail to produce the optimal type, quality, and quantity of money and that legal tender enhances the usefulness of money as a means to reduce transaction costs. Specifically, having a legal tender can allow flexibility in the money supply and a single currency can eliminate the transaction costs associated with the use of multiple competing currencies. The imposition of legal tender is one way to achieve a single currency. The legal tender also makes monetary policy possible. From the point of view of the issuer, legal tender allows the manipulation, debasement, and devaluation of the currency by the issuer to obtain seigniorage and facilitates the issuance of fiduciary media by the banking system to meet the needs of trade. In the absence of legal tender laws, Gresham's Law would make monetary policy, seigniorage, currency manipulation, and fiduciary media issuance much more difficult as good money tends to drive out bad money in that case. Cryptocurrency and Legal Tender The popularity of cross-border and online shopping is increasing the demand for more forms of money, such as popular cryptocurrency alternatives like bitcoin, to be recognized as legal tender. However, given official objection to such alternatives except in a few minor cases, these may still be some years away, and they do not represent legal tender in the U.S. or most other countries. Note that El Salvador became the first country (in June 2021) in the world to accept bitcoin as legal tender. Many online services accept cryptocurrencies, and this practice is perfectly legal. Due to their status as unofficial competitors to legal tender, cryptocurrencies are mostly limited to use in gray and black market activity or as speculative investments. However, there are a few exceptions. In 2018, facing devastating hyperinflation, Venezuelan President Nicolas Madura ordered all federal institutions to accept a new electronic currency, the petro, as legal tender. The Venezuelan petro is controlled centrally by the Venezuelan government, based on their own estimation of the value of their natural resources. The petro was claimed to be backed by Venezuela's natural gas, mineral, and oil reserves. Venezuela's experiment with the petro has not made much progress, however, and the petro does not circulate generally as money despite its legal tender status. The tiny Republic of the Marshall Islands (RMI) also announced that it would adopt a new cryptocurrency, the sovereign, as legal tender. The sovereign will be pegged to an existing, decentralized peer-to-peer cryptocurrency market. Currently, the U.S. dollar functions as money and legal tender in the RMI and will continue to do so alongside the new legal tender when the government begins issuing sovereigns.

https://www.investopedia.com/how-to-invest-in-web-3-0-7480982

How to Invest in Web 3.0

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 connected the world in more ways than any other technology. With people getting more concerned about their data and privacy, however, the internet in its current state seems inadequate. There are serious concerns over how big companies handle and monetize user data, creating the need for a better or alternative internet. Web 3.0 is an alternative that is becoming popular because it puts the internet's power back into the hands of end users. We’ve answered common questions around Web 3.0 investments in this guide, in a way any beginner investor can understand.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <span class="heading-toc" id="toc-how-to-invest-in-web-30"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> How to Invest in Web 3.0  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Web 3.0 offers investors different investment vehicles that can cater to different risk appetites. Nevertheless, just like every form of investment, investing in Web3 is risky and should only be done with adequate research and a good strategy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The most common Web3 investment options are stocks, cryptos, and NFTs. However, there are also less popular investment methods you can consider, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/angelinvestor.asp">angel investing</a> or buying into the IDO (Initial DEX Offering) or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp">ICO (Initial Coin Offering) </a>of a crypto company. In both methods, you invest in a company by participating in a seed round or buying its coin before launch. </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"> One thing to note is that most of Web3 investing is based on narratives: investors spreading the word on what a company is doing to grow the Web3 ecosystem. However, you shouldn’t depend on narratives when making decisions.That’s because some Web3 influencers push a good narrative about a project to get people to buy into the project, and then they end up dumping the project. Instead, focus on investments with a reasonable historic performance, like these three options. </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"> Invest in Stocks Involved With Web 3.0 </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Stocks are one of the easiest ways to get into Web3, especially as they give you some level of Web3 exposure. Several companies actively involved in Web3 are Web2 companies with multiple sources of income, and so might not be affected by a Web3 downturn like these Web3 stocks: </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>Coinbase (COIN): </strong>Coinbase is the top Web3 stock for anyone looking to invest in Web3. The American crypto exchange serves as a key stakeholder in the crypto ecosystem, facilitating the conversion of crypto to fiat, and offering an all-inclusive wallet that supports NFTs.<span class="ql-inline-citation" data-cite="1"></span></li><li><strong>Meta (META):</strong> Meta might have raised dust when it changed its name from Facebook, but it’s still an important player in the Web3 space. Currently, Meta is building two Metaverses: Horizon Worlds and Workplace, for gaming and co-working, respectively.<span class="ql-inline-citation" data-cite="2"></span></li><li><strong>Apple (APPL):</strong> Apple is planning to launch augmented reality (AR) glasses to help people experience the Metaverse better and might even let users install third-party apps in a bid to encourage Web3 adoption. Currently, it has integrated a lot of AR features in selected devices.<span class="ql-inline-citation" data-cite="3"></span></li><li><strong>X (formerly Twitter):</strong> X is the preferred social platform for Web3 conversations. With founder Elon Musk being an open supporter of Dogecoin, X's stock might be a good buy.<span class="ql-inline-citation" data-cite="4"></span> Additionally, X supports NFT integration and allows people to specially display their NFTs as profile pictures.</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-best-online-brokers"></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"> Best Online Brokers </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_16-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>Platform</b></td> <td><b>Account Minimum</b></td> <td><b>Fees</b></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ad.doubleclick.net/ddm/clk/545728199;354457892;g" rel="sponsored nofollow">Merrill Edge</a></td> <td>$0</td> <td>$0.00 per stock trade. Options trades $0 per leg plus $0.65 per contract</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ad.doubleclick.net/ddm/trackclk/N84001.3034362DOTDASH/B29033839.359635625;dc_trk_aid=550738970;dc_trk_cid=186914042;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=" rel="sponsored nofollow">E*TRADE</a></td> <td>$0</td> <td>No commission for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume.</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <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"> Invest in Non-Fungible Tokens (NFTs) </span> </h3> <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="externalLink" href="https://www.google.com/search?q=nfts+investopedia&amp;oq=nfts+inves&amp;aqs=chrome.2.69i57j0i512j0i20i263i512j0i22i30l12.3753j0j9&amp;client=ms-android-samsung-ss&amp;sourceid=chrome-mobile&amp;ie=UTF-8">NFTs</a> are unique digital assets on a blockchain. They show ownership and cannot be copied. You can buy an NFT from a secondary marketplace such as OpenSea or Magic Eden or choose to mint them and hold for a profit. </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"> NFTs are important Web3 investments because they can be used to unlock special privileges or as an investment in a Web3 company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-subheading__text"> Invest in Cryptocurrencies  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Cryptocurrencies are digital currencies operated by a decentralized entity on the blockchain. Like regular money, crypto can be used to pay for goods and services and as an investment option. Crypto allows direct exposure into the space and is a good fit for people who want to aggressively invest in Web 3.0 </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"> Crypto is highly volatile. So, if you’re a risk-averse trader, you might want to consider other lower-risk options like crypto <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">ETFs</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fractionalshare.asp#:~:text=A%20fractional%20share%20is%20a,stock%20using%20a%20predetermined%20ratio.">fractional shares</a>. These options provide you with direct exposure but cushion you from the market's daily volatility. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-best-cryptocurrency-exchanges"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-heading__text"> Best Cryptocurrency Exchanges </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_29-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th>Company </th> <th><b>Transaction Fees</b></th> <th><b>Currencies</b></th> <th><b>Minimum Deposit or Purchase</b></th> <th><b>Trade Limits</b></th> </tr> </thead> <tbody data-check="0"> <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://r.kraken.com/c/2104074/1118197/10583" rel="noopener noreferrer sponsored nofollow">Kraken</a></td> <td>0.00% to 0.26%</td> <td>185+</td> <td>$1</td> <td>No</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://coinbase-consumer.sjv.io/c/2104074/1175448/9251" rel="sponsored nofollow">Coinbase</a></td> <td>0.00% to 0.60%</td> <td>200+</td> <td>$2</td> <td>Yes</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="http://Crypto.com" rel="sponsored nofollow">Crypto.com</a></td> <td>0.00% to 0.075%</td> <td>250+</td> <td>$1</td> <td>Yes</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <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"> Know the Risks of Investing in Web 3.0 </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Web 3.0 investments, like any other investment, poses some risk to investors. The biggest risks are volatility, security, and reliability on existing Web3 investment processes and infrastructures.  </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>Volatility: Prices of Web3 assets change widely over short periods, which could be a huge plus or minus for your portfolio, depending on the time and market demand.</li><li>Security: Smart contracts issues, security breaches, and hacks are common occurrences in Web3. If a project is attacked, it could lead to a big loss of your capital. As a safety measure, go with projects that have undergone a full audit.</li><li>Reliability: The best Web3 investments are not always reliable. Your best bet would be to go for projects with strong real-world use cases over hype. </li> </ul> <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"> Why Invest in Web 3.0 </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The foundation of Web3 is built on emerging technologies such as blockchain tech, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smart-contracts.asp">smart contracts</a>, and AI. An investment into Web3 positions gives you the chance to be an early adopter of these disruptive technologies. </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"> Web3 has the potential to overturn how we do almost everything, from shopping to payments to the way we consume content. As an investment class, Web3 will shape how companies will raise startup capital and generate money from their funding rounds. </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"> Most importantly, investment in Web3 is largely profitable and can provide impressive returns over shorter time frames.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> To get the most out of any Web3 investment, you must: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <li>Use a secure wallet to store digital assets like cryptos and NFTs.</li><li>Never share the PIN/password to your wallet.</li><li>Avoid projects with little or no social media presence and vague roadmaps.</li><li>Never open unofficial links or claim "free giveaways."</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-factors-to-consider-when-investing-in-web-30"></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"> Factors to Consider When Investing in Web 3.0 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Investing in Web3 can be challenging, especially if you don’t have a clear plan or failed to do your research. It’s essential you consider these factors before you make a Web3 investment: </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>Your investment goals</li><li>The team behind a project or company</li><li>Your risk tolerance levels</li><li>Web3 regulations in your country of residence</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> After you have clearly designed and mapped out your investment goals and the investment timeline, you need to know the founders behind the Web3 project of interest. Choose projects with publicly known founders. You can easily reach out in case the project goes south. Assess your risk tolerance level and go for a project allowed in your country to avoid legal issues with your investment. </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-faqs"></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"> FAQs </span> </h2> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-what-is-web-30"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Web 3.0?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Web 3.0 (or Web3) is a general name for the new, user-centric version of the internet that integrates new concepts like decentralization, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a> tech, artificial intelligence (AI), virtual reality (VR), and augmented reality (AR) into everyday internet use. It is a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/web-20-web-30-5208698">decentralized version</a> of the internet that promises to help users better control their data usage and sharing while enhancing monetization and reducing exposure to data manipulation.</p><p>The concept of Web3 is not to make our current internet obsolete; it’s to integrate these technologies into the existing infrastructure, allowing everyone to freely use the internet. For example, if you make a Facebook or Instagram post that goes against Meta’s community standards, the social media giant could take the post down or ban your account. This would likely be impossible in Web 3.0 since most platforms will be decentralized.<span class="ql-inline-citation" data-cite="5"></span></p><p>Although it is still a work in progress, many individuals, companies, and even governments have started to position themselves adequately for web3. The Hong Kong government is preparing to adopt a framework for integrating this technology into many of its city's processes.<span class="ql-inline-citation" data-cite="6"></span> </p><p>Since Gavin Wood coined the term in 2014, Web3 has grown to offer potential for diverse opportunities.<span class="ql-inline-citation" data-cite="7"></span> In recent years, there have been lots of conversations around Web3 and the opportunities it offers investors. While Web3 investment opportunities have become an industry buzzword, many have yet to realize its importance and how they can invest before it officially launches.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-can-you-invest-directly-in-web-30"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Invest Directly In Web 3.0?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. You cannot invest directly in Web 3.0, but you can choose to be an active or passive investor through a variety of investment options. Active investment options include cryptocurrency and NFTs, while passive investment options involve buying stocks in companies actively engaged in Web 3.0.</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-whats-the-difference-between-web-20-and-web-30"></span> <h2 class="mntl-sc-block-questionandanswer__question">What’s the Difference Between Web 2.0 and Web 3.0?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Web 2.0 is the current internet, which has birthed innovations like social media, e-commerce stores, and search engines. These innovations have made content king and provided a way to create content, unlike in Web 1.0, where internet users could only access limited information. Although beneficial, these Web 2.0 innovations introduced data and privacy issues, giving tech giants access to tons of user data.</p><p>Web 3.0 is an upgrade to Web 2.0 and offers a way for internet users to control their data, use decentralized technologies to store and share information, and voluntarily conceal their digital identities. In Web 3.0, users will make faster and cheaper payments for goods and services using cryptocurrencies. With Metaverse development currently underway, Web3 could change how we experience the world around us, opening us to more immersive experiences e.g the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/metaverse-definition-5206578">Metaverse</a>.</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-is-investing-in-web-30-safe"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Investing in Web 3.0 Safe?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Web 3.0 investment options are more volatile than regular investment options. Although not completely unsafe, there is a big risk of ending up on the wrong side of the volatility. This is why it’s critical to have a good level of knowledge, do your research, and come up with a robust investment plan.</p><p>Another issue of concern is in regards to the current state of regulations. This new technology is still very much unregulated, and governments and regulating bodies could institute policies unfavorable to investors.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_63-0"><span class="heading-toc" id="toc-who-should-invest-in-web-30"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Should Invest in Web 3.0?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Web 3.0 investing is not for all types of investors, especially those with a low-risk appetite or who are looking to get into investing gradually. It is a fast-moving investment class that requires some level of industry knowledge, patience, and timing. The nature of Web 3 investments makes them a good fit for investors who fall into any of the categories below.</p><h3>High-Risk Tolerance </h3><p>Investing in Web 3.0 is highly risky. As a Web3 investor, you should have a huge risk appetite and only put in money you can afford to lose.<em> </em>The volatility of many Web 3 assets makes it a highly unpredictable asset class. </p><p>For example, between February 20, 2023, and March 10, 2023, Bitcoin rose to $24,500 and plummeted to $19,500 before touching $30k.<span class="ql-inline-citation" data-cite="8"></span> Without a huge risk appetite, you could prematurely sell your investments and make constant losses.</p><h3>High Capital </h3><p>To make tangible returns on your Web 3.0 investment, you need to put in a significant sum of money. Since it is recommended that you use not more than 10% of your entire portfolio to make Web3 investments, you need to have a diversified portfolio that is not fully reliant on this investment class. A higher capital investment would yield more returns but could also translate into more losses. Consider investing in leveraged assets and futures trading if you have a big risk appetite but limited capital.</p></div> </div></div>

The internet has connected the world in more ways than any other technology. With people getting more concerned about their data and privacy, however, the internet in its current state seems inadequate. There are serious concerns over how big companies handle and monetize user data, creating the need for a better or alternative internet. Web 3.0 is an alternative that is becoming popular because it puts the internet's power back into the hands of end users. We’ve answered common questions around Web 3.0 investments in this guide, in a way any beginner investor can understand.  ## How to Invest in Web 3.0 Web 3.0 offers investors different investment vehicles that can cater to different risk appetites. Nevertheless, just like every form of investment, investing in Web3 is risky and should only be done with adequate research and a good strategy. The most common Web3 investment options are stocks, cryptos, and NFTs. However, there are also less popular investment methods you can consider, such as [angel investing](https://www.investopedia.com/terms/a/angelinvestor.asp) or buying into the IDO (Initial DEX Offering) or [ICO (Initial Coin Offering)](https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp) of a crypto company. In both methods, you invest in a company by participating in a seed round or buying its coin before launch. One thing to note is that most of Web3 investing is based on narratives: investors spreading the word on what a company is doing to grow the Web3 ecosystem. However, you shouldn’t depend on narratives when making decisions.That’s because some Web3 influencers push a good narrative about a project to get people to buy into the project, and then they end up dumping the project. Instead, focus on investments with a reasonable historic performance, like these three options. ### Invest in Stocks Involved With Web 3.0 Stocks are one of the easiest ways to get into Web3, especially as they give you some level of Web3 exposure. Several companies actively involved in Web3 are Web2 companies with multiple sources of income, and so might not be affected by a Web3 downturn like these Web3 stocks: * **Coinbase (COIN):** Coinbase is the top Web3 stock for anyone looking to invest in Web3. The American crypto exchange serves as a key stakeholder in the crypto ecosystem, facilitating the conversion of crypto to fiat, and offering an all-inclusive wallet that supports NFTs. * **Meta (META):** Meta might have raised dust when it changed its name from Facebook, but it’s still an important player in the Web3 space. Currently, Meta is building two Metaverses: Horizon Worlds and Workplace, for gaming and co-working, respectively. * **Apple (APPL):** Apple is planning to launch augmented reality (AR) glasses to help people experience the Metaverse better and might even let users install third-party apps in a bid to encourage Web3 adoption. Currently, it has integrated a lot of AR features in selected devices. * **X (formerly Twitter):** X is the preferred social platform for Web3 conversations. With founder Elon Musk being an open supporter of Dogecoin, X's stock might be a good buy. Additionally, X supports NFT integration and allows people to specially display their NFTs as profile pictures. ## Best Online Brokers | **Platform** | **Account Minimum** | **Fees** | | --- | --- | --- | | [Merrill Edge](https://ad.doubleclick.net/ddm/clk/545728199;354457892;g) | $0 | $0.00 per stock trade. Options trades $0 per leg plus $0.65 per contract | | [E\*TRADE](https://ad.doubleclick.net/ddm/trackclk/N84001.3034362DOTDASH/B29033839.359635625;dc_trk_aid=550738970;dc_trk_cid=186914042;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=) | $0 | No commission for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume. | ### Invest in Non-Fungible Tokens (NFTs) [NFTs](https://www.google.com/search?q=nfts+investopedia&oq=nfts+inves&aqs=chrome.2.69i57j0i512j0i20i263i512j0i22i30l12.3753j0j9&client=ms-android-samsung-ss&sourceid=chrome-mobile&ie=UTF-8) are unique digital assets on a blockchain. They show ownership and cannot be copied. You can buy an NFT from a secondary marketplace such as OpenSea or Magic Eden or choose to mint them and hold for a profit. NFTs are important Web3 investments because they can be used to unlock special privileges or as an investment in a Web3 company. ### Invest in Cryptocurrencies Cryptocurrencies are digital currencies operated by a decentralized entity on the blockchain. Like regular money, crypto can be used to pay for goods and services and as an investment option. Crypto allows direct exposure into the space and is a good fit for people who want to aggressively invest in Web 3.0 Crypto is highly volatile. So, if you’re a risk-averse trader, you might want to consider other lower-risk options like crypto [ETFs](https://www.investopedia.com/terms/e/etf.asp) and [fractional shares](https://www.investopedia.com/terms/f/fractionalshare.asp#:~:text=A%20fractional%20share%20is%20a,stock%20using%20a%20predetermined%20ratio.). These options provide you with direct exposure but cushion you from the market's daily volatility. ## Best Cryptocurrency Exchanges | Company | **Transaction Fees** | **Currencies** | **Minimum Deposit or Purchase** | **Trade Limits** | | --- | --- | --- | --- | --- | | [Kraken](https://r.kraken.com/c/2104074/1118197/10583) | 0.00% to 0.26% | 185+ | $1 | No | | [Coinbase](https://coinbase-consumer.sjv.io/c/2104074/1175448/9251) | 0.00% to 0.60% | 200+ | $2 | Yes | | [Crypto.com](http://Crypto.com) | 0.00% to 0.075% | 250+ | $1 | Yes | ### Know the Risks of Investing in Web 3.0 Web 3.0 investments, like any other investment, poses some risk to investors. The biggest risks are volatility, security, and reliability on existing Web3 investment processes and infrastructures.  * Volatility: Prices of Web3 assets change widely over short periods, which could be a huge plus or minus for your portfolio, depending on the time and market demand. * Security: Smart contracts issues, security breaches, and hacks are common occurrences in Web3. If a project is attacked, it could lead to a big loss of your capital. As a safety measure, go with projects that have undergone a full audit. * Reliability: The best Web3 investments are not always reliable. Your best bet would be to go for projects with strong real-world use cases over hype. ### Why Invest in Web 3.0 The foundation of Web3 is built on emerging technologies such as blockchain tech, [smart contracts](https://www.investopedia.com/terms/s/smart-contracts.asp), and AI. An investment into Web3 positions gives you the chance to be an early adopter of these disruptive technologies. Web3 has the potential to overturn how we do almost everything, from shopping to payments to the way we consume content. As an investment class, Web3 will shape how companies will raise startup capital and generate money from their funding rounds. Most importantly, investment in Web3 is largely profitable and can provide impressive returns over shorter time frames.  To get the most out of any Web3 investment, you must: * Use a secure wallet to store digital assets like cryptos and NFTs. * Never share the PIN/password to your wallet. * Avoid projects with little or no social media presence and vague roadmaps. * Never open unofficial links or claim "free giveaways." ## Factors to Consider When Investing in Web 3.0 Investing in Web3 can be challenging, especially if you don’t have a clear plan or failed to do your research. It’s essential you consider these factors before you make a Web3 investment: * Your investment goals * The team behind a project or company * Your risk tolerance levels * Web3 regulations in your country of residence After you have clearly designed and mapped out your investment goals and the investment timeline, you need to know the founders behind the Web3 project of interest. Choose projects with publicly known founders. You can easily reach out in case the project goes south. Assess your risk tolerance level and go for a project allowed in your country to avoid legal issues with your investment. ## FAQs ## What Is Web 3.0? Web 3.0 (or Web3) is a general name for the new, user-centric version of the internet that integrates new concepts like decentralization, [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) tech, artificial intelligence (AI), virtual reality (VR), and augmented reality (AR) into everyday internet use. It is a [decentralized version](https://www.investopedia.com/web-20-web-30-5208698) of the internet that promises to help users better control their data usage and sharing while enhancing monetization and reducing exposure to data manipulation. The concept of Web3 is not to make our current internet obsolete; it’s to integrate these technologies into the existing infrastructure, allowing everyone to freely use the internet. For example, if you make a Facebook or Instagram post that goes against Meta’s community standards, the social media giant could take the post down or ban your account. This would likely be impossible in Web 3.0 since most platforms will be decentralized. Although it is still a work in progress, many individuals, companies, and even governments have started to position themselves adequately for web3. The Hong Kong government is preparing to adopt a framework for integrating this technology into many of its city's processes.  Since Gavin Wood coined the term in 2014, Web3 has grown to offer potential for diverse opportunities. In recent years, there have been lots of conversations around Web3 and the opportunities it offers investors. While Web3 investment opportunities have become an industry buzzword, many have yet to realize its importance and how they can invest before it officially launches. ## Can You Invest Directly In Web 3.0? No. You cannot invest directly in Web 3.0, but you can choose to be an active or passive investor through a variety of investment options. Active investment options include cryptocurrency and NFTs, while passive investment options involve buying stocks in companies actively engaged in Web 3.0. ## What’s the Difference Between Web 2.0 and Web 3.0? Web 2.0 is the current internet, which has birthed innovations like social media, e-commerce stores, and search engines. These innovations have made content king and provided a way to create content, unlike in Web 1.0, where internet users could only access limited information. Although beneficial, these Web 2.0 innovations introduced data and privacy issues, giving tech giants access to tons of user data. Web 3.0 is an upgrade to Web 2.0 and offers a way for internet users to control their data, use decentralized technologies to store and share information, and voluntarily conceal their digital identities. In Web 3.0, users will make faster and cheaper payments for goods and services using cryptocurrencies. With Metaverse development currently underway, Web3 could change how we experience the world around us, opening us to more immersive experiences e.g the [Metaverse](https://www.investopedia.com/metaverse-definition-5206578). ## Is Investing in Web 3.0 Safe? Web 3.0 investment options are more volatile than regular investment options. Although not completely unsafe, there is a big risk of ending up on the wrong side of the volatility. This is why it’s critical to have a good level of knowledge, do your research, and come up with a robust investment plan. Another issue of concern is in regards to the current state of regulations. This new technology is still very much unregulated, and governments and regulating bodies could institute policies unfavorable to investors. ## Who Should Invest in Web 3.0? Web 3.0 investing is not for all types of investors, especially those with a low-risk appetite or who are looking to get into investing gradually. It is a fast-moving investment class that requires some level of industry knowledge, patience, and timing. The nature of Web 3 investments makes them a good fit for investors who fall into any of the categories below. ### High-Risk Tolerance Investing in Web 3.0 is highly risky. As a Web3 investor, you should have a huge risk appetite and only put in money you can afford to lose.The volatility of many Web 3 assets makes it a highly unpredictable asset class.  For example, between February 20, 2023, and March 10, 2023, Bitcoin rose to $24,500 and plummeted to $19,500 before touching $30k. Without a huge risk appetite, you could prematurely sell your investments and make constant losses. ### High Capital To make tangible returns on your Web 3.0 investment, you need to put in a significant sum of money. Since it is recommended that you use not more than 10% of your entire portfolio to make Web3 investments, you need to have a diversified portfolio that is not fully reliant on this investment class. A higher capital investment would yield more returns but could also translate into more losses. Consider investing in leveraged assets and futures trading if you have a big risk appetite but limited capital.

The internet has connected the world in more ways than any other technology. With people getting more concerned about their data and privacy, however, the internet in its current state seems inadequate. There are serious concerns over how big companies handle and monetize user data, creating the need for a better or alternative internet. Web 3.0 is an alternative that is becoming popular because it puts the internet's power back into the hands of end users. We’ve answered common questions around Web 3.0 investments in this guide, in a way any beginner investor can understand.  How to Invest in Web 3.0  Web 3.0 offers investors different investment vehicles that can cater to different risk appetites. Nevertheless, just like every form of investment, investing in Web3 is risky and should only be done with adequate research and a good strategy. The most common Web3 investment options are stocks, cryptos, and NFTs. However, there are also less popular investment methods you can consider, such as angel investing or buying into the IDO (Initial DEX Offering) or ICO (Initial Coin Offering) of a crypto company. In both methods, you invest in a company by participating in a seed round or buying its coin before launch. One thing to note is that most of Web3 investing is based on narratives: investors spreading the word on what a company is doing to grow the Web3 ecosystem. However, you shouldn’t depend on narratives when making decisions.That’s because some Web3 influencers push a good narrative about a project to get people to buy into the project, and then they end up dumping the project. Instead, focus on investments with a reasonable historic performance, like these three options. Invest in Stocks Involved With Web 3.0 Stocks are one of the easiest ways to get into Web3, especially as they give you some level of Web3 exposure. Several companies actively involved in Web3 are Web2 companies with multiple sources of income, and so might not be affected by a Web3 downturn like these Web3 stocks: Coinbase (COIN): Coinbase is the top Web3 stock for anyone looking to invest in Web3. The American crypto exchange serves as a key stakeholder in the crypto ecosystem, facilitating the conversion of crypto to fiat, and offering an all-inclusive wallet that supports NFTs.Meta (META): Meta might have raised dust when it changed its name from Facebook, but it’s still an important player in the Web3 space. Currently, Meta is building two Metaverses: Horizon Worlds and Workplace, for gaming and co-working, respectively.Apple (APPL): Apple is planning to launch augmented reality (AR) glasses to help people experience the Metaverse better and might even let users install third-party apps in a bid to encourage Web3 adoption. Currently, it has integrated a lot of AR features in selected devices.X (formerly Twitter): X is the preferred social platform for Web3 conversations. With founder Elon Musk being an open supporter of Dogecoin, X's stock might be a good buy. Additionally, X supports NFT integration and allows people to specially display their NFTs as profile pictures. Best Online Brokers Platform Account Minimum Fees Merrill Edge $0 $0.00 per stock trade. Options trades $0 per leg plus $0.65 per contract E*TRADE $0 No commission for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume. Invest in Non-Fungible Tokens (NFTs) NFTs are unique digital assets on a blockchain. They show ownership and cannot be copied. You can buy an NFT from a secondary marketplace such as OpenSea or Magic Eden or choose to mint them and hold for a profit. NFTs are important Web3 investments because they can be used to unlock special privileges or as an investment in a Web3 company. Invest in Cryptocurrencies  Cryptocurrencies are digital currencies operated by a decentralized entity on the blockchain. Like regular money, crypto can be used to pay for goods and services and as an investment option. Crypto allows direct exposure into the space and is a good fit for people who want to aggressively invest in Web 3.0 Crypto is highly volatile. So, if you’re a risk-averse trader, you might want to consider other lower-risk options like crypto ETFs and fractional shares. These options provide you with direct exposure but cushion you from the market's daily volatility. Best Cryptocurrency Exchanges Company  Transaction Fees Currencies Minimum Deposit or Purchase Trade Limits Kraken 0.00% to 0.26% 185+ $1 No Coinbase 0.00% to 0.60% 200+ $2 Yes Crypto.com 0.00% to 0.075% 250+ $1 Yes Know the Risks of Investing in Web 3.0 Web 3.0 investments, like any other investment, poses some risk to investors. The biggest risks are volatility, security, and reliability on existing Web3 investment processes and infrastructures.  Volatility: Prices of Web3 assets change widely over short periods, which could be a huge plus or minus for your portfolio, depending on the time and market demand.Security: Smart contracts issues, security breaches, and hacks are common occurrences in Web3. If a project is attacked, it could lead to a big loss of your capital. As a safety measure, go with projects that have undergone a full audit.Reliability: The best Web3 investments are not always reliable. Your best bet would be to go for projects with strong real-world use cases over hype.  Why Invest in Web 3.0 The foundation of Web3 is built on emerging technologies such as blockchain tech, smart contracts, and AI. An investment into Web3 positions gives you the chance to be an early adopter of these disruptive technologies. Web3 has the potential to overturn how we do almost everything, from shopping to payments to the way we consume content. As an investment class, Web3 will shape how companies will raise startup capital and generate money from their funding rounds. Most importantly, investment in Web3 is largely profitable and can provide impressive returns over shorter time frames.  To get the most out of any Web3 investment, you must: Use a secure wallet to store digital assets like cryptos and NFTs.Never share the PIN/password to your wallet.Avoid projects with little or no social media presence and vague roadmaps.Never open unofficial links or claim "free giveaways." Factors to Consider When Investing in Web 3.0 Investing in Web3 can be challenging, especially if you don’t have a clear plan or failed to do your research. It’s essential you consider these factors before you make a Web3 investment: Your investment goalsThe team behind a project or companyYour risk tolerance levelsWeb3 regulations in your country of residence After you have clearly designed and mapped out your investment goals and the investment timeline, you need to know the founders behind the Web3 project of interest. Choose projects with publicly known founders. You can easily reach out in case the project goes south. Assess your risk tolerance level and go for a project allowed in your country to avoid legal issues with your investment. FAQs What Is Web 3.0? Web 3.0 (or Web3) is a general name for the new, user-centric version of the internet that integrates new concepts like decentralization, blockchain tech, artificial intelligence (AI), virtual reality (VR), and augmented reality (AR) into everyday internet use. It is a decentralized version of the internet that promises to help users better control their data usage and sharing while enhancing monetization and reducing exposure to data manipulation.The concept of Web3 is not to make our current internet obsolete; it’s to integrate these technologies into the existing infrastructure, allowing everyone to freely use the internet. For example, if you make a Facebook or Instagram post that goes against Meta’s community standards, the social media giant could take the post down or ban your account. This would likely be impossible in Web 3.0 since most platforms will be decentralized.Although it is still a work in progress, many individuals, companies, and even governments have started to position themselves adequately for web3. The Hong Kong government is preparing to adopt a framework for integrating this technology into many of its city's processes. Since Gavin Wood coined the term in 2014, Web3 has grown to offer potential for diverse opportunities. In recent years, there have been lots of conversations around Web3 and the opportunities it offers investors. While Web3 investment opportunities have become an industry buzzword, many have yet to realize its importance and how they can invest before it officially launches. Can You Invest Directly In Web 3.0? No. You cannot invest directly in Web 3.0, but you can choose to be an active or passive investor through a variety of investment options. Active investment options include cryptocurrency and NFTs, while passive investment options involve buying stocks in companies actively engaged in Web 3.0. What’s the Difference Between Web 2.0 and Web 3.0? Web 2.0 is the current internet, which has birthed innovations like social media, e-commerce stores, and search engines. These innovations have made content king and provided a way to create content, unlike in Web 1.0, where internet users could only access limited information. Although beneficial, these Web 2.0 innovations introduced data and privacy issues, giving tech giants access to tons of user data.Web 3.0 is an upgrade to Web 2.0 and offers a way for internet users to control their data, use decentralized technologies to store and share information, and voluntarily conceal their digital identities. In Web 3.0, users will make faster and cheaper payments for goods and services using cryptocurrencies. With Metaverse development currently underway, Web3 could change how we experience the world around us, opening us to more immersive experiences e.g the Metaverse. Is Investing in Web 3.0 Safe? Web 3.0 investment options are more volatile than regular investment options. Although not completely unsafe, there is a big risk of ending up on the wrong side of the volatility. This is why it’s critical to have a good level of knowledge, do your research, and come up with a robust investment plan.Another issue of concern is in regards to the current state of regulations. This new technology is still very much unregulated, and governments and regulating bodies could institute policies unfavorable to investors. Who Should Invest in Web 3.0? Web 3.0 investing is not for all types of investors, especially those with a low-risk appetite or who are looking to get into investing gradually. It is a fast-moving investment class that requires some level of industry knowledge, patience, and timing. The nature of Web 3 investments makes them a good fit for investors who fall into any of the categories below.High-Risk Tolerance Investing in Web 3.0 is highly risky. As a Web3 investor, you should have a huge risk appetite and only put in money you can afford to lose. The volatility of many Web 3 assets makes it a highly unpredictable asset class. For example, between February 20, 2023, and March 10, 2023, Bitcoin rose to $24,500 and plummeted to $19,500 before touching $30k. Without a huge risk appetite, you could prematurely sell your investments and make constant losses.High Capital To make tangible returns on your Web 3.0 investment, you need to put in a significant sum of money. Since it is recommended that you use not more than 10% of your entire portfolio to make Web3 investments, you need to have a diversified portfolio that is not fully reliant on this investment class. A higher capital investment would yield more returns but could also translate into more losses. Consider investing in leveraged assets and futures trading if you have a big risk appetite but limited capital.

https://www.investopedia.com/what-is-stock-trading-7109934

What Is Stock Trading?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-stock-trading-an-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> Stock Trading: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Stock trading involves buying and selling shares in publicly traded companies. In the United States, this typically occurs on stock exchanges like the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp">New York Stock Exchange (NYSE)</a> or the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a> stock market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> When someone buys <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shares.asp">shares</a> of a company, they effectively become a small part-owner of that company and have some claim on its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings.asp">earnings</a>, in the form of <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> and/or <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital-growth.asp">capital appreciation</a>. The value of the shares depends on a variety of factors, including the company’s financial performance, outlook, overall market conditions, and investor sentiment. </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"> This is a comprehensive guide to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/stock-trading-4689660">stock trading</a> basics and the different types of stock trading, as well as tips for getting started. </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>Stock trading involves buying and selling shares of publicly traded companies on stock exchanges.</li><li>Types of stock traders include long-term, short-term, day trading, swing trading, and high-frequency trading, with each having a different time horizon and goal.</li><li>Stocks are typically categorized based on company size or market capitalization, industry, and growth vs. value opportunities.</li><li>Trading stocks involves risk, including the chance that you might lose up to your entire investment.</li></ul></div></div></div> <span class="heading-toc" id="toc-types-of-stock-trading"></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"> Types of Stock Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Stock trading and the people who do it come in many varieties and feature myriad strategies and approaches. Often, stock trading is categorized based on one’s desired holding period, or <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>. </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"> Long-term trading involves buying shares of a company and holding onto them for an extended period, usually several years or even decades. The goal of long-term trading is to benefit from the growth of the company over time and to earn <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockdividend.asp">dividends</a> on the shares. Long-term buy-and-hold traders are often categorized more as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a> but may also be called <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/positiontrader.asp">position traders</a>.<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"> Short-term trading, on the other hand, involves buying and selling shares over a briefer period of time—usually a few days, weeks, or months. The goal of short-term traders is to make quick profits by taking advantage of market fluctuations. <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> have an intraday time horizon, making several trades over the course of a single day or a few days. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swingtrading.asp">Swing traders</a> have a more medium-term outlook, looking to capture trends and momentum over several weeks or months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Ultra-short-term traders may <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/101014/basics-algorithmic-trading-concepts-and-examples.asp">employ algorithms</a> to help them place trades in milliseconds to “<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/05/scalping.asp">scalp</a>,” or make a series of small but quick profits. Also known as high-frequency traders (HFTs), they use computer programs to execute trades based on preset criteria. While <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/high-frequency-trading.asp">high-frequency trading</a> is usually the realm of professional Wall Street traders and hedge funds, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/090815/picking-right-algorithmic-trading-software.asp">algorithmic platforms</a> are becoming increasingly available to ordinary traders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>While most beginner traders buy stocks and later sell them, some traders also sell stocks <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortselling.asp">short</a>. They borrow shares that they don’t own and sell them, hoping to buy the borrowed shares back at a lower price later. Being “short” (betting the market will go down) is the opposite of being “long” (betting the market will go up).</p></div></div></div> <span class="heading-toc" id="toc-what-to-trade"></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 to Trade </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> There are more than 5,700 stocks listed on the NYSE and Nasdaq alone, and many thousands more listed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/over-the-countermarket.asp">over the counter (OTC)</a>.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="11"></span> As a stock trader, you will want to narrow this universe down. Most brokerage platforms have filters and screeners that allow you to do that. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> In general, stocks are categorized based on <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>, industry, and whether they present <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growthstock.asp">growth</a> or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueinvesting.asp">value</a> investing opportunities. </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"> Market Cap </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The market cap of a company represents the value of its shares multiplied by the number of shares it has outstanding. In general, stocks with bigger market caps represent larger, more mature, and stable companies with less growth opportunity but also less <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a>. On the other hand, small-cap stocks tend to be riskier but can provide more long-term growth. </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"> Usually, a stock’s market cap can be segmented as: </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><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/megacap.asp">Mega cap</a>: Market cap of $200 billion and greater</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/large-cap.asp">Big (large) cap</a>: $10 billion and greater, up to $200 billion</li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mid-cap-long-term-returns-5225971">Midcap</a>: $2 billion to $10 billion</li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/small-cap.asp">Small cap</a>: $250 million to $2 billion<br/></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/microcapstock.asp">Microcap</a>: $50 million to less than $250 million</li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nanocap.asp">Nano cap</a>: Less than $50 million<span class="ql-inline-citation" data-cite="2"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-subheading__text"> Industry Sector </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> What companies do and the industry they work in typically will be reflected in the performance of their stocks. For instance, a consumer staples stock (meaning shares in a company that makes goods essential to consumers) will tend to fare well in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recession.asp">recession</a> because people will always need their products. A consumer discretionary stock (for example, luxury items), on the other hand, may suffer as consumers cut back on optional purchases when the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economy.asp">economy</a> falters.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> A company’s industry classification, known as its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gics.asp">Global Industry Classification Standard, or GICS code</a>, is a critical tool for an investor whose aim is to create a diversified portfolio, or for identifying competitors of a company in the same industry. GICS codes define 11 economic sectors. </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"> These are further divided into 25 industry groups, then into 74 industries, and finally into 163 subindustries. Each stock has a code to identify it at all four of these levels in terms of the company’s principal business.<span class="ql-inline-citation" data-cite="3"></span> The 11 stock market sectors are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/070815/what-telecommunications-sector.asp">Communication services</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-discretionary.asp">Consumer discretionary</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumerstaples.asp">Consumer staples</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/energy_sector.asp">Energy</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial_sector.asp">Financials</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/health_care_sector.asp">Healthcare</a></li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/industrial-goods-sector.asp">Industrials</a></li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technology_sector.asp">Information technology</a></li> <li><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/basic_materials.asp">Materials</a></li> <li><a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/052715/what-are-main-segments-real-estate-sector.asp">Real estate</a></li> <li><a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/utilities_sector.asp">Utilities</a></li> </ul> <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"> Growth vs. Value </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Growth stocks are shares of companies that are expected to grow faster than the overall market due to their potential for innovation, expansion, or disruptive technology. These are often smaller-cap and newer companies.<br> </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"> Value stocks are shares of companies that are perceived to be undervalued by the market and have strong fundamentals. Value traders look for stocks with solid <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundamentals.asp">fundamentals</a>, such as low <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp">price-to-earnings (P/E)</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/using-price-to-book-ratio-evaluate-companies/">price-to-book (P/B)</a> ratios as indicators of their financial strength relative to their <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market-price.asp">market price</a>. Value stocks also may pay higher dividends.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-subheading__text"> ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> <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>, commonly known as ETFs, trade like shares of stock, but each ETF share represents holdings in several different stocks. ETFs offer traders a way to gain access to an entire industry sector, broad market index, or asset class using a single instrument. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_50-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_51-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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>Traders use ETFs as a more cost-effective and efficient way to capture larger market segments without having to trade in and out of each individual security or index involved.</p></div></div></div> <span class="heading-toc" id="toc-where-to-trade-stocks"></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"> Where to Trade Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Stocks are listed on one or more exchanges, or they can be traded on over-the-counter (OTC) markets. Exchanges such as the New York Stock Exchange (NYSE) and the Nasdaq stock market in the U.S. provide a centralized marketplace for buying and selling stocks, and they set the rules and regulations for trading activities. </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"> OTC trading takes place away from stock exchanges and can occur via <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ecn.asp">electronic communication networks (ECNs)</a> or through dealers who specialize in a particular type of security or market segment, like the OTC Markets Group Inc. OTC trading is typically reserved for smaller or less well-known companies (often in the form of so-called <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pennystock.asp">penny stocks</a>), shares of some non-U.S. companies, or securities that don’t meet the listing requirements of major exchanges.<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"> OTC trading carries some particular risks, such as reduced <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transparency.asp">transparency</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a>, as well as the potential for fraudulent activity. Therefore, traders need to exercise caution and conduct thorough research before trading OTC stocks or other securities. </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"> Most brokerage firms today give their users access to exchange-traded and OTC stocks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-how-to-trade-stocks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> How to Trade Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> To start trading stocks, individuals need to open 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> with a reputable broker. A brokerage account is a type of investment account that allows investors to buy and sell stocks, bonds, and other securities. </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"> Once the account is set up, traders should start researching companies and analyzing their financials to make informed investment decisions. It’s also wise to set a budget for trading and to invest only the amount of money that you can afford to lose. When ready, traders can then place orders to buy or sell shares of a company through their broker. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> There are several order types and specifications that a trader can use: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> <li>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketorder.asp">market order</a> is the most basic type of stock order and instructs the broker to complete the order at the best available price. Market orders are generally always executed, unless there is no trading <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>.</li> <li>A <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/limitorder.asp">limit order</a> seeks to buy or sell a stock at a specific price or better. Limit orders give the trader more control over the price they will pay to buy or sell a security. Limit orders can remain in effect until they are executed, expire, or are canceled.</li> <li>A <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stoporder.asp">stop order</a> instructs the broker to buy or sell an asset once it reaches a specified price above or below the current price. A stop order can be a market order, meaning that it takes any price when triggered, or a <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stop-limitorder.asp">stop-limit</a> order that can only execute within a certain price range (limit) after being triggered. Stop orders are often used to minimize losses (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/091813/which-order-use-stoploss-or-stoplimit-orders.asp">stop-loss</a>).</li> <li>A <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dayorder.asp">day order</a> must be executed during the same trading day when the order is placed.</li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gtc.asp">Good-’til-canceled (GTC)</a> orders remain in effect until they are filled or canceled.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/immediateorcancel.asp">Immediate or cancel (IOC)</a> means that the order only remains active for a very short period of time, such as several seconds.</li> <li>An <a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aon.asp">all-or-none (AON)</a> order specifies that the entire size of the order be filled, and partial fills won’t be accepted.</li> <li>A <a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fok.asp">fill-or-kill (FOK)</a> order must be completed immediately and completely or not at all, and it combines an AON order with an IOC order.</li> </ul> <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_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/11/understanding-liquidity-risk.asp">Liquidity risk</a> refers to stocks that have low trading volume or weak demand that can make them difficult to sell quickly. This can result in losses if the trader needs to liquidate a stock position.</p></div></div></div> <span class="heading-toc" id="toc-stock-trading-risks"></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"> Stock Trading Risks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> It is important to note that stock trading involves risks, and investors should be prepared to lose money. Stock prices are subject to fluctuations caused by various market factors, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macroeconomics.asp">macroeconomic</a> conditions, geopolitics, and global events. This is known as market risk or <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> because it affects the entire stock market. </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"> Individual stocks also can lose money due to sector- or company-specific news and events, such as an earnings miss vs. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/06/earningsforecasts.asp">analysts’ forecasts</a> or impending <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankruptcy</a>. As such, this is called <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/specificrisk.asp">specific risk</a> (or unsystematic risk). This can result in significant losses if the market moves against a trader’s position. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> To manage these risks, investors should conduct thorough research and analysis, develop a well-defined trading plan, set risk management measures such as stop-loss orders, and stay disciplined in executing their strategy. Additionally, when you trade stocks, you should avoid investing more money than you can afford to lose and consider <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/030116/portfolio-diversification-done-right.asp">diversifying your portfolio</a> to reduce overall risk. </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-how-do-i-start-trading-stocks"></span> <h2 class="mntl-sc-block-questionandanswer__question">How do I start trading stocks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The first step to getting started in trading stocks is to open a brokerage account and fund it. There are several options for you to choose from online, many with commission-free trading in stocks and exchange-traded funds (ETFs). Also, set trading or investment goals, research companies, stay informed about market and company news, and start small to minimize risk and gain experience.</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-what-does-a-stock-trader-do"></span> <h2 class="mntl-sc-block-questionandanswer__question">What does a stock trader do?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A stock trader buys and sells shares of publicly traded companies in the hopes of making a profit. They may do this either professionally or as a hobby. Traders study market trends, scrutinize companies, and use various strategies to make informed decisions. A successful stock trader must have strong analytical and decision-making skills, as well as a deep understanding of the market.</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-what-is-an-example-of-a-stock-trade"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is an example of a stock trade?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As an illustration, an investor buys 10 shares of Tesla (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA">TSLA</a>) at $200 per share using a limit order, with a maximum price of $210. The order is executed when the stock price reaches $210, and the investor pays a total of $2,100. A week later, the stock price rises to $300 per share, and the investor sells all 10 shares at market price, receiving $3,000 and making a profit of $900.</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-can-you-trade-stocks-with-100"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can you trade stocks with $100?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes. Many <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> allow investors to buy <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fractionalshare.asp">fractional shares</a> in a company with as little as $100 or less. Thus, if a share of a company’s stock is trading at $200, $100 will buy you half a share. Moreover, many online brokers today offer commission-free stock trading, meaning that your $100 investment won’t be reduced by trading commissions.</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-what-is-technical-analysis"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is technical analysis?</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/t/technicalanalysis.asp">Technical analysis</a> is the study of historical market data, including price and volume. Using insights from <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketpsychology.asp">market psychology</a>, <a class="pseudoStyle" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/behavioraleconomics.asp">behavioral economics</a>, and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quantitativeanalysis.asp">quantitative analysis</a>, technical analysts aim to use past performance to predict future market behavior using chart patterns and statistical indicators.</p></div> </div> <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-bottom-line"></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 Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> Stock trading involves buying and selling shares of a public company. Trading can be an exciting and lucrative opportunity, but it also involves risks that investors should be aware of, including the possibility of losing significant amounts of money. Therefore, it’s important to conduct thorough research and analysis before making any investment decisions. </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"> By following these tips and understanding the basics of stock trading, you can make informed decisions and work toward achieving your investment goals. </p></div>

## Stock Trading: An Overview Stock trading involves buying and selling shares in publicly traded companies. In the United States, this typically occurs on stock exchanges like the [New York Stock Exchange (NYSE)](https://www.investopedia.com/terms/n/nyse.asp) or the [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp) stock market. When someone buys [shares](https://www.investopedia.com/terms/s/shares.asp) of a company, they effectively become a small part-owner of that company and have some claim on its [assets](https://www.investopedia.com/terms/a/asset.asp) and [earnings](https://www.investopedia.com/terms/e/earnings.asp), in the form of [dividends](https://www.investopedia.com/terms/d/dividend.asp) and/or [capital appreciation](https://www.investopedia.com/terms/c/capital-growth.asp). The value of the shares depends on a variety of factors, including the company’s financial performance, outlook, overall market conditions, and investor sentiment. This is a comprehensive guide to [stock trading](https://www.investopedia.com/stock-trading-4689660) basics and the different types of stock trading, as well as tips for getting started. ### Key Takeaways * Stock trading involves buying and selling shares of publicly traded companies on stock exchanges. * Types of stock traders include long-term, short-term, day trading, swing trading, and high-frequency trading, with each having a different time horizon and goal. * Stocks are typically categorized based on company size or market capitalization, industry, and growth vs. value opportunities. * Trading stocks involves risk, including the chance that you might lose up to your entire investment. ## Types of Stock Trading Stock trading and the people who do it come in many varieties and feature myriad strategies and approaches. Often, stock trading is categorized based on one’s desired holding period, or [time horizon](https://www.investopedia.com/terms/t/timehorizon.asp). Long-term trading involves buying shares of a company and holding onto them for an extended period, usually several years or even decades. The goal of long-term trading is to benefit from the growth of the company over time and to earn [dividends](https://www.investopedia.com/terms/s/stockdividend.asp) on the shares. Long-term buy-and-hold traders are often categorized more as [investors](https://www.investopedia.com/terms/i/investor.asp) but may also be called [position traders](https://www.investopedia.com/terms/p/positiontrader.asp). Short-term trading, on the other hand, involves buying and selling shares over a briefer period of time—usually a few days, weeks, or months. The goal of short-term traders is to make quick profits by taking advantage of market fluctuations. [Day traders](https://www.investopedia.com/terms/d/daytrader.asp) have an intraday time horizon, making several trades over the course of a single day or a few days. [Swing traders](https://www.investopedia.com/terms/s/swingtrading.asp) have a more medium-term outlook, looking to capture trends and momentum over several weeks or months. Ultra-short-term traders may [employ algorithms](https://www.investopedia.com/articles/active-trading/101014/basics-algorithmic-trading-concepts-and-examples.asp) to help them place trades in milliseconds to “[scalp](https://www.investopedia.com/articles/trading/05/scalping.asp),” or make a series of small but quick profits. Also known as high-frequency traders (HFTs), they use computer programs to execute trades based on preset criteria. While [high-frequency trading](https://www.investopedia.com/terms/h/high-frequency-trading.asp) is usually the realm of professional Wall Street traders and hedge funds, [algorithmic platforms](https://www.investopedia.com/articles/active-trading/090815/picking-right-algorithmic-trading-software.asp) are becoming increasingly available to ordinary traders. ### While most beginner traders buy stocks and later sell them, some traders also sell stocks [short](https://www.investopedia.com/terms/s/shortselling.asp). They borrow shares that they don’t own and sell them, hoping to buy the borrowed shares back at a lower price later. Being “short” (betting the market will go down) is the opposite of being “long” (betting the market will go up). ## What to Trade There are more than 5,700 stocks listed on the NYSE and Nasdaq alone, and many thousands more listed [over the counter (OTC)](https://www.investopedia.com/terms/o/over-the-countermarket.asp). As a stock trader, you will want to narrow this universe down. Most brokerage platforms have filters and screeners that allow you to do that. In general, stocks are categorized based on [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp), industry, and whether they present [growth](https://www.investopedia.com/terms/g/growthstock.asp) or [value](https://www.investopedia.com/terms/v/valueinvesting.asp) investing opportunities. ### Market Cap The market cap of a company represents the value of its shares multiplied by the number of shares it has outstanding. In general, stocks with bigger market caps represent larger, more mature, and stable companies with less growth opportunity but also less [volatility](https://www.investopedia.com/terms/v/volatility.asp). On the other hand, small-cap stocks tend to be riskier but can provide more long-term growth. Usually, a stock’s market cap can be segmented as: * [Mega cap](https://www.investopedia.com/terms/m/megacap.asp): Market cap of $200 billion and greater * [Big (large) cap](https://www.investopedia.com/terms/l/large-cap.asp): $10 billion and greater, up to $200 billion * [Midcap](https://www.investopedia.com/mid-cap-long-term-returns-5225971): $2 billion to $10 billion * [Small cap](https://www.investopedia.com/terms/s/small-cap.asp): $250 million to $2 billion * [Microcap](https://www.investopedia.com/terms/m/microcapstock.asp): $50 million to less than $250 million * [Nano cap](https://www.investopedia.com/terms/n/nanocap.asp): Less than $50 million ### Industry Sector What companies do and the industry they work in typically will be reflected in the performance of their stocks. For instance, a consumer staples stock (meaning shares in a company that makes goods essential to consumers) will tend to fare well in a [recession](https://www.investopedia.com/terms/r/recession.asp) because people will always need their products. A consumer discretionary stock (for example, luxury items), on the other hand, may suffer as consumers cut back on optional purchases when the [economy](https://www.investopedia.com/terms/e/economy.asp) falters. A company’s industry classification, known as its [Global Industry Classification Standard, or GICS code](https://www.investopedia.com/terms/g/gics.asp), is a critical tool for an investor whose aim is to create a diversified portfolio, or for identifying competitors of a company in the same industry. GICS codes define 11 economic sectors. These are further divided into 25 industry groups, then into 74 industries, and finally into 163 subindustries. Each stock has a code to identify it at all four of these levels in terms of the company’s principal business. The 11 stock market sectors are: * [Communication services](https://www.investopedia.com/ask/answers/070815/what-telecommunications-sector.asp) * [Consumer discretionary](https://www.investopedia.com/terms/c/consumer-discretionary.asp) * [Consumer staples](https://www.investopedia.com/terms/c/consumerstaples.asp) * [Energy](https://www.investopedia.com/terms/e/energy_sector.asp) * [Financials](https://www.investopedia.com/terms/f/financial_sector.asp) * [Healthcare](https://www.investopedia.com/terms/h/health_care_sector.asp) * [Industrials](https://www.investopedia.com/terms/i/industrial-goods-sector.asp) * [Information technology](https://www.investopedia.com/terms/t/technology_sector.asp) * [Materials](https://www.investopedia.com/terms/b/basic_materials.asp) * [Real estate](https://www.investopedia.com/ask/answers/052715/what-are-main-segments-real-estate-sector.asp) * [Utilities](https://www.investopedia.com/terms/u/utilities_sector.asp) ### Growth vs. Value Growth stocks are shares of companies that are expected to grow faster than the overall market due to their potential for innovation, expansion, or disruptive technology. These are often smaller-cap and newer companies. Value stocks are shares of companies that are perceived to be undervalued by the market and have strong fundamentals. Value traders look for stocks with solid [fundamentals](https://www.investopedia.com/terms/f/fundamentals.asp), such as low [price-to-earnings (P/E)](https://www.investopedia.com/terms/p/price-earningsratio.asp) and [price-to-book (P/B)](https://www.investopedia.com/investing/using-price-to-book-ratio-evaluate-companies/) ratios as indicators of their financial strength relative to their [market price](https://www.investopedia.com/terms/m/market-price.asp). Value stocks also may pay higher dividends. ### ETFs [Exchange-traded funds](https://www.investopedia.com/terms/e/etf.asp), commonly known as ETFs, trade like shares of stock, but each ETF share represents holdings in several different stocks. ETFs offer traders a way to gain access to an entire industry sector, broad market index, or asset class using a single instrument. ### Traders use ETFs as a more cost-effective and efficient way to capture larger market segments without having to trade in and out of each individual security or index involved. ## Where to Trade Stocks Stocks are listed on one or more exchanges, or they can be traded on over-the-counter (OTC) markets. Exchanges such as the New York Stock Exchange (NYSE) and the Nasdaq stock market in the U.S. provide a centralized marketplace for buying and selling stocks, and they set the rules and regulations for trading activities. OTC trading takes place away from stock exchanges and can occur via [electronic communication networks (ECNs)](https://www.investopedia.com/terms/e/ecn.asp) or through dealers who specialize in a particular type of security or market segment, like the OTC Markets Group Inc. OTC trading is typically reserved for smaller or less well-known companies (often in the form of so-called [penny stocks](https://www.investopedia.com/terms/p/pennystock.asp)), shares of some non-U.S. companies, or securities that don’t meet the listing requirements of major exchanges. OTC trading carries some particular risks, such as reduced [transparency](https://www.investopedia.com/terms/t/transparency.asp) and [liquidity](https://www.investopedia.com/terms/l/liquidity.asp), as well as the potential for fraudulent activity. Therefore, traders need to exercise caution and conduct thorough research before trading OTC stocks or other securities. Most brokerage firms today give their users access to exchange-traded and OTC stocks. ## How to Trade Stocks To start trading stocks, individuals need to open a [brokerage account](https://www.investopedia.com/terms/b/brokerageaccount.asp) with a reputable broker. A brokerage account is a type of investment account that allows investors to buy and sell stocks, bonds, and other securities. Once the account is set up, traders should start researching companies and analyzing their financials to make informed investment decisions. It’s also wise to set a budget for trading and to invest only the amount of money that you can afford to lose. When ready, traders can then place orders to buy or sell shares of a company through their broker. There are several order types and specifications that a trader can use: * A [market order](https://www.investopedia.com/terms/m/marketorder.asp) is the most basic type of stock order and instructs the broker to complete the order at the best available price. Market orders are generally always executed, unless there is no trading [liquidity](https://www.investopedia.com/articles/basics/07/liquidity.asp). * A [limit order](https://www.investopedia.com/terms/l/limitorder.asp) seeks to buy or sell a stock at a specific price or better. Limit orders give the trader more control over the price they will pay to buy or sell a security. Limit orders can remain in effect until they are executed, expire, or are canceled. * A [stop order](https://www.investopedia.com/terms/s/stoporder.asp) instructs the broker to buy or sell an asset once it reaches a specified price above or below the current price. A stop order can be a market order, meaning that it takes any price when triggered, or a [stop-limit](https://www.investopedia.com/terms/s/stop-limitorder.asp) order that can only execute within a certain price range (limit) after being triggered. Stop orders are often used to minimize losses ([stop-loss](https://www.investopedia.com/articles/active-trading/091813/which-order-use-stoploss-or-stoplimit-orders.asp)). * A [day order](https://www.investopedia.com/terms/d/dayorder.asp) must be executed during the same trading day when the order is placed. * [Good-’til-canceled (GTC)](https://www.investopedia.com/terms/g/gtc.asp) orders remain in effect until they are filled or canceled. * [Immediate or cancel (IOC)](https://www.investopedia.com/terms/i/immediateorcancel.asp) means that the order only remains active for a very short period of time, such as several seconds. * An [all-or-none (AON)](https://www.investopedia.com/terms/a/aon.asp) order specifies that the entire size of the order be filled, and partial fills won’t be accepted. * A [fill-or-kill (FOK)](https://www.investopedia.com/terms/f/fok.asp) order must be completed immediately and completely or not at all, and it combines an AON order with an IOC order. ### [Liquidity risk](https://www.investopedia.com/articles/trading/11/understanding-liquidity-risk.asp) refers to stocks that have low trading volume or weak demand that can make them difficult to sell quickly. This can result in losses if the trader needs to liquidate a stock position. ## Stock Trading Risks It is important to note that stock trading involves risks, and investors should be prepared to lose money. Stock prices are subject to fluctuations caused by various market factors, including [macroeconomic](https://www.investopedia.com/terms/m/macroeconomics.asp) conditions, geopolitics, and global events. This is known as market risk or [systematic risk](https://www.investopedia.com/terms/s/systematicrisk.asp) because it affects the entire stock market. Individual stocks also can lose money due to sector- or company-specific news and events, such as an earnings miss vs. [analysts’ forecasts](https://www.investopedia.com/articles/stocks/06/earningsforecasts.asp) or impending [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp). As such, this is called [specific risk](https://www.investopedia.com/terms/s/specificrisk.asp) (or unsystematic risk). This can result in significant losses if the market moves against a trader’s position. To manage these risks, investors should conduct thorough research and analysis, develop a well-defined trading plan, set risk management measures such as stop-loss orders, and stay disciplined in executing their strategy. Additionally, when you trade stocks, you should avoid investing more money than you can afford to lose and consider [diversifying your portfolio](https://www.investopedia.com/articles/investing/030116/portfolio-diversification-done-right.asp) to reduce overall risk. ## How do I start trading stocks? The first step to getting started in trading stocks is to open a brokerage account and fund it. There are several options for you to choose from online, many with commission-free trading in stocks and exchange-traded funds (ETFs). Also, set trading or investment goals, research companies, stay informed about market and company news, and start small to minimize risk and gain experience. ## What does a stock trader do? A stock trader buys and sells shares of publicly traded companies in the hopes of making a profit. They may do this either professionally or as a hobby. Traders study market trends, scrutinize companies, and use various strategies to make informed decisions. A successful stock trader must have strong analytical and decision-making skills, as well as a deep understanding of the market. ## What is an example of a stock trade? As an illustration, an investor buys 10 shares of Tesla ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA)) at $200 per share using a limit order, with a maximum price of $210. The order is executed when the stock price reaches $210, and the investor pays a total of $2,100. A week later, the stock price rises to $300 per share, and the investor sells all 10 shares at market price, receiving $3,000 and making a profit of $900. ## Can you trade stocks with $100? Yes. Many [discount brokerages](https://www.investopedia.com/terms/d/discountbroker.asp) allow investors to buy [fractional shares](https://www.investopedia.com/terms/f/fractionalshare.asp) in a company with as little as $100 or less. Thus, if a share of a company’s stock is trading at $200, $100 will buy you half a share. Moreover, many online brokers today offer commission-free stock trading, meaning that your $100 investment won’t be reduced by trading commissions. ## What is technical analysis? [Technical analysis](https://www.investopedia.com/terms/t/technicalanalysis.asp) is the study of historical market data, including price and volume. Using insights from [market psychology](https://www.investopedia.com/terms/m/marketpsychology.asp), [behavioral economics](https://www.investopedia.com/terms/b/behavioraleconomics.asp), and [quantitative analysis](https://www.investopedia.com/terms/q/quantitativeanalysis.asp), technical analysts aim to use past performance to predict future market behavior using chart patterns and statistical indicators. ## The Bottom Line Stock trading involves buying and selling shares of a public company. Trading can be an exciting and lucrative opportunity, but it also involves risks that investors should be aware of, including the possibility of losing significant amounts of money. Therefore, it’s important to conduct thorough research and analysis before making any investment decisions. By following these tips and understanding the basics of stock trading, you can make informed decisions and work toward achieving your investment goals.

Stock Trading: An Overview Stock trading involves buying and selling shares in publicly traded companies. In the United States, this typically occurs on stock exchanges like the New York Stock Exchange (NYSE) or the Nasdaq stock market. When someone buys shares of a company, they effectively become a small part-owner of that company and have some claim on its assets and earnings, in the form of dividends and/or capital appreciation. The value of the shares depends on a variety of factors, including the company’s financial performance, outlook, overall market conditions, and investor sentiment. This is a comprehensive guide to stock trading basics and the different types of stock trading, as well as tips for getting started. Key Takeaways Stock trading involves buying and selling shares of publicly traded companies on stock exchanges.Types of stock traders include long-term, short-term, day trading, swing trading, and high-frequency trading, with each having a different time horizon and goal.Stocks are typically categorized based on company size or market capitalization, industry, and growth vs. value opportunities.Trading stocks involves risk, including the chance that you might lose up to your entire investment. Types of Stock Trading Stock trading and the people who do it come in many varieties and feature myriad strategies and approaches. Often, stock trading is categorized based on one’s desired holding period, or time horizon. Long-term trading involves buying shares of a company and holding onto them for an extended period, usually several years or even decades. The goal of long-term trading is to benefit from the growth of the company over time and to earn dividends on the shares. Long-term buy-and-hold traders are often categorized more as investors but may also be called position traders. Short-term trading, on the other hand, involves buying and selling shares over a briefer period of time—usually a few days, weeks, or months. The goal of short-term traders is to make quick profits by taking advantage of market fluctuations. Day traders have an intraday time horizon, making several trades over the course of a single day or a few days. Swing traders have a more medium-term outlook, looking to capture trends and momentum over several weeks or months. Ultra-short-term traders may employ algorithms to help them place trades in milliseconds to “scalp,” or make a series of small but quick profits. Also known as high-frequency traders (HFTs), they use computer programs to execute trades based on preset criteria. While high-frequency trading is usually the realm of professional Wall Street traders and hedge funds, algorithmic platforms are becoming increasingly available to ordinary traders. While most beginner traders buy stocks and later sell them, some traders also sell stocks short. They borrow shares that they don’t own and sell them, hoping to buy the borrowed shares back at a lower price later. Being “short” (betting the market will go down) is the opposite of being “long” (betting the market will go up). What to Trade There are more than 5,700 stocks listed on the NYSE and Nasdaq alone, and many thousands more listed over the counter (OTC). As a stock trader, you will want to narrow this universe down. Most brokerage platforms have filters and screeners that allow you to do that. In general, stocks are categorized based on market capitalization, industry, and whether they present growth or value investing opportunities. Market Cap The market cap of a company represents the value of its shares multiplied by the number of shares it has outstanding. In general, stocks with bigger market caps represent larger, more mature, and stable companies with less growth opportunity but also less volatility. On the other hand, small-cap stocks tend to be riskier but can provide more long-term growth. Usually, a stock’s market cap can be segmented as: Mega cap: Market cap of $200 billion and greater Big (large) cap: $10 billion and greater, up to $200 billion Midcap: $2 billion to $10 billion Small cap: $250 million to $2 billion Microcap: $50 million to less than $250 million Nano cap: Less than $50 million Industry Sector What companies do and the industry they work in typically will be reflected in the performance of their stocks. For instance, a consumer staples stock (meaning shares in a company that makes goods essential to consumers) will tend to fare well in a recession because people will always need their products. A consumer discretionary stock (for example, luxury items), on the other hand, may suffer as consumers cut back on optional purchases when the economy falters. A company’s industry classification, known as its Global Industry Classification Standard, or GICS code, is a critical tool for an investor whose aim is to create a diversified portfolio, or for identifying competitors of a company in the same industry. GICS codes define 11 economic sectors. These are further divided into 25 industry groups, then into 74 industries, and finally into 163 subindustries. Each stock has a code to identify it at all four of these levels in terms of the company’s principal business. The 11 stock market sectors are: Communication services Consumer discretionary Consumer staples Energy Financials Healthcare Industrials Information technology Materials Real estate Utilities Growth vs. Value Growth stocks are shares of companies that are expected to grow faster than the overall market due to their potential for innovation, expansion, or disruptive technology. These are often smaller-cap and newer companies. Value stocks are shares of companies that are perceived to be undervalued by the market and have strong fundamentals. Value traders look for stocks with solid fundamentals, such as low price-to-earnings (P/E) and price-to-book (P/B) ratios as indicators of their financial strength relative to their market price. Value stocks also may pay higher dividends. ETFs Exchange-traded funds, commonly known as ETFs, trade like shares of stock, but each ETF share represents holdings in several different stocks. ETFs offer traders a way to gain access to an entire industry sector, broad market index, or asset class using a single instrument. Traders use ETFs as a more cost-effective and efficient way to capture larger market segments without having to trade in and out of each individual security or index involved. Where to Trade Stocks Stocks are listed on one or more exchanges, or they can be traded on over-the-counter (OTC) markets. Exchanges such as the New York Stock Exchange (NYSE) and the Nasdaq stock market in the U.S. provide a centralized marketplace for buying and selling stocks, and they set the rules and regulations for trading activities. OTC trading takes place away from stock exchanges and can occur via electronic communication networks (ECNs) or through dealers who specialize in a particular type of security or market segment, like the OTC Markets Group Inc. OTC trading is typically reserved for smaller or less well-known companies (often in the form of so-called penny stocks), shares of some non-U.S. companies, or securities that don’t meet the listing requirements of major exchanges. OTC trading carries some particular risks, such as reduced transparency and liquidity, as well as the potential for fraudulent activity. Therefore, traders need to exercise caution and conduct thorough research before trading OTC stocks or other securities. Most brokerage firms today give their users access to exchange-traded and OTC stocks. How to Trade Stocks To start trading stocks, individuals need to open a brokerage account with a reputable broker. A brokerage account is a type of investment account that allows investors to buy and sell stocks, bonds, and other securities. Once the account is set up, traders should start researching companies and analyzing their financials to make informed investment decisions. It’s also wise to set a budget for trading and to invest only the amount of money that you can afford to lose. When ready, traders can then place orders to buy or sell shares of a company through their broker. There are several order types and specifications that a trader can use: A market order is the most basic type of stock order and instructs the broker to complete the order at the best available price. Market orders are generally always executed, unless there is no trading liquidity. A limit order seeks to buy or sell a stock at a specific price or better. Limit orders give the trader more control over the price they will pay to buy or sell a security. Limit orders can remain in effect until they are executed, expire, or are canceled. A stop order instructs the broker to buy or sell an asset once it reaches a specified price above or below the current price. A stop order can be a market order, meaning that it takes any price when triggered, or a stop-limit order that can only execute within a certain price range (limit) after being triggered. Stop orders are often used to minimize losses (stop-loss). A day order must be executed during the same trading day when the order is placed. Good-’til-canceled (GTC) orders remain in effect until they are filled or canceled. Immediate or cancel (IOC) means that the order only remains active for a very short period of time, such as several seconds. An all-or-none (AON) order specifies that the entire size of the order be filled, and partial fills won’t be accepted. A fill-or-kill (FOK) order must be completed immediately and completely or not at all, and it combines an AON order with an IOC order. Liquidity risk refers to stocks that have low trading volume or weak demand that can make them difficult to sell quickly. This can result in losses if the trader needs to liquidate a stock position. Stock Trading Risks It is important to note that stock trading involves risks, and investors should be prepared to lose money. Stock prices are subject to fluctuations caused by various market factors, including macroeconomic conditions, geopolitics, and global events. This is known as market risk or systematic risk because it affects the entire stock market. Individual stocks also can lose money due to sector- or company-specific news and events, such as an earnings miss vs. analysts’ forecasts or impending bankruptcy. As such, this is called specific risk (or unsystematic risk). This can result in significant losses if the market moves against a trader’s position. To manage these risks, investors should conduct thorough research and analysis, develop a well-defined trading plan, set risk management measures such as stop-loss orders, and stay disciplined in executing their strategy. Additionally, when you trade stocks, you should avoid investing more money than you can afford to lose and consider diversifying your portfolio to reduce overall risk. How do I start trading stocks? The first step to getting started in trading stocks is to open a brokerage account and fund it. There are several options for you to choose from online, many with commission-free trading in stocks and exchange-traded funds (ETFs). Also, set trading or investment goals, research companies, stay informed about market and company news, and start small to minimize risk and gain experience. What does a stock trader do? A stock trader buys and sells shares of publicly traded companies in the hopes of making a profit. They may do this either professionally or as a hobby. Traders study market trends, scrutinize companies, and use various strategies to make informed decisions. A successful stock trader must have strong analytical and decision-making skills, as well as a deep understanding of the market. What is an example of a stock trade? As an illustration, an investor buys 10 shares of Tesla (TSLA) at $200 per share using a limit order, with a maximum price of $210. The order is executed when the stock price reaches $210, and the investor pays a total of $2,100. A week later, the stock price rises to $300 per share, and the investor sells all 10 shares at market price, receiving $3,000 and making a profit of $900. Can you trade stocks with $100? Yes. Many discount brokerages allow investors to buy fractional shares in a company with as little as $100 or less. Thus, if a share of a company’s stock is trading at $200, $100 will buy you half a share. Moreover, many online brokers today offer commission-free stock trading, meaning that your $100 investment won’t be reduced by trading commissions. What is technical analysis? Technical analysis is the study of historical market data, including price and volume. Using insights from market psychology, behavioral economics, and quantitative analysis, technical analysts aim to use past performance to predict future market behavior using chart patterns and statistical indicators. The Bottom Line Stock trading involves buying and selling shares of a public company. Trading can be an exciting and lucrative opportunity, but it also involves risks that investors should be aware of, including the possibility of losing significant amounts of money. Therefore, it’s important to conduct thorough research and analysis before making any investment decisions. By following these tips and understanding the basics of stock trading, you can make informed decisions and work toward achieving your investment goals.

https://www.investopedia.com/treasury-announced-how-many-bonds-it-will-sell-in-the-months-ahead-why-you-should-care-8385496

Treasury Announced How Many Bonds It Will Sell in the Months Ahead—Why You Should Care

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 Treasury Department is planning to raise $9.8 billion by auctioning $112 billion in debt to refund notes totaling about $102.2 billion that are set to mature on Nov. 15.</li><li>It will increase the sizes for the 2-, 5-, 3- and 7-year auctions in the quarter through January.</li><li>Investors were closely watching this announcement to see how the Treasury would work to finance the country's $1.7 trillion budget deficit.</li><li>The announcement is important because the Federal Reserve's ongoing campaign to fight inflation has boosted debt service costs for the federal government and bond yields have kept rising even as the Fed has held its benchmark lending rate steady.</li><li>Treasury yields, which influence borrowing costs on all sorts of loans, moved lower after the announcement.</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 Treasury Department on Wednesday announced an increase in its debt auctions for the November-January quarter in order to help with rising national debt, saying another increase will be on the way next quarter. </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 Treasury will raise $9.8 billion by auctioning $112 billion in debt to refund notes totaling about $102.2 billion that are set to mature on Nov. 15.<span class="ql-inline-citation" data-cite="1"></span> That’s slightly lower than Wall Street expected. Some $48 billion will be in 3-year notes, $40 billion in 10-year notes and $24 billion in 30-year bonds.  </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 also said it would increase the 2- and 5-year auction sizes by $3 billion per month, totaling $9 billion by the end of January. The 3-year and 7-year auctions will increase by $2 billion and $1 billion per month, respectively, totaling $6 billion and $3 billion before February.  </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"> “One interpretation of the significant steepening of the two-year to ten-year yield curve is that market participants are revising up their expectations for near-term growth and revising down the probability of a near-term recession,” wrote Deirdre Dunn and Colin Teichholtz, chair and vice chair of the Treasury Borrowing Advisory Committee in a letter accompanying the announcement.<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"> Investors have been focused on how the federal government—now facing a $1.7 trillion budget deficit—will cover that shortfall. They were <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-market-watchers-care-more-about-the-treasury-than-the-fed-this-week-8384430">paying close attention </a>this week to the auction announcement, looking for insight into where yields may go for the remainder of the year. Yields <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investors-forced-to-recalibrate-as-10-year-treasury-yields-flirts-with-5-percent-8364526">have been hitting highs</a> not seen since before the Great Recession in the past few months, as investors sold off Treasury debt. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> “There is a view among market participants that the growing imbalance between supply of and demand for U.S. Treasury debt may also have contributed to the sell-off,” the chairs wrote in their letter.  </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"> High <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasury-yield.asp">yields</a> have been doing much of the Federal Reserve’s tightening work, with Deutsche Bank this week estimating the bonds sell-off was having the effect equal to about three 25-<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/what-basis-point-bps/">basis-point</a> rate increases. The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fomc.asp">Fed’s Open Markets Committee</a> is <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/will-interest-rates-go-even-higher-fed-meeting-wednesday-could-provide-clues-8383896">expected to keep rates</a> at their current levels later on Wednesday. </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 the letter, the Treasury committee said it expects a need for further increases next quarter but do not yet anticipate the need for further increases beyond that.  </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/ask/answers/033115/what-are-differences-between-treasury-bond-and-treasury-note-and-treasury-bill-tbill.asp">Treasurys</a> rallied on the announcement. In mid-morning trading, the yield on the 10-year Treasury was down 15 basis points to 4.79% while the 2-year was down 9 basis points to 5.01%. Treasury yields are inversely related to Treasury prices.<br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * The Treasury Department is planning to raise $9.8 billion by auctioning $112 billion in debt to refund notes totaling about $102.2 billion that are set to mature on Nov. 15. * It will increase the sizes for the 2-, 5-, 3- and 7-year auctions in the quarter through January. * Investors were closely watching this announcement to see how the Treasury would work to finance the country's $1.7 trillion budget deficit. * The announcement is important because the Federal Reserve's ongoing campaign to fight inflation has boosted debt service costs for the federal government and bond yields have kept rising even as the Fed has held its benchmark lending rate steady. * Treasury yields, which influence borrowing costs on all sorts of loans, moved lower after the announcement. The Treasury Department on Wednesday announced an increase in its debt auctions for the November-January quarter in order to help with rising national debt, saying another increase will be on the way next quarter. The Treasury will raise $9.8 billion by auctioning $112 billion in debt to refund notes totaling about $102.2 billion that are set to mature on Nov. 15. That’s slightly lower than Wall Street expected. Some $48 billion will be in 3-year notes, $40 billion in 10-year notes and $24 billion in 30-year bonds.  The department also said it would increase the 2- and 5-year auction sizes by $3 billion per month, totaling $9 billion by the end of January. The 3-year and 7-year auctions will increase by $2 billion and $1 billion per month, respectively, totaling $6 billion and $3 billion before February.  “One interpretation of the significant steepening of the two-year to ten-year yield curve is that market participants are revising up their expectations for near-term growth and revising down the probability of a near-term recession,” wrote Deirdre Dunn and Colin Teichholtz, chair and vice chair of the Treasury Borrowing Advisory Committee in a letter accompanying the announcement. Investors have been focused on how the federal government—now facing a $1.7 trillion budget deficit—will cover that shortfall. They were [paying close attention](https://www.investopedia.com/why-market-watchers-care-more-about-the-treasury-than-the-fed-this-week-8384430) this week to the auction announcement, looking for insight into where yields may go for the remainder of the year. Yields [have been hitting highs](https://www.investopedia.com/investors-forced-to-recalibrate-as-10-year-treasury-yields-flirts-with-5-percent-8364526) not seen since before the Great Recession in the past few months, as investors sold off Treasury debt. “There is a view among market participants that the growing imbalance between supply of and demand for U.S. Treasury debt may also have contributed to the sell-off,” the chairs wrote in their letter.  High [yields](https://www.investopedia.com/terms/t/treasury-yield.asp) have been doing much of the Federal Reserve’s tightening work, with Deutsche Bank this week estimating the bonds sell-off was having the effect equal to about three 25-[basis-point](https://www.investopedia.com/ask/answers/what-basis-point-bps/) rate increases. The [Fed’s Open Markets Committee](https://www.investopedia.com/terms/f/fomc.asp) is [expected to keep rates](https://www.investopedia.com/will-interest-rates-go-even-higher-fed-meeting-wednesday-could-provide-clues-8383896) at their current levels later on Wednesday. In the letter, the Treasury committee said it expects a need for further increases next quarter but do not yet anticipate the need for further increases beyond that.  [Treasurys](https://www.investopedia.com/ask/answers/033115/what-are-differences-between-treasury-bond-and-treasury-note-and-treasury-bill-tbill.asp) rallied on the announcement. In mid-morning trading, the yield on the 10-year Treasury was down 15 basis points to 4.79% while the 2-year was down 9 basis points to 5.01%. Treasury yields are inversely related to Treasury prices. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways The Treasury Department is planning to raise $9.8 billion by auctioning $112 billion in debt to refund notes totaling about $102.2 billion that are set to mature on Nov. 15.It will increase the sizes for the 2-, 5-, 3- and 7-year auctions in the quarter through January.Investors were closely watching this announcement to see how the Treasury would work to finance the country's $1.7 trillion budget deficit.The announcement is important because the Federal Reserve's ongoing campaign to fight inflation has boosted debt service costs for the federal government and bond yields have kept rising even as the Fed has held its benchmark lending rate steady.Treasury yields, which influence borrowing costs on all sorts of loans, moved lower after the announcement. The Treasury Department on Wednesday announced an increase in its debt auctions for the November-January quarter in order to help with rising national debt, saying another increase will be on the way next quarter. The Treasury will raise $9.8 billion by auctioning $112 billion in debt to refund notes totaling about $102.2 billion that are set to mature on Nov. 15. That’s slightly lower than Wall Street expected. Some $48 billion will be in 3-year notes, $40 billion in 10-year notes and $24 billion in 30-year bonds.  The department also said it would increase the 2- and 5-year auction sizes by $3 billion per month, totaling $9 billion by the end of January. The 3-year and 7-year auctions will increase by $2 billion and $1 billion per month, respectively, totaling $6 billion and $3 billion before February.  “One interpretation of the significant steepening of the two-year to ten-year yield curve is that market participants are revising up their expectations for near-term growth and revising down the probability of a near-term recession,” wrote Deirdre Dunn and Colin Teichholtz, chair and vice chair of the Treasury Borrowing Advisory Committee in a letter accompanying the announcement. Investors have been focused on how the federal government—now facing a $1.7 trillion budget deficit—will cover that shortfall. They were paying close attention this week to the auction announcement, looking for insight into where yields may go for the remainder of the year. Yields have been hitting highs not seen since before the Great Recession in the past few months, as investors sold off Treasury debt. “There is a view among market participants that the growing imbalance between supply of and demand for U.S. Treasury debt may also have contributed to the sell-off,” the chairs wrote in their letter.  High yields have been doing much of the Federal Reserve’s tightening work, with Deutsche Bank this week estimating the bonds sell-off was having the effect equal to about three 25-basis-point rate increases. The Fed’s Open Markets Committee is expected to keep rates at their current levels later on Wednesday. In the letter, the Treasury committee said it expects a need for further increases next quarter but do not yet anticipate the need for further increases beyond that.  Treasurys rallied on the announcement. In mid-morning trading, the yield on the 10-year Treasury was down 15 basis points to 4.79% while the 2-year was down 9 basis points to 5.01%. Treasury yields are inversely related to Treasury prices. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/terms/f/floating-stock.asp

Floating Stock: Definition, Example, and Why It's Important

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-floating-stock"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Floating Stock? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Floating stock is the number of shares available for trading of a particular stock. Low float stocks are those with a low number of shares. Floating stock is calculated by subtracting closely-held shares and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/restrictedstock.asp" rel="noopener noreferrer">restricted stock</a> from a firm’s total outstanding shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Closely-held shares are those owned by insiders, major shareholders, and employees. Restricted stock refers to insider shares that cannot be traded because of a temporary restriction, such as the lock-up period after an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp" rel="noopener noreferrer">initial public offering</a> (IPO). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A stock with a small float will generally be more volatile than a stock with a large float. This is because, with fewer shares available, it may be harder to find a buyer or seller. This results in larger <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spread.asp" rel="noopener noreferrer">spreads</a> and often lower volume. </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>Floating stock refers to the number of shares a company has available to trade in the open market.</li><li>To calculate a company's floating stock, subtract its restricted stock and closely held shares from its total number of outstanding shares.</li><li>Floating stock will change over time as new shares may be issued, shares may be bought back, or insiders or major shareholders may buy or sell the stock.</li><li>Low float stocks tend to have higher spreads and higher volatility than a comparable larger float stock.</li><li>Investors can find it difficult to enter or exit positions in stocks that have a low float.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-floating-stock"></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 Floating Stock </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> A company may have a large number of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outstandingshares.asp" rel="noopener noreferrer">shares outstanding</a>, but limited floating stock. For example, assume a company has 50 million shares outstanding. Of that 50 million shares, large institutions own 35 million shares, management and insiders own 5 million, and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/esop.asp" rel="noopener noreferrer">employee stock ownership plan</a> (ESOP) holds 2 million shares. Floating stock is therefore only 8 million shares (50 million shares minus 42 million shares), or 16% of the outstanding shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The amount of a company’s floating stock may rise or fall over time. This can occur for a variety of reasons. For example, a company may sell additional shares to raise more capital, which then increases the floating stock. If restricted or closely-held shares become available, then the floating stock will also increase. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> On the flip side, if a company decides to implement a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buyback.asp" rel="noopener noreferrer">share buyback</a>, then the number of outstanding shares will decrease. In this case, the floating shares as a percentage of outstanding stock will also go down.  </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>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/072501.asp" rel="noopener noreferrer">stock split</a> will increase floating shares, while a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reversesplit.asp" rel="noopener noreferrer">reverse stock split</a> decreases float.</p></div></div></div> <span class="heading-toc" id="toc-why-floating-stock-is-important"></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"> Why Floating Stock Is Important </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A company's float is an important number for investors because it indicates how many shares are actually available to be bought and sold by the general investing public. Low float is typically an impediment to active trading. This lack of trading activity can make it difficult for investors to enter or exit positions in stocks that have limited float. </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"> Institutional investors will often avoid trading in companies with smaller floats because there are fewer shares to trade, thus leading to limited <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp" rel="noopener noreferrer">liquidity</a> and wider <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bid-askspread.asp" rel="noopener noreferrer">bid-ask spreads</a>. Instead, institutional investors (such as mutual funds, pension funds, and insurance companies) that buy large blocks of stock will look to invest in companies with a larger float. If they invest in companies with a big float, their large purchases will not impact the share price as much. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> A company is not responsible for how shares within the float are traded by the public—this is a function of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/secondarymarket.asp" rel="noopener noreferrer">secondary market</a>. Therefore, shares that are purchased, sold, or even shorted by investors do not affect the float because these actions do not represent a change in the number of shares available for trade. They simply represent a redistribution of shares. Similarly, the creation and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp" rel="noopener noreferrer">trading of options</a> on a stock do not affect the float. </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-example-of-floating-stock"></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"> Example of Floating Stock </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> As of September 2023, General Electric (GE) had 1.088 billion shares outstanding.<span class="ql-inline-citation" data-cite="1"></span> Of this, 0.20% were held by insiders and 75.81% were held by large institutions.<span class="ql-inline-citation" data-cite="2"></span> Therefore, a total of 76% or 830 million shares were likely not available for public trading. The floating stock is therefore about 260 million shares (1.088 billion - 830 million). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> It is important to note that institutions don't hold a stock forever. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/institutional-ownership.asp">institutional ownership</a> number will change regularly, although not always by a significant percentage. Falling institutional ownership coupled with a falling share price could signal that institutions are dumping the shares. Increasing institutional ownership shows that institutions are accumulating shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-is-floating-stock-good-or-bad"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Floating Stock Good or Bad?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Stock float isn't good or bad, but it can affect an investor's decisions. The amount of floating stock a company has—the shares made available to trade—can affect the liquidity of that stock. Stocks with a smaller float tend to have high volatility, while stocks with a larger float tend to have lower volatility. Some investors may prefer stocks with higher float, because it's easier to enter and exit positions for these stocks.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_34-0"><span class="heading-toc" id="toc-what-is-stock-flotation"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Stock Flotation?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Stock flotation is when a company issues new shares to the public. It can help the company raise capital. The opposite of stock flotation is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/floatshrink.asp">float shrink</a>, such as with stock buybacks: fewer shares are available to trade.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_36-0"><span class="heading-toc" id="toc-what-is-the-difference-between-floating-and-non-floating-shares"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between Floating and Non-Floating Shares?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The floating shares are the shares available to trade, while non-floating shares are those held by shareholders and company insiders and are not available for trading.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> A company's floating stock is the shares it has available to trade on the open market. Traders tend to prefer stocks with larger floats, as they find it easier to enter and exit a stock that has greater liquidity. Stocks with larger floats have more shares available, making them more liquid and easier for investors to buy or sell. </p></div>

## What Is Floating Stock? Floating stock is the number of shares available for trading of a particular stock. Low float stocks are those with a low number of shares. Floating stock is calculated by subtracting closely-held shares and [restricted stock](https://www.investopedia.com/terms/r/restrictedstock.asp) from a firm’s total outstanding shares. Closely-held shares are those owned by insiders, major shareholders, and employees. Restricted stock refers to insider shares that cannot be traded because of a temporary restriction, such as the lock-up period after an [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO). A stock with a small float will generally be more volatile than a stock with a large float. This is because, with fewer shares available, it may be harder to find a buyer or seller. This results in larger [spreads](https://www.investopedia.com/terms/s/spread.asp) and often lower volume. ### Key Takeaways * Floating stock refers to the number of shares a company has available to trade in the open market. * To calculate a company's floating stock, subtract its restricted stock and closely held shares from its total number of outstanding shares. * Floating stock will change over time as new shares may be issued, shares may be bought back, or insiders or major shareholders may buy or sell the stock. * Low float stocks tend to have higher spreads and higher volatility than a comparable larger float stock. * Investors can find it difficult to enter or exit positions in stocks that have a low float. ## Understanding Floating Stock A company may have a large number of [shares outstanding](https://www.investopedia.com/terms/o/outstandingshares.asp), but limited floating stock. For example, assume a company has 50 million shares outstanding. Of that 50 million shares, large institutions own 35 million shares, management and insiders own 5 million, and the [employee stock ownership plan](https://www.investopedia.com/terms/e/esop.asp) (ESOP) holds 2 million shares. Floating stock is therefore only 8 million shares (50 million shares minus 42 million shares), or 16% of the outstanding shares. The amount of a company’s floating stock may rise or fall over time. This can occur for a variety of reasons. For example, a company may sell additional shares to raise more capital, which then increases the floating stock. If restricted or closely-held shares become available, then the floating stock will also increase. On the flip side, if a company decides to implement a [share buyback](https://www.investopedia.com/terms/b/buyback.asp), then the number of outstanding shares will decrease. In this case, the floating shares as a percentage of outstanding stock will also go down.  ### A [stock split](https://www.investopedia.com/articles/01/072501.asp) will increase floating shares, while a [reverse stock split](https://www.investopedia.com/terms/r/reversesplit.asp) decreases float. ## Why Floating Stock Is Important A company's float is an important number for investors because it indicates how many shares are actually available to be bought and sold by the general investing public. Low float is typically an impediment to active trading. This lack of trading activity can make it difficult for investors to enter or exit positions in stocks that have limited float. Institutional investors will often avoid trading in companies with smaller floats because there are fewer shares to trade, thus leading to limited [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) and wider [bid-ask spreads](https://www.investopedia.com/terms/b/bid-askspread.asp). Instead, institutional investors (such as mutual funds, pension funds, and insurance companies) that buy large blocks of stock will look to invest in companies with a larger float. If they invest in companies with a big float, their large purchases will not impact the share price as much. ## Special Considerations A company is not responsible for how shares within the float are traded by the public—this is a function of the [secondary market](https://www.investopedia.com/terms/s/secondarymarket.asp). Therefore, shares that are purchased, sold, or even shorted by investors do not affect the float because these actions do not represent a change in the number of shares available for trade. They simply represent a redistribution of shares. Similarly, the creation and [trading of options](https://www.investopedia.com/terms/o/option.asp) on a stock do not affect the float. ## Example of Floating Stock As of September 2023, General Electric (GE) had 1.088 billion shares outstanding. Of this, 0.20% were held by insiders and 75.81% were held by large institutions. Therefore, a total of 76% or 830 million shares were likely not available for public trading. The floating stock is therefore about 260 million shares (1.088 billion - 830 million). It is important to note that institutions don't hold a stock forever. The [institutional ownership](https://www.investopedia.com/terms/i/institutional-ownership.asp) number will change regularly, although not always by a significant percentage. Falling institutional ownership coupled with a falling share price could signal that institutions are dumping the shares. Increasing institutional ownership shows that institutions are accumulating shares. ## Is Floating Stock Good or Bad? Stock float isn't good or bad, but it can affect an investor's decisions. The amount of floating stock a company has—the shares made available to trade—can affect the liquidity of that stock. Stocks with a smaller float tend to have high volatility, while stocks with a larger float tend to have lower volatility. Some investors may prefer stocks with higher float, because it's easier to enter and exit positions for these stocks. ## What Is Stock Flotation? Stock flotation is when a company issues new shares to the public. It can help the company raise capital. The opposite of stock flotation is a [float shrink](https://www.investopedia.com/terms/f/floatshrink.asp), such as with stock buybacks: fewer shares are available to trade. ## What Is the Difference Between Floating and Non-Floating Shares? The floating shares are the shares available to trade, while non-floating shares are those held by shareholders and company insiders and are not available for trading. ## The Bottom Line A company's floating stock is the shares it has available to trade on the open market. Traders tend to prefer stocks with larger floats, as they find it easier to enter and exit a stock that has greater liquidity. Stocks with larger floats have more shares available, making them more liquid and easier for investors to buy or sell.

What Is Floating Stock? Floating stock is the number of shares available for trading of a particular stock. Low float stocks are those with a low number of shares. Floating stock is calculated by subtracting closely-held shares and restricted stock from a firm’s total outstanding shares. Closely-held shares are those owned by insiders, major shareholders, and employees. Restricted stock refers to insider shares that cannot be traded because of a temporary restriction, such as the lock-up period after an initial public offering (IPO). A stock with a small float will generally be more volatile than a stock with a large float. This is because, with fewer shares available, it may be harder to find a buyer or seller. This results in larger spreads and often lower volume. Key Takeaways Floating stock refers to the number of shares a company has available to trade in the open market.To calculate a company's floating stock, subtract its restricted stock and closely held shares from its total number of outstanding shares.Floating stock will change over time as new shares may be issued, shares may be bought back, or insiders or major shareholders may buy or sell the stock.Low float stocks tend to have higher spreads and higher volatility than a comparable larger float stock.Investors can find it difficult to enter or exit positions in stocks that have a low float. Understanding Floating Stock A company may have a large number of shares outstanding, but limited floating stock. For example, assume a company has 50 million shares outstanding. Of that 50 million shares, large institutions own 35 million shares, management and insiders own 5 million, and the employee stock ownership plan (ESOP) holds 2 million shares. Floating stock is therefore only 8 million shares (50 million shares minus 42 million shares), or 16% of the outstanding shares. The amount of a company’s floating stock may rise or fall over time. This can occur for a variety of reasons. For example, a company may sell additional shares to raise more capital, which then increases the floating stock. If restricted or closely-held shares become available, then the floating stock will also increase. On the flip side, if a company decides to implement a share buyback, then the number of outstanding shares will decrease. In this case, the floating shares as a percentage of outstanding stock will also go down.  A stock split will increase floating shares, while a reverse stock split decreases float. Why Floating Stock Is Important A company's float is an important number for investors because it indicates how many shares are actually available to be bought and sold by the general investing public. Low float is typically an impediment to active trading. This lack of trading activity can make it difficult for investors to enter or exit positions in stocks that have limited float. Institutional investors will often avoid trading in companies with smaller floats because there are fewer shares to trade, thus leading to limited liquidity and wider bid-ask spreads. Instead, institutional investors (such as mutual funds, pension funds, and insurance companies) that buy large blocks of stock will look to invest in companies with a larger float. If they invest in companies with a big float, their large purchases will not impact the share price as much. Special Considerations A company is not responsible for how shares within the float are traded by the public—this is a function of the secondary market. Therefore, shares that are purchased, sold, or even shorted by investors do not affect the float because these actions do not represent a change in the number of shares available for trade. They simply represent a redistribution of shares. Similarly, the creation and trading of options on a stock do not affect the float. Example of Floating Stock As of September 2023, General Electric (GE) had 1.088 billion shares outstanding. Of this, 0.20% were held by insiders and 75.81% were held by large institutions. Therefore, a total of 76% or 830 million shares were likely not available for public trading. The floating stock is therefore about 260 million shares (1.088 billion - 830 million). It is important to note that institutions don't hold a stock forever. The institutional ownership number will change regularly, although not always by a significant percentage. Falling institutional ownership coupled with a falling share price could signal that institutions are dumping the shares. Increasing institutional ownership shows that institutions are accumulating shares. Is Floating Stock Good or Bad? Stock float isn't good or bad, but it can affect an investor's decisions. The amount of floating stock a company has—the shares made available to trade—can affect the liquidity of that stock. Stocks with a smaller float tend to have high volatility, while stocks with a larger float tend to have lower volatility. Some investors may prefer stocks with higher float, because it's easier to enter and exit positions for these stocks. What Is Stock Flotation? Stock flotation is when a company issues new shares to the public. It can help the company raise capital. The opposite of stock flotation is a float shrink, such as with stock buybacks: fewer shares are available to trade. What Is the Difference Between Floating and Non-Floating Shares? The floating shares are the shares available to trade, while non-floating shares are those held by shareholders and company insiders and are not available for trading. The Bottom Line A company's floating stock is the shares it has available to trade on the open market. Traders tend to prefer stocks with larger floats, as they find it easier to enter and exit a stock that has greater liquidity. Stocks with larger floats have more shares available, making them more liquid and easier for investors to buy or sell.

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

European Option: Definition, Types, Versus American Options

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-european-option"></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 European Option? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A European option is a version of an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/optionscontract.asp" rel="noopener noreferrer">options contract</a> that limits execution to its expiration date. In other words, if the underlying security such as a stock has moved in price, an investor would not be able to exercise the option early and take delivery of or sell the shares. Instead, the call or put action will only take place on the date of option <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp" rel="noopener noreferrer">maturity</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Another version of the options contract is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/americanoption.asp" rel="noopener noreferrer">American option</a>, which can be exercised any time up to and including the date of expiration. The names of these two versions should not be confused with the geographic location as the name only signifies the right of execution. </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 European option is a version of an options contract that limits rights exercise to only the day of expiration.</li><li>Although American options can be exercised early, it comes at a price since their premiums are often higher than European options.</li><li>Investors can sell a European option contract back to the market before expiry and receive the net difference between the premiums earned and paid initially.</li><li>Investors usually don't have a choice of buying either the American or the European option and most indexes use European options.</li><li>The Black-Scholes option model is often used to value European options.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-european-option"></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 European Option </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> European options define the timeframe when holders of an options contract may exercise their contract rights. The rights for the option holder include buying the underlying asset or selling the underlying asset at the specified contract price—the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/strikeprice.asp" rel="noopener noreferrer">strike price</a>. With European options, the holder may only exercise their rights on the day of expiration. As with other versions of options contracts, European options come at an upfront cost—the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option-premium.asp" rel="noopener noreferrer">premium</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"> It is important to note that investors usually don't have a choice of buying either the American or the European option. Specific stocks or funds might only be offered in one version or the other, and not in both. Most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/index.asp" rel="noopener noreferrer">indexes</a> use European options because it reduces the amount of accounting needed by the brokerage. </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>Many brokers use the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blackscholes.asp">Black-Scholes model</a> (BSM) to value European options.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> European index options halt trading at business close Thursday before the third Friday of the expiration month. This lapse in trading allows the brokers the ability to price the individual assets of the underlying index. </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"> Due to this process, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/settlementprice.asp" rel="noopener noreferrer">settlement price</a> of the option can often come as a surprise. Stocks or other securities may make drastic moves between the Thursday close and market opening Friday. Also, it may take hours after the market opens Friday for the definite settlement price to publish. </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"> European options normally trade <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/otc.asp" rel="noopener noreferrer">over the counter</a> (OTC), while American options usually trade on standardized exchanges. </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-types-of-european-options"></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"> Types of European Options </span> </h2> <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"> Call </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> A European call option gives the owner the right to acquire the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underlying-security.asp" rel="noopener noreferrer">underlying security</a> at expiry. For an investor to profit from a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/calloption.asp" rel="noopener noreferrer">call option</a>, the stock's price, at expiry, has to be trading high enough above the strike price to cover the cost of the option premium. </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"> Put </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> A European put option allows the holder to sell the underlying security at expiry. For an investor to profit from a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/putoption.asp" rel="noopener noreferrer">put option</a>, the stock's price, at expiry, has to be trading far enough below the strike price to cover the cost of the option premium. </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-closing-a-european-option-early"></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"> Closing a European Option Early </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Typically, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exercise.asp" rel="noopener noreferrer">exercising</a> an option means initializing the rights of the option so that a trade is executed at the strike price. However, many investors don't like to wait for a European option to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expirationdate.asp" rel="noopener noreferrer">expire</a>. Instead, investors can sell the option contract back to the market before its expiration. </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"> Option prices change based on the movement and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp" rel="noopener noreferrer">volatility</a> of the underlying asset and the time until expiration. As a stock price rises and falls, the value—signified by the premium—of the option increases and decreases. Investors can unwind their option position early if the current option premium is higher than the premium they initially paid. In this case, the investor would receive the net difference between the two premiums. </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"> Closing the option position before expiration means the trader realizes any gains or losses on the contract itself. An existing call option could be sold early if the stock has risen significantly, while a put option could be sold if the stock's price has fallen. </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"> Closing the European option early depends on the prevailing market conditions, the value of the premium—its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intrinsicvalue.asp" rel="noopener noreferrer">intrinsic value</a>—and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timevalue.asp" rel="noopener noreferrer">option's time value</a>—the amount of time remaining before a contract's expiration. If an option is close to its expiration, it's unlikely an investor will get much return for selling the option early because there's little time left for the option to make money. In this case, the option's worth rests on its intrinsic value, an assumed price based on if the contract is in, out, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/atthemoney.asp" rel="noopener noreferrer">at the money</a> (ATM). </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-european-option-vs-american-option"></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"> European Option vs. American Option </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> European options can only be exercised on the expiration date, whereas American options can be exercised at any time between the purchase and expiration dates. In other words, American options allow investors to realize a profit as soon as the stock price moves in their favor and enough to more than offset the premium paid. </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"> Investors will use American options with <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">dividend</a>-paying stocks. In this way, they can exercise the option before an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ex-date.asp" rel="noopener noreferrer">ex-dividend date</a>. The flexibility of American options allows investors to own a company's shares in time to get paid a dividend. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> However, the flexibility of using an American option comes at a price—a premium to the premium. The increased cost of the option means investors need the underlying asset to move far enough from the strike price to make the trade return a profit. </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"> Also, if an American option is held to maturity, the investor would have been better off buying a lower-priced, European version option and paying the lower premium. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_46-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_47-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">European Option Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Lower premium cost</p></li> <li><p>Allows trading index options</p></li> <li><p>Can be resold before the expiration date</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">European Option Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Settlement prices are delayed</p></li> <li><p>Cannot be settled for underlying asset early</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <span class="heading-toc" id="toc-example-of-a-european-option"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-heading__text"> Example of a European Option </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> An investor purchases a July call option on Citigroup Inc. with a $50 strike price. The premium is $5 per contract—100 shares—for a total cost of $500 ($5 x 100 = $500). At expiration, Citigroup is trading at $75. In this case, the owner of the call option has the right to purchase the stock at $50—exercise their option—making $25 per share profit. When factoring in the initial premium of $5, the net profit is $20 per share or $2,000 (25 - $5 = $20 x 100 = $2000). </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"> Let's consider a second scenario whereby Citigroup's stock price fell to $30 by the time of the call option's expiration. Since the stock is trading below the strike of $50, the option isn't exercised and expires worthless. The investor loses the premium of $500 paid at the onset. </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 investor can wait until expiry to determine whether the trade is profitable, or they can try to sell the call option back to the market. Whether the premium received for selling the call option is enough to cover the initial $5 paid is dependent on many conditions, including economic conditions, the company's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings.asp" rel="noopener noreferrer">earnings</a>, the time left until expiration, and the volatility of the stock's price at the time of the sale. </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"> There's no guarantee the premium received from selling the call option before expiry will be enough to offset the $5 premium paid initially. </p></div>

## What Is a European Option? A European option is a version of an [options contract](https://www.investopedia.com/terms/o/optionscontract.asp) that limits execution to its expiration date. In other words, if the underlying security such as a stock has moved in price, an investor would not be able to exercise the option early and take delivery of or sell the shares. Instead, the call or put action will only take place on the date of option [maturity](https://www.investopedia.com/terms/m/maturity.asp). Another version of the options contract is the [American option](https://www.investopedia.com/terms/a/americanoption.asp), which can be exercised any time up to and including the date of expiration. The names of these two versions should not be confused with the geographic location as the name only signifies the right of execution. ### Key Takeaways * A European option is a version of an options contract that limits rights exercise to only the day of expiration. * Although American options can be exercised early, it comes at a price since their premiums are often higher than European options. * Investors can sell a European option contract back to the market before expiry and receive the net difference between the premiums earned and paid initially. * Investors usually don't have a choice of buying either the American or the European option and most indexes use European options. * The Black-Scholes option model is often used to value European options. ## Understanding a European Option European options define the timeframe when holders of an options contract may exercise their contract rights. The rights for the option holder include buying the underlying asset or selling the underlying asset at the specified contract price—the [strike price](https://www.investopedia.com/terms/s/strikeprice.asp). With European options, the holder may only exercise their rights on the day of expiration. As with other versions of options contracts, European options come at an upfront cost—the [premium](https://www.investopedia.com/terms/o/option-premium.asp). It is important to note that investors usually don't have a choice of buying either the American or the European option. Specific stocks or funds might only be offered in one version or the other, and not in both. Most [indexes](https://www.investopedia.com/terms/i/index.asp) use European options because it reduces the amount of accounting needed by the brokerage. ### Many brokers use the [Black-Scholes model](https://www.investopedia.com/terms/b/blackscholes.asp) (BSM) to value European options. European index options halt trading at business close Thursday before the third Friday of the expiration month. This lapse in trading allows the brokers the ability to price the individual assets of the underlying index. Due to this process, the [settlement price](https://www.investopedia.com/terms/s/settlementprice.asp) of the option can often come as a surprise. Stocks or other securities may make drastic moves between the Thursday close and market opening Friday. Also, it may take hours after the market opens Friday for the definite settlement price to publish. European options normally trade [over the counter](https://www.investopedia.com/terms/o/otc.asp) (OTC), while American options usually trade on standardized exchanges. ## Types of European Options ### Call A European call option gives the owner the right to acquire the [underlying security](https://www.investopedia.com/terms/u/underlying-security.asp) at expiry. For an investor to profit from a [call option](https://www.investopedia.com/terms/c/calloption.asp), the stock's price, at expiry, has to be trading high enough above the strike price to cover the cost of the option premium. ### Put A European put option allows the holder to sell the underlying security at expiry. For an investor to profit from a [put option](https://www.investopedia.com/terms/p/putoption.asp), the stock's price, at expiry, has to be trading far enough below the strike price to cover the cost of the option premium. ## Closing a European Option Early Typically, [exercising](https://www.investopedia.com/terms/e/exercise.asp) an option means initializing the rights of the option so that a trade is executed at the strike price. However, many investors don't like to wait for a European option to [expire](https://www.investopedia.com/terms/e/expirationdate.asp). Instead, investors can sell the option contract back to the market before its expiration. Option prices change based on the movement and [volatility](https://www.investopedia.com/terms/v/volatility.asp) of the underlying asset and the time until expiration. As a stock price rises and falls, the value—signified by the premium—of the option increases and decreases. Investors can unwind their option position early if the current option premium is higher than the premium they initially paid. In this case, the investor would receive the net difference between the two premiums. Closing the option position before expiration means the trader realizes any gains or losses on the contract itself. An existing call option could be sold early if the stock has risen significantly, while a put option could be sold if the stock's price has fallen. Closing the European option early depends on the prevailing market conditions, the value of the premium—its [intrinsic value](https://www.investopedia.com/terms/i/intrinsicvalue.asp)—and the [option's time value](https://www.investopedia.com/terms/t/timevalue.asp)—the amount of time remaining before a contract's expiration. If an option is close to its expiration, it's unlikely an investor will get much return for selling the option early because there's little time left for the option to make money. In this case, the option's worth rests on its intrinsic value, an assumed price based on if the contract is in, out, or [at the money](https://www.investopedia.com/terms/a/atthemoney.asp) (ATM). ## European Option vs. American Option European options can only be exercised on the expiration date, whereas American options can be exercised at any time between the purchase and expiration dates. In other words, American options allow investors to realize a profit as soon as the stock price moves in their favor and enough to more than offset the premium paid. Investors will use American options with [dividend](https://www.investopedia.com/terms/d/dividend.asp)-paying stocks. In this way, they can exercise the option before an [ex-dividend date](https://www.investopedia.com/terms/e/ex-date.asp). The flexibility of American options allows investors to own a company's shares in time to get paid a dividend. However, the flexibility of using an American option comes at a price—a premium to the premium. The increased cost of the option means investors need the underlying asset to move far enough from the strike price to make the trade return a profit. Also, if an American option is held to maturity, the investor would have been better off buying a lower-priced, European version option and paying the lower premium. European Option Pros * Lower premium cost * Allows trading index options * Can be resold before the expiration date European Option Cons * Settlement prices are delayed * Cannot be settled for underlying asset early ## Example of a European Option An investor purchases a July call option on Citigroup Inc. with a $50 strike price. The premium is $5 per contract—100 shares—for a total cost of $500 ($5 x 100 = $500). At expiration, Citigroup is trading at $75. In this case, the owner of the call option has the right to purchase the stock at $50—exercise their option—making $25 per share profit. When factoring in the initial premium of $5, the net profit is $20 per share or $2,000 (25 - $5 = $20 x 100 = $2000). Let's consider a second scenario whereby Citigroup's stock price fell to $30 by the time of the call option's expiration. Since the stock is trading below the strike of $50, the option isn't exercised and expires worthless. The investor loses the premium of $500 paid at the onset. The investor can wait until expiry to determine whether the trade is profitable, or they can try to sell the call option back to the market. Whether the premium received for selling the call option is enough to cover the initial $5 paid is dependent on many conditions, including economic conditions, the company's [earnings](https://www.investopedia.com/terms/e/earnings.asp), the time left until expiration, and the volatility of the stock's price at the time of the sale. There's no guarantee the premium received from selling the call option before expiry will be enough to offset the $5 premium paid initially.

What Is a European Option? A European option is a version of an options contract that limits execution to its expiration date. In other words, if the underlying security such as a stock has moved in price, an investor would not be able to exercise the option early and take delivery of or sell the shares. Instead, the call or put action will only take place on the date of option maturity. Another version of the options contract is the American option, which can be exercised any time up to and including the date of expiration. The names of these two versions should not be confused with the geographic location as the name only signifies the right of execution. Key Takeaways A European option is a version of an options contract that limits rights exercise to only the day of expiration.Although American options can be exercised early, it comes at a price since their premiums are often higher than European options.Investors can sell a European option contract back to the market before expiry and receive the net difference between the premiums earned and paid initially.Investors usually don't have a choice of buying either the American or the European option and most indexes use European options.The Black-Scholes option model is often used to value European options. Understanding a European Option European options define the timeframe when holders of an options contract may exercise their contract rights. The rights for the option holder include buying the underlying asset or selling the underlying asset at the specified contract price—the strike price. With European options, the holder may only exercise their rights on the day of expiration. As with other versions of options contracts, European options come at an upfront cost—the premium. It is important to note that investors usually don't have a choice of buying either the American or the European option. Specific stocks or funds might only be offered in one version or the other, and not in both. Most indexes use European options because it reduces the amount of accounting needed by the brokerage. Many brokers use the Black-Scholes model (BSM) to value European options. European index options halt trading at business close Thursday before the third Friday of the expiration month. This lapse in trading allows the brokers the ability to price the individual assets of the underlying index. Due to this process, the settlement price of the option can often come as a surprise. Stocks or other securities may make drastic moves between the Thursday close and market opening Friday. Also, it may take hours after the market opens Friday for the definite settlement price to publish. European options normally trade over the counter (OTC), while American options usually trade on standardized exchanges. Types of European Options Call A European call option gives the owner the right to acquire the underlying security at expiry. For an investor to profit from a call option, the stock's price, at expiry, has to be trading high enough above the strike price to cover the cost of the option premium. Put A European put option allows the holder to sell the underlying security at expiry. For an investor to profit from a put option, the stock's price, at expiry, has to be trading far enough below the strike price to cover the cost of the option premium. Closing a European Option Early Typically, exercising an option means initializing the rights of the option so that a trade is executed at the strike price. However, many investors don't like to wait for a European option to expire. Instead, investors can sell the option contract back to the market before its expiration. Option prices change based on the movement and volatility of the underlying asset and the time until expiration. As a stock price rises and falls, the value—signified by the premium—of the option increases and decreases. Investors can unwind their option position early if the current option premium is higher than the premium they initially paid. In this case, the investor would receive the net difference between the two premiums. Closing the option position before expiration means the trader realizes any gains or losses on the contract itself. An existing call option could be sold early if the stock has risen significantly, while a put option could be sold if the stock's price has fallen. Closing the European option early depends on the prevailing market conditions, the value of the premium—its intrinsic value—and the option's time value—the amount of time remaining before a contract's expiration. If an option is close to its expiration, it's unlikely an investor will get much return for selling the option early because there's little time left for the option to make money. In this case, the option's worth rests on its intrinsic value, an assumed price based on if the contract is in, out, or at the money (ATM). European Option vs. American Option European options can only be exercised on the expiration date, whereas American options can be exercised at any time between the purchase and expiration dates. In other words, American options allow investors to realize a profit as soon as the stock price moves in their favor and enough to more than offset the premium paid. Investors will use American options with dividend-paying stocks. In this way, they can exercise the option before an ex-dividend date. The flexibility of American options allows investors to own a company's shares in time to get paid a dividend. However, the flexibility of using an American option comes at a price—a premium to the premium. The increased cost of the option means investors need the underlying asset to move far enough from the strike price to make the trade return a profit. Also, if an American option is held to maturity, the investor would have been better off buying a lower-priced, European version option and paying the lower premium. European Option Pros Lower premium cost Allows trading index options Can be resold before the expiration date European Option Cons Settlement prices are delayed Cannot be settled for underlying asset early Example of a European Option An investor purchases a July call option on Citigroup Inc. with a $50 strike price. The premium is $5 per contract—100 shares—for a total cost of $500 ($5 x 100 = $500). At expiration, Citigroup is trading at $75. In this case, the owner of the call option has the right to purchase the stock at $50—exercise their option—making $25 per share profit. When factoring in the initial premium of $5, the net profit is $20 per share or $2,000 (25 - $5 = $20 x 100 = $2000). Let's consider a second scenario whereby Citigroup's stock price fell to $30 by the time of the call option's expiration. Since the stock is trading below the strike of $50, the option isn't exercised and expires worthless. The investor loses the premium of $500 paid at the onset. The investor can wait until expiry to determine whether the trade is profitable, or they can try to sell the call option back to the market. Whether the premium received for selling the call option is enough to cover the initial $5 paid is dependent on many conditions, including economic conditions, the company's earnings, the time left until expiration, and the volatility of the stock's price at the time of the sale. There's no guarantee the premium received from selling the call option before expiry will be enough to offset the $5 premium paid initially.

https://www.investopedia.com/articles/personal-finance/091115/psychology-behind-why-people-buy-luxury-goods.asp

The Psychology Behind Why People Buy Luxury Goods

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 luxury handbag is not an uncommon purchase for many people. It may even be just as common as buying a shirt at Target. While the appeal of luxury goods is undeniable—the leather is soft, the logo is flashy—the price tag can be off-putting. Unless you’ve got a good job with a high salary or have fantastic personal savings habits, buying luxury consumer goods can be cost-prohibitive. In some cases, it may create a credit card balance that isn't easy to pay off. So why do people make these extravagant purchases? </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>Buying luxury consumer goods can create an undue financial burden unless you can afford to do so.</li><li>The luxury goods market is worth billions and will continue to grow by 2030.</li><li>Some of the reasons why people buy luxury goods when they can't afford them include a sense of irrationality, the supposed quality, the impact they have on self-esteem, and a sense of accomplishment.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-big-is-the-luxury-goods-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"> How Big Is the Luxury Goods Market? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/luxury-item.asp">luxury good</a> is a product that is deemed non-essential. This means that consumers don't need a luxury good to live. Examples of luxury goods include clothing from high-end designers, designer luggage and handbags, jewelry and watches, estates, high-end vehicles, and certain accessories. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/demand.asp">Demand</a> for luxury goods typically rises when incomes do so when the economy flourishes, people tend to loosen their purse strings and spend more on items they don't necessarily need but want. Research indicates that people cut back on non-essential spending across the U.S. and Europe in 2022 even though demand for these goods was high.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The luxury goods market in 2022 was estimated at $242.8 billion. This number is expected to increase to $369.8 billion by 2030—almost a third of this ($115.4 billion) is expected to come from luxury apparel alone.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-some-consumers-arent-rational"></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"> Some Consumers Aren't Rational </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Consumers aren't always rational. A perfectly rational person would always act in accordance with reason or logic. This means that a perfectly rational person would always act in their own best interest. This includes acting in their own best financial interest. </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"> According to some modern behavioral psychology studies, many consumers who buy luxury goods are not in a financial position to afford luxury goods. The proof may be in the high rates of consumer debt in America. Total <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit card</a> debt for the first quarter of 2023 was $986 billion.<span class="ql-inline-citation" data-cite="4"></span> Depending on how you look at it, this may be evident that many Americans don’t always act in their best financial interest. </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"> While a high-quality, durable handbag can be purchased for around $100, some people opt to spend thousands of dollars on a luxury-brand handbag that performs the same function and is of the same relative quality. </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-does-the-higher-price-equal-higher-quality"></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"> Does the Higher Price Equal Higher Quality? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> One possible explanation for this is the human tendency to overemphasize the positive elements of a product and ignore its disadvantages. Great marketing and brand power may be among the reasons behind this. For instance, many consumers wait overnight for new releases of iPhones, iPads, and Mac computers even though 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>) products aren't technologically unique or superior. </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 fact, Samsung offers more variety and (according to some experts) more bang for a consumer's buck when it comes to smartphones compared to Apple.<span class="ql-inline-citation" data-cite="7"></span> And consider the fact that 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>) and Xiaomi make phones that typically have a cheaper price point. Nevertheless, Apple experiences a high degree of brand loyalty and seems to break sales records year after year. </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"> Because some people perceive non-luxury goods as inferior simply by virtue of them being non-luxury (and not on the basis of their characteristics or qualities), they also come to the conclusion that higher-priced goods are of better quality. Contrary to the evidence, they may believe that you get what you pay for, regardless of whether the goods are actually better than their more affordable counterparts. </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-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_27-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Did you know you can also invest in the luxury goods market? There are a number of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a> and mutual funds that track this market.</p></div></div></div> <span class="heading-toc" id="toc-self-esteem-may-impact-a-persons-purchases"></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"> Self-Esteem May Impact a Person's Purchases </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> A person's self-esteem can be a factor that influences some people's decisions about whether they purchase luxury goods. This may be especially true if they can not easily afford the cost of these items. For some consumers, a luxury good can go a long way in increasing self-esteem, providing a sense of belonging, and even higher status.<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_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> With the rise of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/buy-sell-online.asp">online shopping</a>, a $500 scarf is just a click away. For some people, luxury goods are the ultimate retail therapy. Fortunately for luxury brands, the internet makes them easily accessible for impulse shopping.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> A sense of accomplishment is another reason why some people buy luxury goods. They want to reward themselves for their hard work by treating themselves to something they typically could not afford. </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-authenticity-matters"></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"> Authenticity Matters </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> There’s a reason why people may decide to pass up a fake Rolex in order to pay full price for an authentic one even if they look identical. Despite appearing the same, the owner will know that they don't have a real luxury good. But this doesn't appear to be a rational choice: If we buy luxury goods to show off to others and feel like we belong, why wouldn’t a facsimile do the trick? </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"> Researchers at Yale have determined that this quest for authenticity develops early in childhood. A study that tried to convince children that a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cloning.asp">cloning</a> machine produced their favorite toy found that most children refused to accept the duplicate as identical.<span class="ql-inline-citation" data-cite="3"></span> It turns out that the sentimentality of the item—the memory or feeling that comes from having purchased a genuine luxury good—is part of the reason that we seek authenticity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> In other words, for some people, treating yourself to a pair of fake Christian Louboutin brand boots would be the same thing as having not treated yourself at all. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_42-0"><span class="heading-toc" id="toc-what-are-some-examples-of-luxury-goods"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Some Examples of Luxury Goods?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The luxury goods market is made up of goods that are deemed non-essential. This means that these goods are not necessary for people to live. Some examples of luxury goods include high-end apparel, luggage, and handbags, jewelry and watches, luxury cars, and residential estates.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-what-are-the-most-common-luxury-goods-that-people-purchase"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Most Common Luxury Goods that People Purchase?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some of the most common types of luxury goods that people tend to purchase include high-end designer apparel and handbags, jewelry and watches, and luxury cars. Apparel is so popular that this segment is expected to be about one-third of the luxury goods market by 2030.<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_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-how-can-i-spot-a-fake-luxury-good"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Spot a Fake Luxury Good?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Counterfeit goods are more common than most people think—especially when it comes to the luxury good market. One of the most obvious ways to spot a fake is by the price. If it's too good to be true, then it probably is. Be cautious if someone sells you a designer handbag that normally retails for $3,000 for $100. You can also tell a knock-off from the real thing by the craftsmanship. Counterfeit luxury items may be shoddily made. Counterfeiters also use fake logos or alternate spellings of brand names.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> People buy luxury goods for a variety of reasons; nearly all of these reasons are related to the strong emotions that we attach to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/092415/how-get-most-money-your-fur-coat.asp">purchase of expensive material goods</a>. Whether or not a consumer is in a financial position that allows them to be able to purchase a financial item, they may decide to purchase it anyways in order to achieve a certain feeling—for example, a feeling of accomplishment from hard work—or to gain acceptance from others. </p></div>

Buying a luxury handbag is not an uncommon purchase for many people. It may even be just as common as buying a shirt at Target. While the appeal of luxury goods is undeniable—the leather is soft, the logo is flashy—the price tag can be off-putting. Unless you’ve got a good job with a high salary or have fantastic personal savings habits, buying luxury consumer goods can be cost-prohibitive. In some cases, it may create a credit card balance that isn't easy to pay off. So why do people make these extravagant purchases? ### Key Takeaways * Buying luxury consumer goods can create an undue financial burden unless you can afford to do so. * The luxury goods market is worth billions and will continue to grow by 2030. * Some of the reasons why people buy luxury goods when they can't afford them include a sense of irrationality, the supposed quality, the impact they have on self-esteem, and a sense of accomplishment. ## How Big Is the Luxury Goods Market? A [luxury good](https://www.investopedia.com/terms/l/luxury-item.asp) is a product that is deemed non-essential. This means that consumers don't need a luxury good to live. Examples of luxury goods include clothing from high-end designers, designer luggage and handbags, jewelry and watches, estates, high-end vehicles, and certain accessories. [Demand](https://www.investopedia.com/terms/d/demand.asp) for luxury goods typically rises when incomes do so when the economy flourishes, people tend to loosen their purse strings and spend more on items they don't necessarily need but want. Research indicates that people cut back on non-essential spending across the U.S. and Europe in 2022 even though demand for these goods was high. The luxury goods market in 2022 was estimated at $242.8 billion. This number is expected to increase to $369.8 billion by 2030—almost a third of this ($115.4 billion) is expected to come from luxury apparel alone. ## Some Consumers Aren't Rational Consumers aren't always rational. A perfectly rational person would always act in accordance with reason or logic. This means that a perfectly rational person would always act in their own best interest. This includes acting in their own best financial interest. According to some modern behavioral psychology studies, many consumers who buy luxury goods are not in a financial position to afford luxury goods. The proof may be in the high rates of consumer debt in America. Total [credit card](https://www.investopedia.com/terms/c/creditcard.asp) debt for the first quarter of 2023 was $986 billion. Depending on how you look at it, this may be evident that many Americans don’t always act in their best financial interest. While a high-quality, durable handbag can be purchased for around $100, some people opt to spend thousands of dollars on a luxury-brand handbag that performs the same function and is of the same relative quality. ## Does the Higher Price Equal Higher Quality? One possible explanation for this is the human tendency to overemphasize the positive elements of a product and ignore its disadvantages. Great marketing and brand power may be among the reasons behind this. For instance, many consumers wait overnight for new releases of iPhones, iPads, and Mac computers even though Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) products aren't technologically unique or superior. In fact, Samsung offers more variety and (according to some experts) more bang for a consumer's buck when it comes to smartphones compared to Apple. And consider the fact that Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) and Xiaomi make phones that typically have a cheaper price point. Nevertheless, Apple experiences a high degree of brand loyalty and seems to break sales records year after year. Because some people perceive non-luxury goods as inferior simply by virtue of them being non-luxury (and not on the basis of their characteristics or qualities), they also come to the conclusion that higher-priced goods are of better quality. Contrary to the evidence, they may believe that you get what you pay for, regardless of whether the goods are actually better than their more affordable counterparts. ### Did you know you can also invest in the luxury goods market? There are a number of [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) and mutual funds that track this market. ## Self-Esteem May Impact a Person's Purchases A person's self-esteem can be a factor that influences some people's decisions about whether they purchase luxury goods. This may be especially true if they can not easily afford the cost of these items. For some consumers, a luxury good can go a long way in increasing self-esteem, providing a sense of belonging, and even higher status. With the rise of [online shopping](https://www.investopedia.com/articles/pf/08/buy-sell-online.asp), a $500 scarf is just a click away. For some people, luxury goods are the ultimate retail therapy. Fortunately for luxury brands, the internet makes them easily accessible for impulse shopping.  A sense of accomplishment is another reason why some people buy luxury goods. They want to reward themselves for their hard work by treating themselves to something they typically could not afford. ## Authenticity Matters There’s a reason why people may decide to pass up a fake Rolex in order to pay full price for an authentic one even if they look identical. Despite appearing the same, the owner will know that they don't have a real luxury good. But this doesn't appear to be a rational choice: If we buy luxury goods to show off to others and feel like we belong, why wouldn’t a facsimile do the trick? Researchers at Yale have determined that this quest for authenticity develops early in childhood. A study that tried to convince children that a [cloning](https://www.investopedia.com/terms/c/cloning.asp) machine produced their favorite toy found that most children refused to accept the duplicate as identical. It turns out that the sentimentality of the item—the memory or feeling that comes from having purchased a genuine luxury good—is part of the reason that we seek authenticity. In other words, for some people, treating yourself to a pair of fake Christian Louboutin brand boots would be the same thing as having not treated yourself at all. ## What Are Some Examples of Luxury Goods? The luxury goods market is made up of goods that are deemed non-essential. This means that these goods are not necessary for people to live. Some examples of luxury goods include high-end apparel, luggage, and handbags, jewelry and watches, luxury cars, and residential estates. ## What Are the Most Common Luxury Goods that People Purchase? Some of the most common types of luxury goods that people tend to purchase include high-end designer apparel and handbags, jewelry and watches, and luxury cars. Apparel is so popular that this segment is expected to be about one-third of the luxury goods market by 2030. ## How Can I Spot a Fake Luxury Good? Counterfeit goods are more common than most people think—especially when it comes to the luxury good market. One of the most obvious ways to spot a fake is by the price. If it's too good to be true, then it probably is. Be cautious if someone sells you a designer handbag that normally retails for $3,000 for $100. You can also tell a knock-off from the real thing by the craftsmanship. Counterfeit luxury items may be shoddily made. Counterfeiters also use fake logos or alternate spellings of brand names. ## The Bottom Line People buy luxury goods for a variety of reasons; nearly all of these reasons are related to the strong emotions that we attach to the [purchase of expensive material goods](https://www.investopedia.com/articles/personal-finance/092415/how-get-most-money-your-fur-coat.asp). Whether or not a consumer is in a financial position that allows them to be able to purchase a financial item, they may decide to purchase it anyways in order to achieve a certain feeling—for example, a feeling of accomplishment from hard work—or to gain acceptance from others.

Buying a luxury handbag is not an uncommon purchase for many people. It may even be just as common as buying a shirt at Target. While the appeal of luxury goods is undeniable—the leather is soft, the logo is flashy—the price tag can be off-putting. Unless you’ve got a good job with a high salary or have fantastic personal savings habits, buying luxury consumer goods can be cost-prohibitive. In some cases, it may create a credit card balance that isn't easy to pay off. So why do people make these extravagant purchases? Key Takeaways Buying luxury consumer goods can create an undue financial burden unless you can afford to do so.The luxury goods market is worth billions and will continue to grow by 2030.Some of the reasons why people buy luxury goods when they can't afford them include a sense of irrationality, the supposed quality, the impact they have on self-esteem, and a sense of accomplishment. How Big Is the Luxury Goods Market? A luxury good is a product that is deemed non-essential. This means that consumers don't need a luxury good to live. Examples of luxury goods include clothing from high-end designers, designer luggage and handbags, jewelry and watches, estates, high-end vehicles, and certain accessories. Demand for luxury goods typically rises when incomes do so when the economy flourishes, people tend to loosen their purse strings and spend more on items they don't necessarily need but want. Research indicates that people cut back on non-essential spending across the U.S. and Europe in 2022 even though demand for these goods was high. The luxury goods market in 2022 was estimated at $242.8 billion. This number is expected to increase to $369.8 billion by 2030—almost a third of this ($115.4 billion) is expected to come from luxury apparel alone. Some Consumers Aren't Rational Consumers aren't always rational. A perfectly rational person would always act in accordance with reason or logic. This means that a perfectly rational person would always act in their own best interest. This includes acting in their own best financial interest. According to some modern behavioral psychology studies, many consumers who buy luxury goods are not in a financial position to afford luxury goods. The proof may be in the high rates of consumer debt in America. Total credit card debt for the first quarter of 2023 was $986 billion. Depending on how you look at it, this may be evident that many Americans don’t always act in their best financial interest. While a high-quality, durable handbag can be purchased for around $100, some people opt to spend thousands of dollars on a luxury-brand handbag that performs the same function and is of the same relative quality. Does the Higher Price Equal Higher Quality? One possible explanation for this is the human tendency to overemphasize the positive elements of a product and ignore its disadvantages. Great marketing and brand power may be among the reasons behind this. For instance, many consumers wait overnight for new releases of iPhones, iPads, and Mac computers even though Apple (AAPL) products aren't technologically unique or superior. In fact, Samsung offers more variety and (according to some experts) more bang for a consumer's buck when it comes to smartphones compared to Apple. And consider the fact that Microsoft (MSFT) and Xiaomi make phones that typically have a cheaper price point. Nevertheless, Apple experiences a high degree of brand loyalty and seems to break sales records year after year. Because some people perceive non-luxury goods as inferior simply by virtue of them being non-luxury (and not on the basis of their characteristics or qualities), they also come to the conclusion that higher-priced goods are of better quality. Contrary to the evidence, they may believe that you get what you pay for, regardless of whether the goods are actually better than their more affordable counterparts. Did you know you can also invest in the luxury goods market? There are a number of exchange-traded funds (ETFs) and mutual funds that track this market. Self-Esteem May Impact a Person's Purchases A person's self-esteem can be a factor that influences some people's decisions about whether they purchase luxury goods. This may be especially true if they can not easily afford the cost of these items. For some consumers, a luxury good can go a long way in increasing self-esteem, providing a sense of belonging, and even higher status. With the rise of online shopping, a $500 scarf is just a click away. For some people, luxury goods are the ultimate retail therapy. Fortunately for luxury brands, the internet makes them easily accessible for impulse shopping.  A sense of accomplishment is another reason why some people buy luxury goods. They want to reward themselves for their hard work by treating themselves to something they typically could not afford. Authenticity Matters There’s a reason why people may decide to pass up a fake Rolex in order to pay full price for an authentic one even if they look identical. Despite appearing the same, the owner will know that they don't have a real luxury good. But this doesn't appear to be a rational choice: If we buy luxury goods to show off to others and feel like we belong, why wouldn’t a facsimile do the trick? Researchers at Yale have determined that this quest for authenticity develops early in childhood. A study that tried to convince children that a cloning machine produced their favorite toy found that most children refused to accept the duplicate as identical. It turns out that the sentimentality of the item—the memory or feeling that comes from having purchased a genuine luxury good—is part of the reason that we seek authenticity. In other words, for some people, treating yourself to a pair of fake Christian Louboutin brand boots would be the same thing as having not treated yourself at all. What Are Some Examples of Luxury Goods? The luxury goods market is made up of goods that are deemed non-essential. This means that these goods are not necessary for people to live. Some examples of luxury goods include high-end apparel, luggage, and handbags, jewelry and watches, luxury cars, and residential estates. What Are the Most Common Luxury Goods that People Purchase? Some of the most common types of luxury goods that people tend to purchase include high-end designer apparel and handbags, jewelry and watches, and luxury cars. Apparel is so popular that this segment is expected to be about one-third of the luxury goods market by 2030. How Can I Spot a Fake Luxury Good? Counterfeit goods are more common than most people think—especially when it comes to the luxury good market. One of the most obvious ways to spot a fake is by the price. If it's too good to be true, then it probably is. Be cautious if someone sells you a designer handbag that normally retails for $3,000 for $100. You can also tell a knock-off from the real thing by the craftsmanship. Counterfeit luxury items may be shoddily made. Counterfeiters also use fake logos or alternate spellings of brand names. The Bottom Line People buy luxury goods for a variety of reasons; nearly all of these reasons are related to the strong emotions that we attach to the purchase of expensive material goods. Whether or not a consumer is in a financial position that allows them to be able to purchase a financial item, they may decide to purchase it anyways in order to achieve a certain feeling—for example, a feeling of accomplishment from hard work—or to gain acceptance from others.

https://www.investopedia.com/will-2024-mortgage-rates-fall-clues-from-wednesdays-fed-announcement-8611482

Will 2024 Mortgage Rates Fall? Clues from Wednesday's Fed Announcement

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 Federal Reserve Wednesday announced its fifth rate hold in a row, after hikes in 2022 and 2023 raised the federal funds rates to almost a 23-year high.</li><li>The Fed's rate moves do not directly drive mortgage rates. But they can trigger dominoes that impact the rates lenders are willing to offer.</li><li>Inflation is one of the biggest drivers of mortgage rates, and it remains stubbornly above the Fed's 2% target level.<br/></li><li>Mortgage rates surged to a 20-year high in October, but have since dropped more than a percentage point.</li><li>The Fed said Wednesday it's still watching and waiting for more good news on inflation and jobs before considering a rate cut. But it is forecasting three rate decreases by the end of 2024.</li></ul></div></div></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--credible-rate-table--mortgage" id="mntl-sc-block_3-0"><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_4-0"></div> <span class="heading-toc" id="toc-the-many-factors-that-impact-mortgage-rates"></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 Many Factors That Impact Mortgage Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> When the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve</a> raises its federal funds rate—as it did aggressively during 2022 and 2023—it's commonly thought that this drives mortgage rates higher. And conversely, when the Fed lowers rates, mortgage rates will fall. So does another rate hold by the Fed, announced Wednesday, mean mortgage rates will march in place? </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 actual relationship between the Fed and the rates that mortgage lenders are offering is not quite so clear. Instead, moves by the central bank more directly impact short-term rates, like deposit rates at the bank, credit card interest rates, and personal loan 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"> But fixed mortgages offer a long-term rate, and that makes a linkage to the Fed's moves a bit more tenuous. And in fact, mortgage rates and 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> can—and sometimes do—move in opposite directions. </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"> Beyond the Fed's benchmark rate, the mortgage lending market is affected by a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/mortgage-rates/factors-affect-mortgage-rates/">complex mix of many economic factors</a>. These include inflation, consumer demand, housing supply, the strength of the current economy, and the status of the bond market, especially <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/100814/why-10-year-us-treasury-rates-matter.asp">10-year Treasury yields</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> But given the historic speed and magnitude of the Fed's 2022–2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate helped push mortgage rates up by an equally historic amount over the last two years.<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_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_16-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/6u5nB/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="30y mortgage average since Jun 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-the-fed-is-holding-steady-but-mortgage-rates-have-come-down"></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 Fed Is Holding Steady, But Mortgage Rates Have Come Down </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> In the mortgage history books, 2023 will go down as an especially painful year for homebuyers. Granted, 2022 saw 30-year mortgage rates rise faster: After sinking to historic lows in the 2–3% range in 2021, the next year saw 30-year rates shoot above 7%. The pace of 2022 increases was startling. </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"> But 2023 showed that mortgage rates still had more room to run. Though the 30-year average wavered in 6% territory for most of the first half of 2023, by October it had catapulted to an astonishing 8.45%—its highest mark in almost 23 years. </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"> Today, mortgage rates are still historically elevated. But they've dropped considerably since October, even dipping into 6% territory five times since Christmas. The current average is a bit higher than that, but still more than a full percentage point below the 8.45% peak of last fall. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_25-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/axwhj/2/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="30y mortgage average since Oct 2023"></iframe></div> <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 why is this happening after the Fed has held rates steady for five consecutive meetings? The federal funds rate was raised to 5.25% in July 2023 and remains there.<span class="ql-inline-citation" data-cite="2"></span> Yet mortgage rates have been dropping. </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 primary reason centers on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a>. In June 2022, inflation hit a 40-year high of 9.1%.<span class="ql-inline-citation" data-cite="3"></span> But the Fed's rate-hike campaign had inflation directly in its crosshairs, and it has successfully lowered inflation to 3.2% so far, as of the February reading.<span class="ql-inline-citation" data-cite="4"></span> So while the Fed has not yet decided to start lowering rates, the inflation-fighting work it's already accomplished has put downward pressure on mortgage rates. </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/jAAwX/2/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Inflation has cooled but remains above the Fed's 2% target"></iframe></div> <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"> Still, many expect elevated mortgage rates to be with us for a long while. According to Sam Khater, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freddiemac.asp">Freddie Mac's</a> chief economist: “Despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation. In this environment, there is a good possibility that rates will stay higher for a longer period of time.”<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-what-2024-fed-moves-could-mean-for-mortgages"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> What 2024 Fed Moves Could Mean for Mortgages </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Wednesday's Fed decision to hold its benchmark rate steady <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">was no surprise</a>. It had been overwhelmingly expected for weeks that the central bank would continue to maintain the federal funds rate at its current level. In fact, a majority of federal funds traders are betting the first rate cut won't arrive until June, according to the CME Group's FedWatch Tool.<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_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> But what <em>was</em> eagerly awaited Wednesday was the Fed's quarterly "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dot-plot-4581755">dot plot</a>." The dot plot is a graph that shows, with one unnamed dot per committee member, where each central banker predicts the federal funds rate will be at the end of 2024, 2025, and 2026. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The dot plot released Wednesday shows a median forecast of three rate decreases by the end of this calendar year, with almost half of the 19 committee members penciling in that prediction.<span class="ql-inline-citation" data-cite="5"></span> If that comes to fruition, it would reduce the federal funds rate by 0.75 percentage points by year's end. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_42-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/wlG87/5/" frameborder="0" id="mntl-sc-block-iframe__uri_4-0" title="Dot plot predictions, March 2024"></iframe></div> <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"> This is similar, though slightly more conservative, than the forecast Fed members made in December. At that time, the dot plot also showed a median guess of three rate cuts, but with more than a quarter of committee members projecting <em>four or more</em> rate decreases.<span class="ql-inline-citation" data-cite="6"></span> In contrast, Wednesday's dot plot showed only a single central banker (5% of the committee) predicting anything more than three rate cuts. </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"> Looking further out, the dot plot suggests further rate reductions of about 0.75 percentage points each in 2025 and 2026.<span class="ql-inline-citation" data-cite="5"></span> Of course, these are just the committee members' best guesses based on the data they have now. As always, they'll make each rate decision one by one in light of the freshest economic readings. But once the Fed appears ready to make a first rate cut, that will signal it believes inflation has stabilized. </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 expected decreasing inflationary pressure, plus the added impact of a falling federal funds rate in 2024, is likely to push mortgage rates lower. But while the Fed raised its benchmark rate fast in 2022–2023, it's expected to bring rates down at a much more gradual pace in 2024 and beyond. As a result, any mortgage rate improvements are also expected to be gradual. </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/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_52-0"></div> <span class="heading-toc" id="toc-how-we-track-the-best-mortgage-rates"></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 We Track the Best Mortgage Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> To assess mortgage rates, we first needed to create a credit profile. This profile included a credit score ranging from 700 to 760 with a property loan-to-value ratio (LTV) of 80%. With this profile, we averaged the lowest rates offered by more than 200 of the nation’s top lenders. These rates represent what real consumers will see when shopping for a mortgage. <br/><br/>The same credit profile was used for the best state rates map. We then found the lowest rate currently offered by a surveyed lender in that state. <br/><br/>Remember that mortgage rates may change daily, and this average rate data is intended for informational purposes only. A person’s personal credit and income profile will be the deciding factors in what loan rates and terms they can get. Loan rates do not include amounts for taxes or insurance premiums, and individual lender terms will apply. <br/> </p></div>

### Key Takeaways * The Federal Reserve Wednesday announced its fifth rate hold in a row, after hikes in 2022 and 2023 raised the federal funds rates to almost a 23-year high. * The Fed's rate moves do not directly drive mortgage rates. But they can trigger dominoes that impact the rates lenders are willing to offer. * Inflation is one of the biggest drivers of mortgage rates, and it remains stubbornly above the Fed's 2% target level. * Mortgage rates surged to a 20-year high in October, but have since dropped more than a percentage point. * The Fed said Wednesday it's still watching and waiting for more good news on inflation and jobs before considering a rate cut. But it is forecasting three rate decreases by the end of 2024. ## The Many Factors That Impact Mortgage Rates When the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) raises its federal funds rate—as it did aggressively during 2022 and 2023—it's commonly thought that this drives mortgage rates higher. And conversely, when the Fed lowers rates, mortgage rates will fall. So does another rate hold by the Fed, announced Wednesday, mean mortgage rates will march in place? The actual relationship between the Fed and the rates that mortgage lenders are offering is not quite so clear. Instead, moves by the central bank more directly impact short-term rates, like deposit rates at the bank, credit card interest rates, and personal loan rates. But fixed mortgages offer a long-term rate, and that makes a linkage to the Fed's moves a bit more tenuous. And in fact, mortgage rates and the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) can—and sometimes do—move in opposite directions. Beyond the Fed's benchmark rate, the mortgage lending market is affected by a [complex mix of many economic factors](https://www.investopedia.com/mortgage/mortgage-rates/factors-affect-mortgage-rates/). These include inflation, consumer demand, housing supply, the strength of the current economy, and the status of the bond market, especially [10-year Treasury yields](https://www.investopedia.com/articles/investing/100814/why-10-year-us-treasury-rates-matter.asp). But given the historic speed and magnitude of the Fed's 2022–2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate helped push mortgage rates up by an equally historic amount over the last two years. ## The Fed Is Holding Steady, But Mortgage Rates Have Come Down In the mortgage history books, 2023 will go down as an especially painful year for homebuyers. Granted, 2022 saw 30-year mortgage rates rise faster: After sinking to historic lows in the 2–3% range in 2021, the next year saw 30-year rates shoot above 7%. The pace of 2022 increases was startling. But 2023 showed that mortgage rates still had more room to run. Though the 30-year average wavered in 6% territory for most of the first half of 2023, by October it had catapulted to an astonishing 8.45%—its highest mark in almost 23 years. Today, mortgage rates are still historically elevated. But they've dropped considerably since October, even dipping into 6% territory five times since Christmas. The current average is a bit higher than that, but still more than a full percentage point below the 8.45% peak of last fall. But why is this happening after the Fed has held rates steady for five consecutive meetings? The federal funds rate was raised to 5.25% in July 2023 and remains there. Yet mortgage rates have been dropping. A primary reason centers on [inflation](https://www.investopedia.com/terms/i/inflation.asp). In June 2022, inflation hit a 40-year high of 9.1%. But the Fed's rate-hike campaign had inflation directly in its crosshairs, and it has successfully lowered inflation to 3.2% so far, as of the February reading. So while the Fed has not yet decided to start lowering rates, the inflation-fighting work it's already accomplished has put downward pressure on mortgage rates. Still, many expect elevated mortgage rates to be with us for a long while. According to Sam Khater, [Freddie Mac's](https://www.investopedia.com/terms/f/freddiemac.asp) chief economist: “Despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation. In this environment, there is a good possibility that rates will stay higher for a longer period of time.” ## What 2024 Fed Moves Could Mean for Mortgages Wednesday's Fed decision to hold its benchmark rate steady [was no surprise](https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723). It had been overwhelmingly expected for weeks that the central bank would continue to maintain the federal funds rate at its current level. In fact, a majority of federal funds traders are betting the first rate cut won't arrive until June, according to the CME Group's FedWatch Tool. But what *was* eagerly awaited Wednesday was the Fed's quarterly "[dot plot](https://www.investopedia.com/dot-plot-4581755)." The dot plot is a graph that shows, with one unnamed dot per committee member, where each central banker predicts the federal funds rate will be at the end of 2024, 2025, and 2026. The dot plot released Wednesday shows a median forecast of three rate decreases by the end of this calendar year, with almost half of the 19 committee members penciling in that prediction. If that comes to fruition, it would reduce the federal funds rate by 0.75 percentage points by year's end. This is similar, though slightly more conservative, than the forecast Fed members made in December. At that time, the dot plot also showed a median guess of three rate cuts, but with more than a quarter of committee members projecting *four or more* rate decreases. In contrast, Wednesday's dot plot showed only a single central banker (5% of the committee) predicting anything more than three rate cuts. Looking further out, the dot plot suggests further rate reductions of about 0.75 percentage points each in 2025 and 2026. Of course, these are just the committee members' best guesses based on the data they have now. As always, they'll make each rate decision one by one in light of the freshest economic readings. But once the Fed appears ready to make a first rate cut, that will signal it believes inflation has stabilized. The expected decreasing inflationary pressure, plus the added impact of a falling federal funds rate in 2024, is likely to push mortgage rates lower. But while the Fed raised its benchmark rate fast in 2022–2023, it's expected to bring rates down at a much more gradual pace in 2024 and beyond. As a result, any mortgage rate improvements are also expected to be gradual. [Compare the Best Mortgage Rates Today - May 21, 2024](https://www.investopedia.com/mortgage-rates-5094943) ## How We Track the Best Mortgage Rates To assess mortgage rates, we first needed to create a credit profile. This profile included a credit score ranging from 700 to 760 with a property loan-to-value ratio (LTV) of 80%. With this profile, we averaged the lowest rates offered by more than 200 of the nation’s top lenders. These rates represent what real consumers will see when shopping for a mortgage.  The same credit profile was used for the best state rates map. We then found the lowest rate currently offered by a surveyed lender in that state.  Remember that mortgage rates may change daily, and this average rate data is intended for informational purposes only. A person’s personal credit and income profile will be the deciding factors in what loan rates and terms they can get. Loan rates do not include amounts for taxes or insurance premiums, and individual lender terms will apply. 

Key Takeaways The Federal Reserve Wednesday announced its fifth rate hold in a row, after hikes in 2022 and 2023 raised the federal funds rates to almost a 23-year high.The Fed's rate moves do not directly drive mortgage rates. But they can trigger dominoes that impact the rates lenders are willing to offer.Inflation is one of the biggest drivers of mortgage rates, and it remains stubbornly above the Fed's 2% target level.Mortgage rates surged to a 20-year high in October, but have since dropped more than a percentage point.The Fed said Wednesday it's still watching and waiting for more good news on inflation and jobs before considering a rate cut. But it is forecasting three rate decreases by the end of 2024. The Many Factors That Impact Mortgage Rates When the Federal Reserve raises its federal funds rate—as it did aggressively during 2022 and 2023—it's commonly thought that this drives mortgage rates higher. And conversely, when the Fed lowers rates, mortgage rates will fall. So does another rate hold by the Fed, announced Wednesday, mean mortgage rates will march in place? The actual relationship between the Fed and the rates that mortgage lenders are offering is not quite so clear. Instead, moves by the central bank more directly impact short-term rates, like deposit rates at the bank, credit card interest rates, and personal loan rates. But fixed mortgages offer a long-term rate, and that makes a linkage to the Fed's moves a bit more tenuous. And in fact, mortgage rates and the federal funds rate can—and sometimes do—move in opposite directions. Beyond the Fed's benchmark rate, the mortgage lending market is affected by a complex mix of many economic factors. These include inflation, consumer demand, housing supply, the strength of the current economy, and the status of the bond market, especially 10-year Treasury yields. But given the historic speed and magnitude of the Fed's 2022–2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate helped push mortgage rates up by an equally historic amount over the last two years. The Fed Is Holding Steady, But Mortgage Rates Have Come Down In the mortgage history books, 2023 will go down as an especially painful year for homebuyers. Granted, 2022 saw 30-year mortgage rates rise faster: After sinking to historic lows in the 2–3% range in 2021, the next year saw 30-year rates shoot above 7%. The pace of 2022 increases was startling. But 2023 showed that mortgage rates still had more room to run. Though the 30-year average wavered in 6% territory for most of the first half of 2023, by October it had catapulted to an astonishing 8.45%—its highest mark in almost 23 years. Today, mortgage rates are still historically elevated. But they've dropped considerably since October, even dipping into 6% territory five times since Christmas. The current average is a bit higher than that, but still more than a full percentage point below the 8.45% peak of last fall. But why is this happening after the Fed has held rates steady for five consecutive meetings? The federal funds rate was raised to 5.25% in July 2023 and remains there. Yet mortgage rates have been dropping. A primary reason centers on inflation. In June 2022, inflation hit a 40-year high of 9.1%. But the Fed's rate-hike campaign had inflation directly in its crosshairs, and it has successfully lowered inflation to 3.2% so far, as of the February reading. So while the Fed has not yet decided to start lowering rates, the inflation-fighting work it's already accomplished has put downward pressure on mortgage rates. Still, many expect elevated mortgage rates to be with us for a long while. According to Sam Khater, Freddie Mac's chief economist: “Despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation. In this environment, there is a good possibility that rates will stay higher for a longer period of time.” What 2024 Fed Moves Could Mean for Mortgages Wednesday's Fed decision to hold its benchmark rate steady was no surprise. It had been overwhelmingly expected for weeks that the central bank would continue to maintain the federal funds rate at its current level. In fact, a majority of federal funds traders are betting the first rate cut won't arrive until June, according to the CME Group's FedWatch Tool. But what was eagerly awaited Wednesday was the Fed's quarterly "dot plot." The dot plot is a graph that shows, with one unnamed dot per committee member, where each central banker predicts the federal funds rate will be at the end of 2024, 2025, and 2026. The dot plot released Wednesday shows a median forecast of three rate decreases by the end of this calendar year, with almost half of the 19 committee members penciling in that prediction. If that comes to fruition, it would reduce the federal funds rate by 0.75 percentage points by year's end. This is similar, though slightly more conservative, than the forecast Fed members made in December. At that time, the dot plot also showed a median guess of three rate cuts, but with more than a quarter of committee members projecting four or more rate decreases. In contrast, Wednesday's dot plot showed only a single central banker (5% of the committee) predicting anything more than three rate cuts. Looking further out, the dot plot suggests further rate reductions of about 0.75 percentage points each in 2025 and 2026. Of course, these are just the committee members' best guesses based on the data they have now. As always, they'll make each rate decision one by one in light of the freshest economic readings. But once the Fed appears ready to make a first rate cut, that will signal it believes inflation has stabilized. The expected decreasing inflationary pressure, plus the added impact of a falling federal funds rate in 2024, is likely to push mortgage rates lower. But while the Fed raised its benchmark rate fast in 2022–2023, it's expected to bring rates down at a much more gradual pace in 2024 and beyond. As a result, any mortgage rate improvements are also expected to be gradual. Compare the Best Mortgage Rates Today - May 21, 2024 How We Track the Best Mortgage Rates To assess mortgage rates, we first needed to create a credit profile. This profile included a credit score ranging from 700 to 760 with a property loan-to-value ratio (LTV) of 80%. With this profile, we averaged the lowest rates offered by more than 200 of the nation’s top lenders. These rates represent what real consumers will see when shopping for a mortgage. The same credit profile was used for the best state rates map. We then found the lowest rate currently offered by a surveyed lender in that state. Remember that mortgage rates may change daily, and this average rate data is intended for informational purposes only. A person’s personal credit and income profile will be the deciding factors in what loan rates and terms they can get. Loan rates do not include amounts for taxes or insurance premiums, and individual lender terms will apply. 

https://www.investopedia.com/terms/o/overdraft-protection.asp

What Is Overdraft Protection? How It Works and Do You Need 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-overdraft-protection"></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 Overdraft Protection? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Overdraft protection is an optional service that prevents the rejection of charges to a bank account (primarily checks, ATM transactions, debit-card charges) that are in excess of the available funds in the account. Overdraft protection, sometimes called cash-reserve checking<em>,</em> is used most frequently as a cushion for checking accounts, but it also can be applied to savings accounts. </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"> With overdraft protection, even if the account has insufficient funds, the bank will cover the shortfall so that the transaction goes through. When a customer signs up for overdraft protection, they designate a backup account for the bank to use as the source to cover any overdrafts—usually a linked savings account, credit card, or line of credit. However, the bank charges the customer for this service in a few ways, e.g., <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/overdraft.asp">overdraft</a> fees to process any transactions that overdraw the account. </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>Overdraft protection is a guarantee that a check, ATM, wire transfer, or debit card transaction will clear if the account balance falls below zero.</li><li>There may be heavy fees and interest associated with overdraft protection, depending on the kind of linked account used.</li><li>Overdraft protection lines of credit can range from $250 to $5,000 and above.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-overdraft-protection-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 Overdraft Protection Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Without overdraft protection, transactions that have insufficient funds to cover them are returned unpaid—that is, checks <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bouncedcheck.asp">bounce</a> and debit transactions are refused, which can be expensive and disruptive for the customer. Most banks charge hefty overdraft and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nsf.asp">non-sufficient funds</a> (NSF) fees (between $30 and $35, per transaction, on average) for accounts that do not have sufficient funds. What's more, not only can the bank refuse payment and charge the account holder, but a penalty or fee may also be charged by the merchant for the failed transaction.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> To avoid overdraft and NSF fees, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/071114/what-are-pros-and-cons-overdraft-protection.asp">customers who choose overdraft protection</a> link their checking accounts to credit cards, savings accounts, or other lines of credit that kick in whenever they withdraw more than the current balance. This amounts to an automatic, pre-approved loan or transfer every time the customer with insufficient funds writes a check, makes a wire transfer, swipes a debit card, or asks an ATM for a sum in excess of the balance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> As soon as the overdraft protection service is triggered, the linked account is charged a transfer fee to move funds to cover the shortfall. The account holder may also be charged either an additional fee every month that overdraft protection is used or a fixed monthly fee for continuous protection.<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-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">Bounced Check Penalties</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you bounce a check, you can incur a variety of charges or, in extreme cases, your bank can close your account, which also impacts your ability to open a new checking account.</p></div></div></div> <span class="heading-toc" id="toc-example-of-overdraft-protection"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Example of Overdraft Protection </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> If a renter with overdraft protection writes an $800 check on an account with a balance of $650, the overdraft protection from their linked account kicks in as soon as the check is cashed—and the check clears instead of bouncing due to insufficient funds. </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 bank charges a transfer fee of $15 for approving a transaction that exceeds available funds. The renter will now have a balance of $635 ($650 - $15) in the account as well as a charge of $800 to pay off on the linked credit card, line of credit, or savings account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_3-0">Multiple Overdraft or NSF Fees</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>In the absence of overdraft protection, it is not uncommon for banks to charge multiple overdraft or NSF fees per day. For example, a consumer might make successive purchases without realizing that the amount in their account is insufficient to cover the charges. If a checking account goes negative for more than a few days, many banks also charge an extended overdraft fee. It’s important to note that—even if you have overdraft protection—banks can still charge this additional fee.</p></div></div></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Lines of credit for overdraft protection can range from $250 to $5,000 and above—and, of course, customers incur interest charges and transaction fees for using these lines. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> If a credit card is used as the backup account, the amount is treated as 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>—which can be an expensive form of overdraft protection. Not only do cash advances have no grace period, but they also have high interest rates and high fees (usually $10 flat fees or 5% of the advance, whichever is greater). </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 linked savings account is probably the least expensive backup account for overdraft protection, but the backup must hold enough money to cover the shortfall in the first account. </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-trends-in-overdraft-protection"></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"> Trends in Overdraft Protection </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Overdraft fees have always been among the most controversial bank fees. According to a BankRate.com survey of 245 banks and thrifts in 25 large U.S. markets, the average overdraft fee declined to a 13-year low of $29.80, which is down 11% over last year’s record high of $33.58.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> In the wake of the 2020 pandemic, public debate accelerated a trend toward eliminating overdraft fees altogether. For example, the U.S. Senate held hearings on how and why banks charge fees for insufficient funds and criticized bank CEOs for refusing to halt overdraft fees during the pandemic.<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_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> More evidence of this trend includes a 2022 American Banker report that—as big banks made headlines for reducing or eliminating overdraft fees—even credit unions felt pressure from regulators and digital bank competitors to do the same.<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_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-is-there-a-limit-on-overdraft-fees"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is There a Limit on Overdraft Fees?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Federal laws do not specify maximums that banks can charge for overdrafts, but banks are required to disclose any fees when the account is established—and they are required to give customers advance notice of any fee increase.<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_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-banks-refuse-to-cover-overdrafts"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Banks Refuse to Cover Overdrafts?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Banks are not required to offer overdraft protection, and—even when they do and a customer opts in—they retain the right to pay or not pay a particular overdraft transaction that might fall outside the rules of the agreement.<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_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_42-0"><span class="heading-toc" id="toc-is-overdraft-protection-mandatory"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Overdraft Protection Mandatory?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Overdraft protection is optional; it is only the service that is automatic for bank customers who choose to opt in for overdraft protection on their checking or savings accounts.<span class="ql-inline-citation" data-cite="4"></span></p></div> </div></div>

## What Is Overdraft Protection? Overdraft protection is an optional service that prevents the rejection of charges to a bank account (primarily checks, ATM transactions, debit-card charges) that are in excess of the available funds in the account. Overdraft protection, sometimes called cash-reserve checking*,* is used most frequently as a cushion for checking accounts, but it also can be applied to savings accounts. With overdraft protection, even if the account has insufficient funds, the bank will cover the shortfall so that the transaction goes through. When a customer signs up for overdraft protection, they designate a backup account for the bank to use as the source to cover any overdrafts—usually a linked savings account, credit card, or line of credit. However, the bank charges the customer for this service in a few ways, e.g., [overdraft](https://www.investopedia.com/terms/o/overdraft.asp) fees to process any transactions that overdraw the account. ### Key Takeaways * Overdraft protection is a guarantee that a check, ATM, wire transfer, or debit card transaction will clear if the account balance falls below zero. * There may be heavy fees and interest associated with overdraft protection, depending on the kind of linked account used. * Overdraft protection lines of credit can range from $250 to $5,000 and above. ## How Overdraft Protection Works Without overdraft protection, transactions that have insufficient funds to cover them are returned unpaid—that is, checks [bounce](https://www.investopedia.com/terms/b/bouncedcheck.asp) and debit transactions are refused, which can be expensive and disruptive for the customer. Most banks charge hefty overdraft and [non-sufficient funds](https://www.investopedia.com/terms/n/nsf.asp) (NSF) fees (between $30 and $35, per transaction, on average) for accounts that do not have sufficient funds. What's more, not only can the bank refuse payment and charge the account holder, but a penalty or fee may also be charged by the merchant for the failed transaction. To avoid overdraft and NSF fees, [customers who choose overdraft protection](https://www.investopedia.com/ask/answers/071114/what-are-pros-and-cons-overdraft-protection.asp) link their checking accounts to credit cards, savings accounts, or other lines of credit that kick in whenever they withdraw more than the current balance. This amounts to an automatic, pre-approved loan or transfer every time the customer with insufficient funds writes a check, makes a wire transfer, swipes a debit card, or asks an ATM for a sum in excess of the balance. As soon as the overdraft protection service is triggered, the linked account is charged a transfer fee to move funds to cover the shortfall. The account holder may also be charged either an additional fee every month that overdraft protection is used or a fixed monthly fee for continuous protection. ### Bounced Check Penalties If you bounce a check, you can incur a variety of charges or, in extreme cases, your bank can close your account, which also impacts your ability to open a new checking account. ## Example of Overdraft Protection If a renter with overdraft protection writes an $800 check on an account with a balance of $650, the overdraft protection from their linked account kicks in as soon as the check is cashed—and the check clears instead of bouncing due to insufficient funds. The bank charges a transfer fee of $15 for approving a transaction that exceeds available funds. The renter will now have a balance of $635 ($650 - $15) in the account as well as a charge of $800 to pay off on the linked credit card, line of credit, or savings account. ### Multiple Overdraft or NSF Fees In the absence of overdraft protection, it is not uncommon for banks to charge multiple overdraft or NSF fees per day. For example, a consumer might make successive purchases without realizing that the amount in their account is insufficient to cover the charges. If a checking account goes negative for more than a few days, many banks also charge an extended overdraft fee. It’s important to note that—even if you have overdraft protection—banks can still charge this additional fee. ## Special Considerations Lines of credit for overdraft protection can range from $250 to $5,000 and above—and, of course, customers incur interest charges and transaction fees for using these lines. If a credit card is used as the backup account, the amount is treated as a [cash advance](https://www.investopedia.com/terms/c/cashadvance.asp)—which can be an expensive form of overdraft protection. Not only do cash advances have no grace period, but they also have high interest rates and high fees (usually $10 flat fees or 5% of the advance, whichever is greater). A linked savings account is probably the least expensive backup account for overdraft protection, but the backup must hold enough money to cover the shortfall in the first account. ## Trends in Overdraft Protection Overdraft fees have always been among the most controversial bank fees. According to a BankRate.com survey of 245 banks and thrifts in 25 large U.S. markets, the average overdraft fee declined to a 13-year low of $29.80, which is down 11% over last year’s record high of $33.58. In the wake of the 2020 pandemic, public debate accelerated a trend toward eliminating overdraft fees altogether. For example, the U.S. Senate held hearings on how and why banks charge fees for insufficient funds and criticized bank CEOs for refusing to halt overdraft fees during the pandemic. More evidence of this trend includes a 2022 American Banker report that—as big banks made headlines for reducing or eliminating overdraft fees—even credit unions felt pressure from regulators and digital bank competitors to do the same. ## Is There a Limit on Overdraft Fees? Federal laws do not specify maximums that banks can charge for overdrafts, but banks are required to disclose any fees when the account is established—and they are required to give customers advance notice of any fee increase. ## Can Banks Refuse to Cover Overdrafts? Banks are not required to offer overdraft protection, and—even when they do and a customer opts in—they retain the right to pay or not pay a particular overdraft transaction that might fall outside the rules of the agreement. ## Is Overdraft Protection Mandatory? Overdraft protection is optional; it is only the service that is automatic for bank customers who choose to opt in for overdraft protection on their checking or savings accounts.

What Is Overdraft Protection? Overdraft protection is an optional service that prevents the rejection of charges to a bank account (primarily checks, ATM transactions, debit-card charges) that are in excess of the available funds in the account. Overdraft protection, sometimes called cash-reserve checking, is used most frequently as a cushion for checking accounts, but it also can be applied to savings accounts. With overdraft protection, even if the account has insufficient funds, the bank will cover the shortfall so that the transaction goes through. When a customer signs up for overdraft protection, they designate a backup account for the bank to use as the source to cover any overdrafts—usually a linked savings account, credit card, or line of credit. However, the bank charges the customer for this service in a few ways, e.g., overdraft fees to process any transactions that overdraw the account. Key Takeaways Overdraft protection is a guarantee that a check, ATM, wire transfer, or debit card transaction will clear if the account balance falls below zero.There may be heavy fees and interest associated with overdraft protection, depending on the kind of linked account used.Overdraft protection lines of credit can range from $250 to $5,000 and above. How Overdraft Protection Works Without overdraft protection, transactions that have insufficient funds to cover them are returned unpaid—that is, checks bounce and debit transactions are refused, which can be expensive and disruptive for the customer. Most banks charge hefty overdraft and non-sufficient funds (NSF) fees (between $30 and $35, per transaction, on average) for accounts that do not have sufficient funds. What's more, not only can the bank refuse payment and charge the account holder, but a penalty or fee may also be charged by the merchant for the failed transaction. To avoid overdraft and NSF fees, customers who choose overdraft protection link their checking accounts to credit cards, savings accounts, or other lines of credit that kick in whenever they withdraw more than the current balance. This amounts to an automatic, pre-approved loan or transfer every time the customer with insufficient funds writes a check, makes a wire transfer, swipes a debit card, or asks an ATM for a sum in excess of the balance. As soon as the overdraft protection service is triggered, the linked account is charged a transfer fee to move funds to cover the shortfall. The account holder may also be charged either an additional fee every month that overdraft protection is used or a fixed monthly fee for continuous protection. Bounced Check Penalties If you bounce a check, you can incur a variety of charges or, in extreme cases, your bank can close your account, which also impacts your ability to open a new checking account. Example of Overdraft Protection If a renter with overdraft protection writes an $800 check on an account with a balance of $650, the overdraft protection from their linked account kicks in as soon as the check is cashed—and the check clears instead of bouncing due to insufficient funds. The bank charges a transfer fee of $15 for approving a transaction that exceeds available funds. The renter will now have a balance of $635 ($650 - $15) in the account as well as a charge of $800 to pay off on the linked credit card, line of credit, or savings account. Multiple Overdraft or NSF Fees In the absence of overdraft protection, it is not uncommon for banks to charge multiple overdraft or NSF fees per day. For example, a consumer might make successive purchases without realizing that the amount in their account is insufficient to cover the charges. If a checking account goes negative for more than a few days, many banks also charge an extended overdraft fee. It’s important to note that—even if you have overdraft protection—banks can still charge this additional fee. Special Considerations Lines of credit for overdraft protection can range from $250 to $5,000 and above—and, of course, customers incur interest charges and transaction fees for using these lines. If a credit card is used as the backup account, the amount is treated as a cash advance—which can be an expensive form of overdraft protection. Not only do cash advances have no grace period, but they also have high interest rates and high fees (usually $10 flat fees or 5% of the advance, whichever is greater). A linked savings account is probably the least expensive backup account for overdraft protection, but the backup must hold enough money to cover the shortfall in the first account. Trends in Overdraft Protection Overdraft fees have always been among the most controversial bank fees. According to a BankRate.com survey of 245 banks and thrifts in 25 large U.S. markets, the average overdraft fee declined to a 13-year low of $29.80, which is down 11% over last year’s record high of $33.58. In the wake of the 2020 pandemic, public debate accelerated a trend toward eliminating overdraft fees altogether. For example, the U.S. Senate held hearings on how and why banks charge fees for insufficient funds and criticized bank CEOs for refusing to halt overdraft fees during the pandemic. More evidence of this trend includes a 2022 American Banker report that—as big banks made headlines for reducing or eliminating overdraft fees—even credit unions felt pressure from regulators and digital bank competitors to do the same. Is There a Limit on Overdraft Fees? Federal laws do not specify maximums that banks can charge for overdrafts, but banks are required to disclose any fees when the account is established—and they are required to give customers advance notice of any fee increase. Can Banks Refuse to Cover Overdrafts? Banks are not required to offer overdraft protection, and—even when they do and a customer opts in—they retain the right to pay or not pay a particular overdraft transaction that might fall outside the rules of the agreement. Is Overdraft Protection Mandatory? Overdraft protection is optional; it is only the service that is automatic for bank customers who choose to opt in for overdraft protection on their checking or savings accounts.

https://www.investopedia.com/uk-etfs-how-they-work-8549739

U.K. Equity ETFs: What They Are and What You Need to Know

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Investors interested in tapping into the United Kingdom’s stock markets have choices. One is to open a brokerage account in the U.K. to buy U.K. stocks. Another is to invest in mutual funds focusing on U.K. equity securities. A third choice, easier and arguably more efficient for gaining exposure to U.K. equities, is through U.K. equity <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>. </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"> These funds are tied to a market where: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> <li>There’s a wealth of data and news available.</li><li>An investor likely knows many of the leading companies.</li><li>There’s a long trading history and shared language for those in the United States.</li><li>There’s a wide variety of equity ETFs to choose from.</li> </ul> <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>U.K. equity ETFs are convenient for investing in the U.K., with their shares traded like stocks and designed to mimic the performance of indexes like the FTSE 100 Index.</li><li>Investors interested in these equity ETFs should review the underlying holdings, performance history, and fees of each ETF.</li><li>Thoroughly research any prospective ETF or consult a financial advisor to ensure it aligns with your investment goals and risk profile.</li><li>Keeping abreast of changes in market conditions and periodically reevaluating the investment are critical, as is reviewing the tax implications and regulations of investing in U.K. equity ETFs before investing.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-are-uk-equity-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> What Are U.K. Equity ETFs? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> U.K. equity ETFs are convenient, traded on stock exchanges like stocks, and are designed to mirror the performance of U.K. indexes like the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/footsie.asp">FTSE 100 Index</a>. These ETFs pool funds to buy a diversified portfolio of assets based on a chosen index’s composition.<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"> Country-specific ETFs are an increasingly popular choice among investors seeking diversified exposure to specific geographic markets. U.K. equity ETFs offer specific benefits that some other regional ETFs cannot. </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"> These ETFs provide investors with an efficient way to gain exposure to the U.K. market, including various sectors and different levels of <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>. Investors interested in these equity ETFs should consider their <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>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risktolerance.asp">risk tolerance</a>, and the specific characteristics of the ETFs available, including their underlying holdings, performance over time, the reputation of their managers, and fees. </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-understanding-the-uk-market"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Understanding the U.K. Market </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/042915/how-uk-makes-money.asp">United Kingdom</a>, with a 2022 <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gdp.asp">gross domestic product (GDP)</a> of $3.09 trillion—the sixth-largest in the world—has in recent times faced a highly complex financial trajectory for an <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economy.asp">economy</a> long considered among the world’s most stable. The U.K. reached its peak GDP of $3.09 trillion in 2007 (all figures in early 2024 U.S. dollars) but has had extreme fluctuations since, falling and then returning to a GDP of $3.06 trillion in 2014 before falling again and then returning to $3.09 trillion in 2022, followed by flat or negative growth for the first three quarters of 2023.<span class="ql-inline-citation" data-cite="25"></span><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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Among those peaks was the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp">financial crisis of 2007–08</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brexit.asp">Brexit</a> (which took effect in 2020), and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/government-stimulus-and-relief-efforts-to-fight-the-covid-19-crisis-5113980">COVID-19 pandemic</a>. Meanwhile, GDP per capita declined from $50,397 in 2007 to $46,125 in 2022.<span class="ql-inline-citation" data-cite="23"></span> (For comparison, U.S. GDP per capita grew 59% to $76,329 in the same period.<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_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The U.K.’s economic outlook is mixed because of the lingering effects of Brexit, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a>, a tight <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/labor-market.asp">labor market</a>, and global economic pressures. In the near term, most analysts expect relatively weak economic growth, with S&amp;P Global Ratings seeing “more <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stagflation.asp">stagflation</a> ahead,” PwC saying the U.K. is turning the page, Goldman Sachs calling the U.K. “surprisingly resilient,” and the Organisation for Economic Co-operation and Development (OECD) suggesting “growth will remain stable but low” representing the range of analyst forecasts.<span class="ql-inline-citation" data-cite="29"></span><span class="ql-inline-citation" data-cite="27"></span><span class="ql-inline-citation" data-cite="28"></span><span class="ql-inline-citation" data-cite="30"></span><span class="ql-inline-citation" data-cite="26"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> With inflation headed down and other major early 2020s economic headwinds for the U.K., there are investment prospects for those looking at U.K. equity ETFs. While U.K. indexes like the FTSE 100 have underperformed over the past decade vs. international peers like those in the European Union (EU), Japan, the U.S., and the MSCI World Index, its markets are famously attuned to fundamentals. For example, its higher weightings in energy and financials have meant it has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/3-uk-etfs-for-q4-2020-5077636">weathered</a> its storms relatively well and done comparatively better in years like 2022, when tech stocks were a drag elsewhere.<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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Post-Brexit trade agreements and regulatory adjustments will likely reshape the investment landscape, potentially unlocking growth in green energy, local manufacturing, and fintech. Meanwhile, the U.K. economy is notably diverse, and its market is known for its stability, mature regulatory environment, and global connectivity, particularly in the financial services sector. </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"> Major exports include cars, gas turbines, gold, crude petroleum, and packaged medications.<span class="ql-inline-citation" data-cite="36"></span> London remains a global center for finance and insurance. As a significant trading power, though, the U.K.’s economy and financial markets are sensitive to changes in international trade. The strength or weakness of the British pound (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gbp.asp">GBP</a>) relative to other currencies, especially the U.S. dollar, significantly affects the country’s exports and imports. </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"> Investing in U.K. equity ETFs presents unique prospects despite the U.K.’s recent economic challenges. Those considering U.K. equity ETFs should weigh the following factors to make more informed decisions: </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>A historically resilient but recently fluctuating GDP</li><li>A significant and vital financial sector</li><li>The impact of Brexit</li><li>The potential for sector-specific growth</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"> The U.K.’s established financial markets and potential in emerging industries could make it a worthwhile option for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversified portfolio</a> of international investments. </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-how-do-uk-equity-etfs-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> How Do U.K. Equity ETFs Work? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> U.K. equity ETFs provide exposure to a basket of stocks representative of the U.K. market or specific parts of it. Most U.K. ETFs holding equities are designed to track the performance of a specific index, such as the FTSE 100 or FTSE 250. These ETFs aim to replicate the index’s exposure and performance by holding the same stocks in similar proportions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> In addition, like other types of ETFs, U.K. equity ETFs trade on stock exchanges like individual stocks. Thus, investors can buy and sell shares of a U.K. equity ETF throughout the trading day at market prices. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> As with other such funds, U.K. equity ETF shares are initially created in large blocks called creation units. These are typically bought and sold by institutional investors and are exchanged for a basket of underlying securities that mirror the ETF’s portfolio. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketmaker.asp">Market makers</a> play a critical role in ensuring <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a> in the ETF. They assure trading by buying and selling ETF shares, working to keep the market price of the ETF close to its <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nav.asp">net asset value (NAV)</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_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> To do that, market makers use <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arbitrage.asp">arbitrage</a>. If the ETF trades at a significant premium or discount to its NAV, then institutional investors, known as authorized participants, can profit from the price difference by creating or redeeming creation units, which helps realign the ETF’s market price with its NAV.<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_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Compared with mutual funds, ETFs typically have lower fees called <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>. This is because most ETFs are <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>, tracking an index rather than actively selecting stocks and other securities.<span class="ql-inline-citation" data-cite="8"></span> Also, if U.K. equities, which are the ETF’s underlying assets, pay dividends, then these are typically passed to ETF shareholders in cash or as additional shares in the ETF. </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"> Like other ETFs, U.K. equity ETFs are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transparency.asp">transparent</a> about their holdings. Investors can easily access information about a fund’s assets and contrast them against others. Lastly, ETFs can be more tax-efficient compared with mutual funds or with holding individual stocks.<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_49-0"></div> <span class="heading-toc" id="toc-what-to-consider-when-investing-in-uk-equity-etfs"></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"> What to Consider When Investing in U.K. Equity ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> There are several main factors to assess when investing in U.K. equity ETFs: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> <li><strong>Top-down assessment</strong>: The first step would be incorporating a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/030116/topdown-vs-bottomup.asp">top-down approach</a> to this investment vehicle. This means analyzing the economic and market conditions in the U.K., including its political stability, prospects for economic growth, interest rates, and the strength of its currency.</li> <li><strong>Continuing Brexit fallout</strong>: You’ll also want to see how the U.K. continues to negotiate Brexit through the 2020s, especially for financial regulations that might remain continuous with the EU or diverge in meaningful ways. This will help in understanding the risks and opportunities in the U.K. market.</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currencyrisk.asp"><strong>Currency risk</strong></a>: Be aware that changes in the exchange rate between your home currency and the British pound can affect the value of your investment.</li> <li><strong>Market exposure</strong>: You should determine how and what kind of U.K. equity exposure fits your investment strategy. You should assess their investment objectives. They can be growth-oriented or income-oriented, seek diversification, or have specific exposure to certain sectors or themes. They could also focus on or spread across large-cap, midcap, and small-cap equities. Make sure you understand the makeup of the index that the ETF follows as well.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Costs</strong>: A more quantitative factor to consider includes expense ratios. Lower expense ratios can significantly affect long-term returns, especially for passive index-tracking ETFs.</li> <li><strong>Tracking errors</strong>: Additionally, you need to assess the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trackingerror.asp">tracking error</a>. This is the difference between the ETF’s performance and its <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a>. A lower tracking error indicates a better match with the index’s performance.<span class="ql-inline-citation" data-cite="5"></span></li> <li><strong>Past performance</strong>: ETF performance is another critical factor to consider. While past performance does not determine the ETF’s returns going forward, reviewing historical returns can tell you how the ETF has done through very different market conditions, which the U.K. has undoubtedly gone through over the last 15 years. You’ll want to know how it weathered those storms.</li> <li><strong>Income</strong>: To receive <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a>, you’ll want to look closely at the distribution policy and yield. Generally, ETFs periodically distribute the dividends they receive. Some U.K. equity ETFs offer attractive distribution yields.<span class="ql-inline-citation" data-cite="10"></span></li> <li><strong>Taxes</strong>: Having discussed income, you’ll then want to understand the tax implications of investing in U.K. equity ETFs, both in the U.K. and the U.S. This would include dividend and capital gains tax.<span class="ql-inline-citation" data-cite="34"></span><br/></li> </ol> <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"> Doing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/duediligence.asp">thorough research</a> and consulting with a financial advisor, especially one with experience with the U.K. market, is prudent to ensure that your chosen U.K. ETF aligns with your investment goals and risk profile. Keeping abreast of changes in market conditions and periodically reevaluating the investment are also critical for ensuring that the ETF continues to align with your needs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-benefits-and-risks-of-investing-in-uk-equity-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> Benefits and Risks of Investing in U.K. Equity ETFs </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_58-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_59-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading"></span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Diversification</p></li> <li><p>Exposure</p></li> <li><p>Income</p></li> <li><p>Market access</p></li> <li><p>Liquidity</p></li> <li><p>Lower costs</p></li> <li><p>Mature market</p></li> <li><p>Shared language</p></li> <li><p>Simplicity</p></li> <li><p>Tax efficiency</p></li> <li><p>Transparency</p></li> <li><p>Variety</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"></span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Market risk</p></li> <li><p>Foreign exchange risk</p></li> <li><p>Liquidity risk</p></li> <li><p>Concentration risk</p></li> <li><p>Interest rate risk</p></li> <li><p>Political and regulatory risk</p></li> <li><p>Geopolitical risk</p></li> <li><p>Taxation risk</p></li> <li><p>Tracking error risk</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-subheading__text"> Benefits </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> U.K. equity ETFs offer several benefits in line with investing in ETFs. Here are some: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> <li><strong>Diversification</strong>: U.K. equity ETFs provide investors with exposure to a broad range of U.K. stocks or sectors, helping to spread risk across securities. This diversification can reduce the impact of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> in individual stocks or sectors.</li> <li><strong>Exposure</strong>: For investors seeking to specifically invest in the U.K. or <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 other geographic exposures, U.K. equity ETFs offer a targeted way to do this.</li> <li><strong>Income</strong>: Once stocks within ETFs pay dividends, they are usually distributed to ETF shareholders, providing a potential source of income.</li> <li><strong>Market access</strong>: ETFs are traded on stock exchanges like stocks, making them accessible to retail and institutional investors.</li> <li><strong>Liquidity</strong>: U.K. equity ETFs offer high liquidity because of their ability to be traded throughout the trading day. This allows you to move quickly in or out of your position if needed.</li> <li><strong>Lower costs</strong>: Compared with mutual funds, ETFs have lower expenses. This particularly benefits passive investors looking for market exposure without high management fees.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Mature market</strong>: The U.K. has one of the world’s oldest and most established stock markets—indeed, it helped to invent them—with a long history of investing and a robust regulatory infrastructure. This offers stability and predictability compared with emerging markets.</li> <li><strong>Shared language</strong>: For English-speaking investors, the U.K. market is remarkably accessible. All company reports, regulatory filings, and news are published in English, making it easier for investors to stay informed about their investments. Also, significant events and financial news from the U.K. are covered by U.S. media outlets.</li> <li><strong>Simplicity</strong>: ETFs provide a simple avenue for investors to gain exposure to a diversified portfolio without the need to select and manage a large number of stocks individually.</li> <li><strong>Tax efficiency</strong>: ETFs can be more tax-efficient than mutual funds because of their creation and redemption process, which can minimize capital gains distributions.</li> <li><strong>Transparency</strong>: ETFs provide daily disclosure of their holdings.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Variety</strong>: U.K. equity ETFs are available in various forms, including funds that track major indexes, specific sectors, and particular investment themes or strategies. This allows you to tailor your equity ETF investment to your goals and risk tolerance.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_66-0"> <span class="mntl-sc-block-subheading__text"> Risks </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> While investing in U.K. equity ETFs has several advantages, like any investment, there are also disadvantages. Here are some key risks: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketrisk.asp"><strong>Market risk</strong></a>: U.K. equity ETFs are subject to market fluctuations and the volatility of the U.K. stock market. Economic conditions, political events, and market sentiment can all affect the performance of U.K. equities and the ETFs that track them.</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreignexchangerisk.asp"><strong>Foreign exchange risk</strong></a>: There could be changes in the exchange rate between your home currency and the British pound. This can affect the return on your investment when converting to your local currency.</li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidityrisk.asp"><strong>Liquidity risk</strong></a>: While most U.K. equity ETFs have good liquidity, there is still some risk, particularly if it’s a niche or sector-specific U.K. equity ETF. Those types of ETFs often have less trading volume, making it harder to buy or sell shares quickly without impacting the price or without paying more from wider bid-ask spreads.</li> <li><strong>Concentration risk</strong>: Given that some U.K. equity ETFs are focused on specific sectors or industries, this can lead to concentration risk. If that sector or industry underperforms, it can disproportionately affect the ETF’s performance compared with the broader U.K. market.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestraterisk.asp"><strong>Interest rate risk</strong></a>: U.K. financial sector equity ETFs and other interest rate-sensitive equities may be affected by changes in <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a>. This is especially important to watch as the U.K. negotiates slow growth and the need to combat inflation, which could affect the direction of its interest rates.</li> <li><strong>Political and regulatory risk</strong>: Changes in the U.K.’s <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiscalpolicy.asp">fiscal</a> and <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/monetarypolicy.asp">monetary policies</a> and regulations or political instability in the U.K. will affect its markets and, consequently, U.K. equity ETFs.<span class="ql-inline-citation" data-cite="19"></span></li> <li><strong>Geopolitical risk</strong>: International events and geopolitical developments can impact the U.K. market, affecting the trade, energy, finance, and manufacturing sectors, among others, as well as the ETFs invested in them.<span class="ql-inline-citation" data-cite="20"></span></li> <li><strong>Taxation risk</strong>: Changes in tax laws or regulations, both within the U.K. and in your home country, could affect your after-tax returns.<span class="ql-inline-citation" data-cite="22"></span></li> <li><strong>Tracking error risk</strong>: This is the risk that the ETF will not accurately track the performance of its underlying benchmark. This can result from fund management fees, the timing of dividend reinvestments, or differences in the ETF’s holdings compared with the index.</li> </ul> <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-top-uk-equity-etfs"></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"> Top U.K. Equity ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> The table below provides the largest U.K. equity ETFs. While most of these ETFs are listed on the London Stock Exchange and denominated in British pounds (GBP), there are also ETFs on U.S. exchanges, denominated in U.S. dollars. The iShares Core FTSE 100 UCITS ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ISF">ISF</a>) is the largest measured by assets under management (AUM), at $13.97 billion.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="37"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> For expense ratios, the top U.K. equity ETFs have a range from as low as 0.07% to 0.50%, with an average expense ratio below at 0.22%. ISF offers the most competitive expense ratio within the selection, providing a 0.07% value.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="37"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> These ETFs vary widely in distribution yields, ranging from 0% to 5.48%, with the average distribution yield at 3.16%. The iShares UK Dividend UCITS ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IUKD">IUKD</a>) has the highest distribution yield at 5.48%, making it an attractive option for income-seeking investors.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="38"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_78-0"> <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">Top U.K. Equity ETFs as of February 2024</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Ticker</b></td> <td><b>Name</b></td> <td><b>Assets Under Management (U.S. $Billions)</b></td> <td><b>Expense Ratio</b></td> <td><b>Distribution Yield</b></td> </tr> <tr> <td>ISF</td> <td>iShares Core FTSE 100 UCITS ETF</td> <td>13.97</td> <td>0.07%</td> <td>3.96%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VUKE" rel="noopener noreferrer">VUKE</a></td> <td>Vanguard FTSE 100 UCITS ETF</td> <td>5.97</td> <td>0.09%</td> <td>3.92%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWU" rel="noopener noreferrer">EWU</a></td> <td>iShares MSCI United Kingdom ETF</td> <td>2.60</td> <td>0.50%</td> <td>4.24%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VMID" rel="noopener noreferrer">VMID</a></td> <td>Vanguard FTSE 250 UCITS ETF</td> <td>1.85</td> <td>0.10%</td> <td>3.48%</td> </tr> <tr> <td>IUKD</td> <td>iShares UK Dividend UCITS ETF</td> <td>1.03</td> <td>0.40%</td> <td>5.48%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.yahoo.com/quote/MIDD.L" rel="noopener noreferrer">MIDD.L</a></td> <td>iShares FTSE 250 UCITS ETF</td> <td>0.97</td> <td>0.40%</td> <td>3.25%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=UKSR" rel="noopener noreferrer">UKSR</a></td> <td>UBS MSCI UK IMI Socially Responsible UCITS ETF</td> <td>0.97</td> <td>0.28%</td> <td>3.21%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FTAL" rel="noopener noreferrer">FTAL</a></td> <td>SPDR FTSE UK All Share UCITS ETF</td> <td>0.85</td> <td>0.20%</td> <td>N/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/markets/quote?tvwidgetsymbol=FLGB" rel="noopener noreferrer">FLGB</a></td> <td>Franklin FTSE United Kingdom ETF</td> <td>0.63</td> <td>0.09%</td> <td>4.04%</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_80-0"><span class="heading-toc" id="toc-what-is-the-best-uk-equity-etf"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Best U.K. Equity ETF?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The best U.K. equity ETF depends on your financial goals and risk tolerance. There is no one-size-fits-all ETF. Nevertheless, some general factors to review include historical performance, distribution yield, ETF volatility, expense ratios, tracking error, and liquidity.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_82-0"><span class="heading-toc" id="toc-how-do-changes-in-the-british-pound-affect-uk-equity-etfs"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Changes in the British Pound Affect U.K. Equity ETFs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Changes in the pound’s value can significantly impact U.K. equity ETFs in several ways:</p><ul><li>Changes in the GBP exchange rate relative to the home currency can affect the total <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/returnoninvestment.asp">return on investment</a>.</li><li>The pound’s strength or weakness can have diverse effects on U.K. companies, influencing their profitability and competitiveness.</li><li>A weaker pound will increase the cost of imports, potentially leading to higher inflation in the U.K., which could lead to higher interest rates.</li><li>The value of the GBP influences investor sentiment and capital flows in and out of U.K. assets.</li></ul></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_84-0"><span class="heading-toc" id="toc-are-there-other-geographically-based-etfs"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Other Geographically Based ETFs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many geographically based ETFs are available, covering a wide range of regions, countries, and specific areas within those countries. These ETFs allow exposure to different global markets, each with its own unique characteristics and investments. Some include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/international-etf.asp">global ETFs</a>, regional ETFs, country-specific ETFs, emerging market ETFs, frontier market ETFs, and developed market ETFs.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_86-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> U.K. equity ETFs are investment vehicles that offer an efficient way to gain diversified exposure to the U.K. stock market. The funds, traded on stock exchanges, typically aim to track the performance of specific indexes like the FTSE 100 or FTSE 250 or focus on particular sectors within the U.K. economy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> Like other ETFs, U.K. equity ETFs offer advantages such as diversification, liquidity, lower relative costs, transparency, and flexibility in investment strategies. However, investing in U.K. equity ETFs has certain risks, including market volatility, currency exchange rate fluctuations, and sector-specific risks. These risks should be weighed against your investment goals and risk tolerance. </p></div>

Investors interested in tapping into the United Kingdom’s stock markets have choices. One is to open a brokerage account in the U.K. to buy U.K. stocks. Another is to invest in mutual funds focusing on U.K. equity securities. A third choice, easier and arguably more efficient for gaining exposure to U.K. equities, is through U.K. equity [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp). These funds are tied to a market where: * There’s a wealth of data and news available. * An investor likely knows many of the leading companies. * There’s a long trading history and shared language for those in the United States. * There’s a wide variety of equity ETFs to choose from. ### Key Takeaways * U.K. equity ETFs are convenient for investing in the U.K., with their shares traded like stocks and designed to mimic the performance of indexes like the FTSE 100 Index. * Investors interested in these equity ETFs should review the underlying holdings, performance history, and fees of each ETF. * Thoroughly research any prospective ETF or consult a financial advisor to ensure it aligns with your investment goals and risk profile. * Keeping abreast of changes in market conditions and periodically reevaluating the investment are critical, as is reviewing the tax implications and regulations of investing in U.K. equity ETFs before investing. ## What Are U.K. Equity ETFs? U.K. equity ETFs are convenient, traded on stock exchanges like stocks, and are designed to mirror the performance of U.K. indexes like the [FTSE 100 Index](https://www.investopedia.com/terms/f/footsie.asp). These ETFs pool funds to buy a diversified portfolio of assets based on a chosen index’s composition. Country-specific ETFs are an increasingly popular choice among investors seeking diversified exposure to specific geographic markets. U.K. equity ETFs offer specific benefits that some other regional ETFs cannot. These ETFs provide investors with an efficient way to gain exposure to the U.K. market, including various sectors and different levels of [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp). Investors interested in these equity ETFs should consider their [investment goals](https://www.investopedia.com/investing/figure-out-your-investment-goals/), [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp), and the specific characteristics of the ETFs available, including their underlying holdings, performance over time, the reputation of their managers, and fees. ## Understanding the U.K. Market The [United Kingdom](https://www.investopedia.com/articles/investing/042915/how-uk-makes-money.asp), with a 2022 [gross domestic product (GDP)](https://www.investopedia.com/terms/g/gdp.asp) of $3.09 trillion—the sixth-largest in the world—has in recent times faced a highly complex financial trajectory for an [economy](https://www.investopedia.com/terms/e/economy.asp) long considered among the world’s most stable. The U.K. reached its peak GDP of $3.09 trillion in 2007 (all figures in early 2024 U.S. dollars) but has had extreme fluctuations since, falling and then returning to a GDP of $3.06 trillion in 2014 before falling again and then returning to $3.09 trillion in 2022, followed by flat or negative growth for the first three quarters of 2023. Among those peaks was the [financial crisis of 2007–08](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp), [Brexit](https://www.investopedia.com/terms/b/brexit.asp) (which took effect in 2020), and the [COVID-19 pandemic](https://www.investopedia.com/government-stimulus-and-relief-efforts-to-fight-the-covid-19-crisis-5113980). Meanwhile, GDP per capita declined from $50,397 in 2007 to $46,125 in 2022. (For comparison, U.S. GDP per capita grew 59% to $76,329 in the same period.) The U.K.’s economic outlook is mixed because of the lingering effects of Brexit, [inflation](https://www.investopedia.com/terms/i/inflation.asp), a tight [labor market](https://www.investopedia.com/terms/l/labor-market.asp), and global economic pressures. In the near term, most analysts expect relatively weak economic growth, with S&P Global Ratings seeing “more [stagflation](https://www.investopedia.com/terms/s/stagflation.asp) ahead,” PwC saying the U.K. is turning the page, Goldman Sachs calling the U.K. “surprisingly resilient,” and the Organisation for Economic Co-operation and Development (OECD) suggesting “growth will remain stable but low” representing the range of analyst forecasts. With inflation headed down and other major early 2020s economic headwinds for the U.K., there are investment prospects for those looking at U.K. equity ETFs. While U.K. indexes like the FTSE 100 have underperformed over the past decade vs. international peers like those in the European Union (EU), Japan, the U.S., and the MSCI World Index, its markets are famously attuned to fundamentals. For example, its higher weightings in energy and financials have meant it has [weathered](https://www.investopedia.com/3-uk-etfs-for-q4-2020-5077636) its storms relatively well and done comparatively better in years like 2022, when tech stocks were a drag elsewhere. Post-Brexit trade agreements and regulatory adjustments will likely reshape the investment landscape, potentially unlocking growth in green energy, local manufacturing, and fintech. Meanwhile, the U.K. economy is notably diverse, and its market is known for its stability, mature regulatory environment, and global connectivity, particularly in the financial services sector. Major exports include cars, gas turbines, gold, crude petroleum, and packaged medications. London remains a global center for finance and insurance. As a significant trading power, though, the U.K.’s economy and financial markets are sensitive to changes in international trade. The strength or weakness of the British pound ([GBP](https://www.investopedia.com/terms/g/gbp.asp)) relative to other currencies, especially the U.S. dollar, significantly affects the country’s exports and imports. Investing in U.K. equity ETFs presents unique prospects despite the U.K.’s recent economic challenges. Those considering U.K. equity ETFs should weigh the following factors to make more informed decisions: * A historically resilient but recently fluctuating GDP * A significant and vital financial sector * The impact of Brexit * The potential for sector-specific growth The U.K.’s established financial markets and potential in emerging industries could make it a worthwhile option for a [diversified portfolio](https://www.investopedia.com/terms/d/diversification.asp) of international investments. ## How Do U.K. Equity ETFs Work? U.K. equity ETFs provide exposure to a basket of stocks representative of the U.K. market or specific parts of it. Most U.K. ETFs holding equities are designed to track the performance of a specific index, such as the FTSE 100 or FTSE 250. These ETFs aim to replicate the index’s exposure and performance by holding the same stocks in similar proportions. In addition, like other types of ETFs, U.K. equity ETFs trade on stock exchanges like individual stocks. Thus, investors can buy and sell shares of a U.K. equity ETF throughout the trading day at market prices. As with other such funds, U.K. equity ETF shares are initially created in large blocks called creation units. These are typically bought and sold by institutional investors and are exchanged for a basket of underlying securities that mirror the ETF’s portfolio. [Market makers](https://www.investopedia.com/terms/m/marketmaker.asp) play a critical role in ensuring [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) in the ETF. They assure trading by buying and selling ETF shares, working to keep the market price of the ETF close to its [net asset value (NAV)](https://www.investopedia.com/terms/n/nav.asp). To do that, market makers use [arbitrage](https://www.investopedia.com/terms/a/arbitrage.asp). If the ETF trades at a significant premium or discount to its NAV, then institutional investors, known as authorized participants, can profit from the price difference by creating or redeeming creation units, which helps realign the ETF’s market price with its NAV. Compared with mutual funds, ETFs typically have lower fees called [expense ratios](https://www.investopedia.com/terms/e/expenseratio.asp). This is because most ETFs are [passively managed](https://www.investopedia.com/terms/p/passivemanagement.asp), tracking an index rather than actively selecting stocks and other securities. Also, if U.K. equities, which are the ETF’s underlying assets, pay dividends, then these are typically passed to ETF shareholders in cash or as additional shares in the ETF. Like other ETFs, U.K. equity ETFs are [transparent](https://www.investopedia.com/terms/t/transparency.asp) about their holdings. Investors can easily access information about a fund’s assets and contrast them against others. Lastly, ETFs can be more tax-efficient compared with mutual funds or with holding individual stocks. ## What to Consider When Investing in U.K. Equity ETFs There are several main factors to assess when investing in U.K. equity ETFs: 1. **Top-down assessment**: The first step would be incorporating a [top-down approach](https://www.investopedia.com/articles/investing/030116/topdown-vs-bottomup.asp) to this investment vehicle. This means analyzing the economic and market conditions in the U.K., including its political stability, prospects for economic growth, interest rates, and the strength of its currency. 2. **Continuing Brexit fallout**: You’ll also want to see how the U.K. continues to negotiate Brexit through the 2020s, especially for financial regulations that might remain continuous with the EU or diverge in meaningful ways. This will help in understanding the risks and opportunities in the U.K. market. 3. [**Currency risk**](https://www.investopedia.com/terms/c/currencyrisk.asp): Be aware that changes in the exchange rate between your home currency and the British pound can affect the value of your investment. 4. **Market exposure**: You should determine how and what kind of U.K. equity exposure fits your investment strategy. You should assess their investment objectives. They can be growth-oriented or income-oriented, seek diversification, or have specific exposure to certain sectors or themes. They could also focus on or spread across large-cap, midcap, and small-cap equities. Make sure you understand the makeup of the index that the ETF follows as well. 6. **Costs**: A more quantitative factor to consider includes expense ratios. Lower expense ratios can significantly affect long-term returns, especially for passive index-tracking ETFs. 7. **Tracking errors**: Additionally, you need to assess the [tracking error](https://www.investopedia.com/terms/t/trackingerror.asp). This is the difference between the ETF’s performance and its [benchmark](https://www.investopedia.com/terms/b/benchmark.asp). A lower tracking error indicates a better match with the index’s performance. 8. **Past performance**: ETF performance is another critical factor to consider. While past performance does not determine the ETF’s returns going forward, reviewing historical returns can tell you how the ETF has done through very different market conditions, which the U.K. has undoubtedly gone through over the last 15 years. You’ll want to know how it weathered those storms. 9. **Income**: To receive [income](https://www.investopedia.com/terms/i/income.asp), you’ll want to look closely at the distribution policy and yield. Generally, ETFs periodically distribute the dividends they receive. Some U.K. equity ETFs offer attractive distribution yields. 10. **Taxes**: Having discussed income, you’ll then want to understand the tax implications of investing in U.K. equity ETFs, both in the U.K. and the U.S. This would include dividend and capital gains tax. Doing [thorough research](https://www.investopedia.com/terms/d/duediligence.asp) and consulting with a financial advisor, especially one with experience with the U.K. market, is prudent to ensure that your chosen U.K. ETF aligns with your investment goals and risk profile. Keeping abreast of changes in market conditions and periodically reevaluating the investment are also critical for ensuring that the ETF continues to align with your needs. ## Benefits and Risks of Investing in U.K. Equity ETFs * Diversification * Exposure * Income * Market access * Liquidity * Lower costs * Mature market * Shared language * Simplicity * Tax efficiency * Transparency * Variety * Market risk * Foreign exchange risk * Liquidity risk * Concentration risk * Interest rate risk * Political and regulatory risk * Geopolitical risk * Taxation risk * Tracking error risk ### Benefits U.K. equity ETFs offer several benefits in line with investing in ETFs. Here are some: * **Diversification**: U.K. equity ETFs provide investors with exposure to a broad range of U.K. stocks or sectors, helping to spread risk across securities. This diversification can reduce the impact of [volatility](https://www.investopedia.com/terms/v/volatility.asp) in individual stocks or sectors. * **Exposure**: For investors seeking to specifically invest in the U.K. or [hedge](https://www.investopedia.com/terms/h/hedge.asp) against other geographic exposures, U.K. equity ETFs offer a targeted way to do this. * **Income**: Once stocks within ETFs pay dividends, they are usually distributed to ETF shareholders, providing a potential source of income. * **Market access**: ETFs are traded on stock exchanges like stocks, making them accessible to retail and institutional investors. * **Liquidity**: U.K. equity ETFs offer high liquidity because of their ability to be traded throughout the trading day. This allows you to move quickly in or out of your position if needed. * **Lower costs**: Compared with mutual funds, ETFs have lower expenses. This particularly benefits passive investors looking for market exposure without high management fees. * **Mature market**: The U.K. has one of the world’s oldest and most established stock markets—indeed, it helped to invent them—with a long history of investing and a robust regulatory infrastructure. This offers stability and predictability compared with emerging markets. * **Shared language**: For English-speaking investors, the U.K. market is remarkably accessible. All company reports, regulatory filings, and news are published in English, making it easier for investors to stay informed about their investments. Also, significant events and financial news from the U.K. are covered by U.S. media outlets. * **Simplicity**: ETFs provide a simple avenue for investors to gain exposure to a diversified portfolio without the need to select and manage a large number of stocks individually. * **Tax efficiency**: ETFs can be more tax-efficient than mutual funds because of their creation and redemption process, which can minimize capital gains distributions. * **Transparency**: ETFs provide daily disclosure of their holdings. * **Variety**: U.K. equity ETFs are available in various forms, including funds that track major indexes, specific sectors, and particular investment themes or strategies. This allows you to tailor your equity ETF investment to your goals and risk tolerance. ### Risks While investing in U.K. equity ETFs has several advantages, like any investment, there are also disadvantages. Here are some key risks: * [**Market risk**](https://www.investopedia.com/terms/m/marketrisk.asp): U.K. equity ETFs are subject to market fluctuations and the volatility of the U.K. stock market. Economic conditions, political events, and market sentiment can all affect the performance of U.K. equities and the ETFs that track them. * [**Foreign exchange risk**](https://www.investopedia.com/terms/f/foreignexchangerisk.asp): There could be changes in the exchange rate between your home currency and the British pound. This can affect the return on your investment when converting to your local currency. * [**Liquidity risk**](https://www.investopedia.com/terms/l/liquidityrisk.asp): While most U.K. equity ETFs have good liquidity, there is still some risk, particularly if it’s a niche or sector-specific U.K. equity ETF. Those types of ETFs often have less trading volume, making it harder to buy or sell shares quickly without impacting the price or without paying more from wider bid-ask spreads. * **Concentration risk**: Given that some U.K. equity ETFs are focused on specific sectors or industries, this can lead to concentration risk. If that sector or industry underperforms, it can disproportionately affect the ETF’s performance compared with the broader U.K. market. * [**Interest rate risk**](https://www.investopedia.com/terms/i/interestraterisk.asp): U.K. financial sector equity ETFs and other interest rate-sensitive equities may be affected by changes in [interest rates](https://www.investopedia.com/terms/i/interestrate.asp). This is especially important to watch as the U.K. negotiates slow growth and the need to combat inflation, which could affect the direction of its interest rates. * **Political and regulatory risk**: Changes in the U.K.’s [fiscal](https://www.investopedia.com/terms/f/fiscalpolicy.asp) and [monetary policies](https://www.investopedia.com/terms/m/monetarypolicy.asp) and regulations or political instability in the U.K. will affect its markets and, consequently, U.K. equity ETFs. * **Geopolitical risk**: International events and geopolitical developments can impact the U.K. market, affecting the trade, energy, finance, and manufacturing sectors, among others, as well as the ETFs invested in them. * **Taxation risk**: Changes in tax laws or regulations, both within the U.K. and in your home country, could affect your after-tax returns. * **Tracking error risk**: This is the risk that the ETF will not accurately track the performance of its underlying benchmark. This can result from fund management fees, the timing of dividend reinvestments, or differences in the ETF’s holdings compared with the index. ## Top U.K. Equity ETFs The table below provides the largest U.K. equity ETFs. While most of these ETFs are listed on the London Stock Exchange and denominated in British pounds (GBP), there are also ETFs on U.S. exchanges, denominated in U.S. dollars. The iShares Core FTSE 100 UCITS ETF ([ISF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ISF)) is the largest measured by assets under management (AUM), at $13.97 billion. For expense ratios, the top U.K. equity ETFs have a range from as low as 0.07% to 0.50%, with an average expense ratio below at 0.22%. ISF offers the most competitive expense ratio within the selection, providing a 0.07% value. These ETFs vary widely in distribution yields, ranging from 0% to 5.48%, with the average distribution yield at 3.16%. The iShares UK Dividend UCITS ETF ([IUKD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IUKD)) has the highest distribution yield at 5.48%, making it an attractive option for income-seeking investors. | Top U.K. Equity ETFs as of February 2024 | | | | | | --- | --- | --- | --- | --- | | **Ticker** | **Name** | **Assets Under Management (U.S. $Billions)** | **Expense Ratio** | **Distribution Yield** | | ISF | iShares Core FTSE 100 UCITS ETF | 13.97 | 0.07% | 3.96% | | [VUKE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VUKE) | Vanguard FTSE 100 UCITS ETF | 5.97 | 0.09% | 3.92% | | [EWU](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWU) | iShares MSCI United Kingdom ETF | 2.60 | 0.50% | 4.24% | | [VMID](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VMID) | Vanguard FTSE 250 UCITS ETF | 1.85 | 0.10% | 3.48% | | IUKD | iShares UK Dividend UCITS ETF | 1.03 | 0.40% | 5.48% | | [MIDD.L](https://finance.yahoo.com/quote/MIDD.L) | iShares FTSE 250 UCITS ETF | 0.97 | 0.40% | 3.25% | | [UKSR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=UKSR) | UBS MSCI UK IMI Socially Responsible UCITS ETF | 0.97 | 0.28% | 3.21% | | [FTAL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FTAL) | SPDR FTSE UK All Share UCITS ETF | 0.85 | 0.20% | N/A | | [FLGB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FLGB) | Franklin FTSE United Kingdom ETF | 0.63 | 0.09% | 4.04% | ## What Is the Best U.K. Equity ETF? The best U.K. equity ETF depends on your financial goals and risk tolerance. There is no one-size-fits-all ETF. Nevertheless, some general factors to review include historical performance, distribution yield, ETF volatility, expense ratios, tracking error, and liquidity. ## How Do Changes in the British Pound Affect U.K. Equity ETFs? Changes in the pound’s value can significantly impact U.K. equity ETFs in several ways: * Changes in the GBP exchange rate relative to the home currency can affect the total [return on investment](https://www.investopedia.com/terms/r/returnoninvestment.asp). * The pound’s strength or weakness can have diverse effects on U.K. companies, influencing their profitability and competitiveness. * A weaker pound will increase the cost of imports, potentially leading to higher inflation in the U.K., which could lead to higher interest rates. * The value of the GBP influences investor sentiment and capital flows in and out of U.K. assets. ## Are There Other Geographically Based ETFs? Many geographically based ETFs are available, covering a wide range of regions, countries, and specific areas within those countries. These ETFs allow exposure to different global markets, each with its own unique characteristics and investments. Some include [global ETFs](https://www.investopedia.com/terms/i/international-etf.asp), regional ETFs, country-specific ETFs, emerging market ETFs, frontier market ETFs, and developed market ETFs. ## The Bottom Line U.K. equity ETFs are investment vehicles that offer an efficient way to gain diversified exposure to the U.K. stock market. The funds, traded on stock exchanges, typically aim to track the performance of specific indexes like the FTSE 100 or FTSE 250 or focus on particular sectors within the U.K. economy. Like other ETFs, U.K. equity ETFs offer advantages such as diversification, liquidity, lower relative costs, transparency, and flexibility in investment strategies. However, investing in U.K. equity ETFs has certain risks, including market volatility, currency exchange rate fluctuations, and sector-specific risks. These risks should be weighed against your investment goals and risk tolerance.

Investors interested in tapping into the United Kingdom’s stock markets have choices. One is to open a brokerage account in the U.K. to buy U.K. stocks. Another is to invest in mutual funds focusing on U.K. equity securities. A third choice, easier and arguably more efficient for gaining exposure to U.K. equities, is through U.K. equity exchange-traded funds (ETFs). These funds are tied to a market where: There’s a wealth of data and news available.An investor likely knows many of the leading companies.There’s a long trading history and shared language for those in the United States.There’s a wide variety of equity ETFs to choose from. Key Takeaways U.K. equity ETFs are convenient for investing in the U.K., with their shares traded like stocks and designed to mimic the performance of indexes like the FTSE 100 Index.Investors interested in these equity ETFs should review the underlying holdings, performance history, and fees of each ETF.Thoroughly research any prospective ETF or consult a financial advisor to ensure it aligns with your investment goals and risk profile.Keeping abreast of changes in market conditions and periodically reevaluating the investment are critical, as is reviewing the tax implications and regulations of investing in U.K. equity ETFs before investing. What Are U.K. Equity ETFs? U.K. equity ETFs are convenient, traded on stock exchanges like stocks, and are designed to mirror the performance of U.K. indexes like the FTSE 100 Index. These ETFs pool funds to buy a diversified portfolio of assets based on a chosen index’s composition. Country-specific ETFs are an increasingly popular choice among investors seeking diversified exposure to specific geographic markets. U.K. equity ETFs offer specific benefits that some other regional ETFs cannot. These ETFs provide investors with an efficient way to gain exposure to the U.K. market, including various sectors and different levels of market capitalization. Investors interested in these equity ETFs should consider their investment goals, risk tolerance, and the specific characteristics of the ETFs available, including their underlying holdings, performance over time, the reputation of their managers, and fees. Understanding the U.K. Market The United Kingdom, with a 2022 gross domestic product (GDP) of $3.09 trillion—the sixth-largest in the world—has in recent times faced a highly complex financial trajectory for an economy long considered among the world’s most stable. The U.K. reached its peak GDP of $3.09 trillion in 2007 (all figures in early 2024 U.S. dollars) but has had extreme fluctuations since, falling and then returning to a GDP of $3.06 trillion in 2014 before falling again and then returning to $3.09 trillion in 2022, followed by flat or negative growth for the first three quarters of 2023. Among those peaks was the financial crisis of 2007–08, Brexit (which took effect in 2020), and the COVID-19 pandemic. Meanwhile, GDP per capita declined from $50,397 in 2007 to $46,125 in 2022. (For comparison, U.S. GDP per capita grew 59% to $76,329 in the same period.) The U.K.’s economic outlook is mixed because of the lingering effects of Brexit, inflation, a tight labor market, and global economic pressures. In the near term, most analysts expect relatively weak economic growth, with S&P Global Ratings seeing “more stagflation ahead,” PwC saying the U.K. is turning the page, Goldman Sachs calling the U.K. “surprisingly resilient,” and the Organisation for Economic Co-operation and Development (OECD) suggesting “growth will remain stable but low” representing the range of analyst forecasts. With inflation headed down and other major early 2020s economic headwinds for the U.K., there are investment prospects for those looking at U.K. equity ETFs. While U.K. indexes like the FTSE 100 have underperformed over the past decade vs. international peers like those in the European Union (EU), Japan, the U.S., and the MSCI World Index, its markets are famously attuned to fundamentals. For example, its higher weightings in energy and financials have meant it has weathered its storms relatively well and done comparatively better in years like 2022, when tech stocks were a drag elsewhere. Post-Brexit trade agreements and regulatory adjustments will likely reshape the investment landscape, potentially unlocking growth in green energy, local manufacturing, and fintech. Meanwhile, the U.K. economy is notably diverse, and its market is known for its stability, mature regulatory environment, and global connectivity, particularly in the financial services sector. Major exports include cars, gas turbines, gold, crude petroleum, and packaged medications. London remains a global center for finance and insurance. As a significant trading power, though, the U.K.’s economy and financial markets are sensitive to changes in international trade. The strength or weakness of the British pound (GBP) relative to other currencies, especially the U.S. dollar, significantly affects the country’s exports and imports. Investing in U.K. equity ETFs presents unique prospects despite the U.K.’s recent economic challenges. Those considering U.K. equity ETFs should weigh the following factors to make more informed decisions: A historically resilient but recently fluctuating GDPA significant and vital financial sectorThe impact of BrexitThe potential for sector-specific growth The U.K.’s established financial markets and potential in emerging industries could make it a worthwhile option for a diversified portfolio of international investments. How Do U.K. Equity ETFs Work? U.K. equity ETFs provide exposure to a basket of stocks representative of the U.K. market or specific parts of it. Most U.K. ETFs holding equities are designed to track the performance of a specific index, such as the FTSE 100 or FTSE 250. These ETFs aim to replicate the index’s exposure and performance by holding the same stocks in similar proportions. In addition, like other types of ETFs, U.K. equity ETFs trade on stock exchanges like individual stocks. Thus, investors can buy and sell shares of a U.K. equity ETF throughout the trading day at market prices. As with other such funds, U.K. equity ETF shares are initially created in large blocks called creation units. These are typically bought and sold by institutional investors and are exchanged for a basket of underlying securities that mirror the ETF’s portfolio. Market makers play a critical role in ensuring liquidity in the ETF. They assure trading by buying and selling ETF shares, working to keep the market price of the ETF close to its net asset value (NAV). To do that, market makers use arbitrage. If the ETF trades at a significant premium or discount to its NAV, then institutional investors, known as authorized participants, can profit from the price difference by creating or redeeming creation units, which helps realign the ETF’s market price with its NAV. Compared with mutual funds, ETFs typically have lower fees called expense ratios. This is because most ETFs are passively managed, tracking an index rather than actively selecting stocks and other securities. Also, if U.K. equities, which are the ETF’s underlying assets, pay dividends, then these are typically passed to ETF shareholders in cash or as additional shares in the ETF. Like other ETFs, U.K. equity ETFs are transparent about their holdings. Investors can easily access information about a fund’s assets and contrast them against others. Lastly, ETFs can be more tax-efficient compared with mutual funds or with holding individual stocks. What to Consider When Investing in U.K. Equity ETFs There are several main factors to assess when investing in U.K. equity ETFs: Top-down assessment: The first step would be incorporating a top-down approach to this investment vehicle. This means analyzing the economic and market conditions in the U.K., including its political stability, prospects for economic growth, interest rates, and the strength of its currency. Continuing Brexit fallout: You’ll also want to see how the U.K. continues to negotiate Brexit through the 2020s, especially for financial regulations that might remain continuous with the EU or diverge in meaningful ways. This will help in understanding the risks and opportunities in the U.K. market. Currency risk: Be aware that changes in the exchange rate between your home currency and the British pound can affect the value of your investment. Market exposure: You should determine how and what kind of U.K. equity exposure fits your investment strategy. You should assess their investment objectives. They can be growth-oriented or income-oriented, seek diversification, or have specific exposure to certain sectors or themes. They could also focus on or spread across large-cap, midcap, and small-cap equities. Make sure you understand the makeup of the index that the ETF follows as well. Costs: A more quantitative factor to consider includes expense ratios. Lower expense ratios can significantly affect long-term returns, especially for passive index-tracking ETFs. Tracking errors: Additionally, you need to assess the tracking error. This is the difference between the ETF’s performance and its benchmark. A lower tracking error indicates a better match with the index’s performance. Past performance: ETF performance is another critical factor to consider. While past performance does not determine the ETF’s returns going forward, reviewing historical returns can tell you how the ETF has done through very different market conditions, which the U.K. has undoubtedly gone through over the last 15 years. You’ll want to know how it weathered those storms. Income: To receive income, you’ll want to look closely at the distribution policy and yield. Generally, ETFs periodically distribute the dividends they receive. Some U.K. equity ETFs offer attractive distribution yields. Taxes: Having discussed income, you’ll then want to understand the tax implications of investing in U.K. equity ETFs, both in the U.K. and the U.S. This would include dividend and capital gains tax. Doing thorough research and consulting with a financial advisor, especially one with experience with the U.K. market, is prudent to ensure that your chosen U.K. ETF aligns with your investment goals and risk profile. Keeping abreast of changes in market conditions and periodically reevaluating the investment are also critical for ensuring that the ETF continues to align with your needs. Benefits and Risks of Investing in U.K. Equity ETFs Diversification Exposure Income Market access Liquidity Lower costs Mature market Shared language Simplicity Tax efficiency Transparency Variety Market risk Foreign exchange risk Liquidity risk Concentration risk Interest rate risk Political and regulatory risk Geopolitical risk Taxation risk Tracking error risk Benefits U.K. equity ETFs offer several benefits in line with investing in ETFs. Here are some: Diversification: U.K. equity ETFs provide investors with exposure to a broad range of U.K. stocks or sectors, helping to spread risk across securities. This diversification can reduce the impact of volatility in individual stocks or sectors. Exposure: For investors seeking to specifically invest in the U.K. or hedge against other geographic exposures, U.K. equity ETFs offer a targeted way to do this. Income: Once stocks within ETFs pay dividends, they are usually distributed to ETF shareholders, providing a potential source of income. Market access: ETFs are traded on stock exchanges like stocks, making them accessible to retail and institutional investors. Liquidity: U.K. equity ETFs offer high liquidity because of their ability to be traded throughout the trading day. This allows you to move quickly in or out of your position if needed. Lower costs: Compared with mutual funds, ETFs have lower expenses. This particularly benefits passive investors looking for market exposure without high management fees. Mature market: The U.K. has one of the world’s oldest and most established stock markets—indeed, it helped to invent them—with a long history of investing and a robust regulatory infrastructure. This offers stability and predictability compared with emerging markets. Shared language: For English-speaking investors, the U.K. market is remarkably accessible. All company reports, regulatory filings, and news are published in English, making it easier for investors to stay informed about their investments. Also, significant events and financial news from the U.K. are covered by U.S. media outlets. Simplicity: ETFs provide a simple avenue for investors to gain exposure to a diversified portfolio without the need to select and manage a large number of stocks individually. Tax efficiency: ETFs can be more tax-efficient than mutual funds because of their creation and redemption process, which can minimize capital gains distributions. Transparency: ETFs provide daily disclosure of their holdings. Variety: U.K. equity ETFs are available in various forms, including funds that track major indexes, specific sectors, and particular investment themes or strategies. This allows you to tailor your equity ETF investment to your goals and risk tolerance. Risks While investing in U.K. equity ETFs has several advantages, like any investment, there are also disadvantages. Here are some key risks: Market risk: U.K. equity ETFs are subject to market fluctuations and the volatility of the U.K. stock market. Economic conditions, political events, and market sentiment can all affect the performance of U.K. equities and the ETFs that track them. Foreign exchange risk: There could be changes in the exchange rate between your home currency and the British pound. This can affect the return on your investment when converting to your local currency. Liquidity risk: While most U.K. equity ETFs have good liquidity, there is still some risk, particularly if it’s a niche or sector-specific U.K. equity ETF. Those types of ETFs often have less trading volume, making it harder to buy or sell shares quickly without impacting the price or without paying more from wider bid-ask spreads. Concentration risk: Given that some U.K. equity ETFs are focused on specific sectors or industries, this can lead to concentration risk. If that sector or industry underperforms, it can disproportionately affect the ETF’s performance compared with the broader U.K. market. Interest rate risk: U.K. financial sector equity ETFs and other interest rate-sensitive equities may be affected by changes in interest rates. This is especially important to watch as the U.K. negotiates slow growth and the need to combat inflation, which could affect the direction of its interest rates. Political and regulatory risk: Changes in the U.K.’s fiscal and monetary policies and regulations or political instability in the U.K. will affect its markets and, consequently, U.K. equity ETFs. Geopolitical risk: International events and geopolitical developments can impact the U.K. market, affecting the trade, energy, finance, and manufacturing sectors, among others, as well as the ETFs invested in them. Taxation risk: Changes in tax laws or regulations, both within the U.K. and in your home country, could affect your after-tax returns. Tracking error risk: This is the risk that the ETF will not accurately track the performance of its underlying benchmark. This can result from fund management fees, the timing of dividend reinvestments, or differences in the ETF’s holdings compared with the index. Top U.K. Equity ETFs The table below provides the largest U.K. equity ETFs. While most of these ETFs are listed on the London Stock Exchange and denominated in British pounds (GBP), there are also ETFs on U.S. exchanges, denominated in U.S. dollars. The iShares Core FTSE 100 UCITS ETF (ISF) is the largest measured by assets under management (AUM), at $13.97 billion. For expense ratios, the top U.K. equity ETFs have a range from as low as 0.07% to 0.50%, with an average expense ratio below at 0.22%. ISF offers the most competitive expense ratio within the selection, providing a 0.07% value. These ETFs vary widely in distribution yields, ranging from 0% to 5.48%, with the average distribution yield at 3.16%. The iShares UK Dividend UCITS ETF (IUKD) has the highest distribution yield at 5.48%, making it an attractive option for income-seeking investors. Top U.K. Equity ETFs as of February 2024 Ticker Name Assets Under Management (U.S. $Billions) Expense Ratio Distribution Yield ISF iShares Core FTSE 100 UCITS ETF 13.97 0.07% 3.96% VUKE Vanguard FTSE 100 UCITS ETF 5.97 0.09% 3.92% EWU iShares MSCI United Kingdom ETF 2.60 0.50% 4.24% VMID Vanguard FTSE 250 UCITS ETF 1.85 0.10% 3.48% IUKD iShares UK Dividend UCITS ETF 1.03 0.40% 5.48% MIDD.L iShares FTSE 250 UCITS ETF 0.97 0.40% 3.25% UKSR UBS MSCI UK IMI Socially Responsible UCITS ETF 0.97 0.28% 3.21% FTAL SPDR FTSE UK All Share UCITS ETF 0.85 0.20% N/A FLGB Franklin FTSE United Kingdom ETF 0.63 0.09% 4.04% What Is the Best U.K. Equity ETF? The best U.K. equity ETF depends on your financial goals and risk tolerance. There is no one-size-fits-all ETF. Nevertheless, some general factors to review include historical performance, distribution yield, ETF volatility, expense ratios, tracking error, and liquidity. How Do Changes in the British Pound Affect U.K. Equity ETFs? Changes in the pound’s value can significantly impact U.K. equity ETFs in several ways:Changes in the GBP exchange rate relative to the home currency can affect the total return on investment.The pound’s strength or weakness can have diverse effects on U.K. companies, influencing their profitability and competitiveness.A weaker pound will increase the cost of imports, potentially leading to higher inflation in the U.K., which could lead to higher interest rates.The value of the GBP influences investor sentiment and capital flows in and out of U.K. assets. Are There Other Geographically Based ETFs? Many geographically based ETFs are available, covering a wide range of regions, countries, and specific areas within those countries. These ETFs allow exposure to different global markets, each with its own unique characteristics and investments. Some include global ETFs, regional ETFs, country-specific ETFs, emerging market ETFs, frontier market ETFs, and developed market ETFs. The Bottom Line U.K. equity ETFs are investment vehicles that offer an efficient way to gain diversified exposure to the U.K. stock market. The funds, traded on stock exchanges, typically aim to track the performance of specific indexes like the FTSE 100 or FTSE 250 or focus on particular sectors within the U.K. economy. Like other ETFs, U.K. equity ETFs offer advantages such as diversification, liquidity, lower relative costs, transparency, and flexibility in investment strategies. However, investing in U.K. equity ETFs has certain risks, including market volatility, currency exchange rate fluctuations, and sector-specific risks. These risks should be weighed against your investment goals and risk tolerance.

https://www.investopedia.com/articles/pf/06/insurancecontracts.asp

How to Easily Understand Your Insurance Contract

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> There are certain types of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance.asp" rel="noopener noreferrer">insurance</a> most people need to have. For example, if you own a home then homeowner's insurance may be standard. Auto insurance covers your vehicle while life insurance protects you and your loved ones in a worst-case scenario. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> When your insurer gives you the policy document, it's important to read through it carefully to make sure you understand it. Your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accredited-advisor-in-insurance.asp" rel="noopener noreferrer">insurance advisor</a> is always there for you to help you with the tricky terms in the insurance forms, but you should also know for yourself what your contract says. In this article, we'll make reading your insurance contract easy, so you understand their basic principles and how they are put to use in daily life. </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>Life insurance contracts spell out the terms of your policy, including what's covered and what's not as well as what you'll pay.</li><li>A life insurance contract can contain terminology and jargon that you may not be immediately familiar with. </li><li>It's important to read through an insurance contract carefully before signing so you understand what you're agreeing to. </li><li>You should also review the contract to check for any errors that may affect your coverage or costs.</li></ul></div></div></div> <span class="heading-toc" id="toc-insurance-contract-essentials"></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"> Insurance Contract Essentials </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> When reviewing an insurance contract, there are certain things included that are typically universal. </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><em>Offer and Acceptance. </em>When applying for insurance, the first thing you do is get the proposal form of a particular insurance company. After filling in the requested details, you send the form to the company (sometimes with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance-premium.asp" rel="noopener noreferrer">premium</a> check). This is your offer. If the insurance company agrees to insure you, this is called <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/acceptance.asp" rel="noopener noreferrer">acceptance</a>. In some cases, your insurer may agree to accept your offer after making some changes to your proposed terms.</li> <li><em>Consideration. </em>This is the premium or the future premiums that you have to pay to your insurance company. For insurers, consideration also refers to the money paid out to you should you file an <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance_claim.asp" rel="noopener noreferrer">insurance claim</a>. This means that each party to the contract must provide some value to the relationship.</li> <li><em>Legal Capacity. </em>You need to be legally competent to enter into an agreement with your insurer. If you are a minor or are mentally ill, for example, then you may not be qualified to make contracts. Similarly, insurers are considered to be competent if they are licensed under the prevailing regulations that govern them.</li> <li><em>Legal Purpose.</em> If the purpose of your contract is to encourage illegal activities, it is invalid.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_12-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_13-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You may not want to sign an insurance contract if you don't fully understand the terms without first consulting an insurance expert.</p></div></div></div> <span class="heading-toc" id="toc-contract-values"></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"> Contract Values </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> This section of an insurance contract specifies what the insurance company may pay out to you for an eligible claim, as well as what you may pay to the insurer for a deductible. How these sections of an insurance contract are structured often depends on whether you have an indemnity or non-indemnity policy. </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"> Indemnity Contracts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Most insurance contracts are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indemnity.asp" rel="noopener noreferrer">indemnity contracts</a>. Indemnity contracts apply to insurances where the loss suffered can be measured in terms of money. </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><em>Principle of Indemnity. </em>This states that insurers pay no more than the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/actual-total-loss.asp" rel="noopener noreferrer">actual loss</a> suffered. The purpose of an insurance contract is to leave you in the same financial position you were in immediately prior to the incident leading to an insurance claim. When your old Chevy Cavalier is stolen, you can't expect your insurer to replace it with a brand new Mercedes-Benz. In other words, you will be <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/remuneration.asp" rel="noopener noreferrer">remunerated</a> according to the total sum you have <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assurance.asp" rel="noopener noreferrer">assured</a> for the car.</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"> (To read more on indemnity contracts, see "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/car-insurance-costs.asp" rel="noopener noreferrer">Shopping for Car Insurance</a>" and "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/80percentrule.asp" rel="noopener noreferrer">How Does the 80% Rule for Home Insurance Work?</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"> There are some additional factors of your insurance contract that create situations in which the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/full-value.asp" rel="noopener noreferrer">full value</a> of an insured asset is not remunerated. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <li><em>Under-Insurance. </em>Often, in order to save on premiums, you may insure your house at $80,000 when the total value of the house actually comes to $100,000. At the time of partial loss, your insurer will pay only a proportion of $80,000 while you have to dig into your savings to cover the remaining portion of the loss. This is called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underinsurance.asp" rel="noopener noreferrer">under-insurance</a>, and you should try to avoid it as much as possible.</li> <li><em>Excess. </em>To avoid trivial claims, the insurers have introduced provisions like excess. For example, you have <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/auto-insurance.asp" rel="noopener noreferrer">auto insurance</a> with the applicable excess of $5,000. Unfortunately, your car had an accident with the loss amounting to $7,000. Your insurer will pay you the $7,000 because the loss has exceeded the specified limit of $5,000. But, if the loss comes to $3,000 then the insurance company will not pay a single penny and you have to bear the loss expenses yourself. In short, the insurers will not entertain claims unless and until your losses exceed a minimum amount set by the insurer.</li> <li><em><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deductible.asp" rel="noopener noreferrer">Deductible</a>. </em>This<em> </em>is the amount you pay in <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outofpocket.asp" rel="noopener noreferrer">out-of-pocket expenses</a> before your insurer covers the remaining expense. Therefore, if the deductible is $5,000 and the total insured loss comes to $15,000, your insurance company will only pay $10,000. The higher the deductible, the lower the premium and vice versa.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-subheading__text"> Non-Indemnity Contracts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lifeinsurance.asp" rel="noopener noreferrer">Life insurance</a> contracts and most personal accident insurance contracts are non-indemnity contracts. You may purchase a life insurance policy of $1 million, but that does not imply that your life's value is equal to this dollar amount. Because you can't calculate your life's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/networth.asp" rel="noopener noreferrer">net worth</a> and fix a price on it, an indemnity contract does not apply. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> A life insurance contract typically includes the following: </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><em><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/common-policy-declarations.asp" rel="noopener noreferrer">Declarations page</a>: </em>This is often the first page of a life insurance policy and it includes the policy owner's name, the policy type and number, issue date, effective date, premium class or rate class and any riders you've chosen to add on. If you purchased a term life policy, the declarations page should also specify the length of the coverage term. </li> <li><em>Policy terms and definitions: </em>You may see a separate section in your life insurance contract that breaks down terms and definitions, including death benefit, premium, beneficiary and insurance age. Your insurance age may be your actual age or the nearest age assigned to you by the life insurance company.</li> <li><em>Coverage details: </em>The coverage details section of a life insurance contract provides in-depth information about your policy, including how much you'll pay for premiums, when those payments are due, penalties for missing payments and who your policy's death benefits should be paid out to. For example, you may have just one <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/primary-beneficiary.asp" rel="noopener noreferrer">primary beneficiary</a> or a primary beneficiary with several <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contingent_beneficiary.asp" rel="noopener noreferrer">contingent beneficiaries</a>. </li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><em>Additional policy details: </em>There may be a separate section in your life insurance contract that covers riders if you've chosen to add any on. <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rider.asp" rel="noopener noreferrer">Riders</a> expand your policy's coverage. <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/07/life_insurance_rider.asp" rel="noopener noreferrer">Common life insurance riders</a> include accelerated death benefit riders, long-term care riders and critical illness riders. These add-ons allow you to tap into your death benefit while still living if you need money to cover expenses related to a terminal illness. </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"> When you've determined that life insurance is something you need, it's important to compare the options carefully. For example, you may lean toward <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/termlife.asp" rel="noopener noreferrer">term life insurance</a> versus <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/permanentlife.asp" rel="noopener noreferrer">permanent life insurance</a> if you don't need lifetime coverage. Or you may prefer permanent coverage if you're treating life insurance like an investment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> In either scenario, it's important to shop around to find the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-companies-4845858" rel="noopener noreferrer">best life insurance companies</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> (For more information on non-indemnity contracts, read "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/05/012405.asp" rel="noopener noreferrer">Buying Life Insurance: Term Versus Permanent</a>" and "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/06/transferlifeinsurance.asp" rel="noopener noreferrer">Shifting Life Insurance Ownership</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-callout mntl-block" id="mntl-sc-block_41-0"><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_42-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Using a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/06/insureneeds.asp" rel="noopener noreferrer">life insurance calculator</a> can help you determine what type and what amount of coverage you need.</p></div></div></div> <span class="heading-toc" id="toc-insurable-interest"></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"> Insurable Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> It is your legal right to insure any type of property or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-event-insurance-5077590">any event that may cause financial loss</a> or create legal <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liability.asp">liability</a> for you. This is called <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurable-interest.asp">insurable interest</a>. </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"> Suppose you are living in your uncle's house, and you apply for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeowners-insurance.asp">homeowners insurance</a> because you believe that you may inherit the house later. Insurers will decline your offer because you are not the owner of the house and, therefore, you do not stand to suffer financially in the event of a loss. When it comes to insurance, it is not the house, car or machinery that is insured. Rather, it is the monetary interest in that house, car or machinery to which your policy applies. </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"> It is also the principle of insurable interest that allows married couples to take out insurance policies on each other's lives, on the principle that one may suffer financially if the spouse dies. Insurable interest also exists in some business arrangements, as seen between a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditor.asp">creditor</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtor.asp">debtor</a>, between business partners or between employers and employees. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_50-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_51-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>In life insurance contracts, someone with an insurable interest can include your spouse, your children or grandchildren, a special needs adult who is also a dependent or aging parents.</p></div></div></div> <span class="heading-toc" id="toc-principle-of-subrogation"></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"> Principle of Subrogation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subrogation.asp">Subrogation</a> allows an insurer to sue a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/third-party.asp">third party</a> that has caused a loss to the insured and pursues all methods of getting back some of the money that it has paid to the insured as a result of the loss. </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"> For example, if you are injured in a road accident that is caused by the reckless driving of another party, you will be compensated by your insurer. However, your insurance company may also sue the reckless driver in an attempt to recover that money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-the-doctrine-of-good-faith"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> The Doctrine of Good Faith </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> All insurance contracts are based on the concept of <em>uberrima fides,</em> or the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/doctrineofutmostgoodfaith.asp">doctrine of utmost good faith</a>. This doctrine emphasizes the presence of mutual faith between the insured and the insurer. In simple terms, while applying for insurance, it becomes <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/042415/what-difference-between-moral-hazard-and-adverse-selection.asp">your duty to disclose your relevant facts</a> and information truthfully to the insurer. Likewise, the insurer cannot hide information about the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance-coverage.asp">insurance coverage</a> that is being sold. </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><em>Duty of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fulldisclosure.asp">Disclosure</a>.</em> You are legally obliged to reveal all information that would influence the insurer's decision to enter into the insurance contract. Factors that increase the risks<em>—</em>previous losses and claims under other policies, insurance coverage that has been declined to you in the past, the existence of other insurance contracts, full facts and descriptions regarding the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/property.asp">property</a> or the event to be insured<em>—</em>must be disclosed. These facts are called material facts. Depending on these material facts, your insurer will decide whether to insure you as well as what premium to charge. For instance, in life insurance, your smoking habit is an important material fact for the insurer. As a result, your insurance company may decide to charge a significantly higher premium as a result of your smoking habits.</li> <li><em>Representations and Warranty.</em> In most kinds of insurances, you have to sign a declaration at the end of the application form, which states that the given answers to the questions in the application form and other personal statements and questionnaires are true and complete. Therefore, when applying for fire insurance, for example, you should make sure that the information that you provide regarding the type of construction of your building or the nature of its use is technically correct.</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"> Depending on their nature, these statements may either be representations or warranties. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> A) Representations: These are the written statements made by you on your application form, which represent the proposed risk to the insurance company. For instance, on a life insurance application form, information about your age, details of family history, occupation, etc. are the representations that should be true in every respect. Breach of representations occurs only when you give false information (for example, your age) in important statements. However, the contract may or may not be void depending on the type of the misrepresentation that occurs </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"> B) Warranties: Warranties in insurance contracts are different from those of ordinary commercial contracts. They are imposed by the insurer to ensure that the risk remains the same throughout the policy and does not increase. For example, in auto insurance, if you lend your car to a friend who doesn't have a license and that friend is involved in an accident, your insurer may consider it a breach of warranty because it wasn't informed about this alteration. As a result, your claim could be rejected. </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"> As we've already mentioned, insurance works on the principle of mutual trust. It is your responsibility to disclose all the relevant facts to your insurer. Normally, a breach of the principle of utmost good faith arises when you, whether deliberately or accidentally, fail to divulge these important facts. There are two kinds of non-disclosure: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> <li>Innocent non-disclosure relates to failing to supply the information you didn't know about</li><li>Deliberate non-disclosure means providing incorrect material information intentionally</li> </ul> <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"> For example, suppose that you are unaware that your grandfather died from cancer and, therefore, you did not disclose this material fact in the family history questionnaire when applying for life insurance; this is innocent non-disclosure. However, if you knew about this material fact and purposely held it back from the insurer, you are guilty of fraudulent non-disclosure. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> When you supply inaccurate information with the intention to deceive, your insurance contract becomes void. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> <li>If this deliberate breach was discovered at the time of the claim, your insurance company will not pay the claim.</li><li>If the insurer considers the breach as innocent but significant to the risk, it may choose to punish you by collecting additional premiums.</li><li>In case of an innocent breach that is irrelevant to the risk, the insurer may decide to ignore the breach as if it had never occurred.</li> </ul> <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-other-policy-aspects"></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"> Other Policy Aspects </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> <em>The Doctrine of Adhesion.</em> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adhesion-contract.asp">doctrine of adhesion</a> states that you must accept the entire insurance contract and all of its terms and conditions without bargaining. Because the insured has no opportunity to change the terms, any ambiguities in the contract will be interpreted in their favor. </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"> <em>Principle of Waiver and Estoppel</em>. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/waiver.asp">waiver</a> is a voluntary surrender of a known right. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/estoppel.asp">Estoppel</a> prevents a person from asserting those rights because they have acted in such a way as to deny interest in preserving those rights. Presume that you fail to disclose some information in the insurance proposal form. Your insurer doesn't request that information and issues the insurance policy. This is a waiver. In the future, when a claim arises, your insurer cannot question the contract on the basis of non-disclosure. This is estoppel. For this reason, your insurer will have to pay the claim. </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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/endorsement.asp"><em>Endorsements</em></a> are normally used when the terms of insurance contracts are to be altered. They could also be issued to add specific conditions to the policy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coinsurance.asp"><em>Co-insurance</em></a> refers to the sharing of insurance by two or more insurance companies in an agreed proportion. For the insurance of a large shopping mall, for example, the risk is very high. Therefore, the insurance company may choose to involve two or more insurers to share the risk. Coinsurance can also exist between you and your insurance company. This provision is quite popular in medical insurance, in which you and the insurance company decide to share the covered costs in the ratio of 20:80. Therefore, during the claim, your insurer will pay 80% of the covered loss while you shell out the remaining 20%. </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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reinsurance.asp"><em>Reinsurance</em></a> occurs when your insurer "sells" some of your coverage to another insurance company. Suppose you are a famous rock star and you want your voice to be insured for $50 million. Your offer is accepted by the Insurance Company A. However, Insurance Company A is unable to retain the entire risk, so it passes part of this risk<em>—</em>let's say $40 million<em>—</em>to Insurance Company B. Should you lose your singing voice, you will receive $50 million from insurer A ($10 million + $40 million) with insurer B contributing the reinsured amount ($40 million) to insurer A. This practice is known as reinsurance. Generally, reinsurance is practiced to a much greater extent by general insurers than life insurers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></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 Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> When applying for insurance, you will find a huge range of insurance products available in the market. If you have an insurance advisor or broker, they can shop around and make sure that you are getting adequate insurance coverage for your money. Even so, a little understanding of insurance contracts can go a long way in making sure that your advisor's recommendations are on track. </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"> Furthermore, there may be times when your claim is canceled because you didn't pay attention to certain information requested by your insurance company. In this case, a lack of knowledge and carelessness can cost you a lot. Go through your insurer's policy features instead of signing them without delving into the fine print. If you understand what you're reading, you'll be able to ensure that the insurance product that you are signing up for will cover you when you need it most. </p></div>

There are certain types of [insurance](https://www.investopedia.com/terms/i/insurance.asp) most people need to have. For example, if you own a home then homeowner's insurance may be standard. Auto insurance covers your vehicle while life insurance protects you and your loved ones in a worst-case scenario. When your insurer gives you the policy document, it's important to read through it carefully to make sure you understand it. Your [insurance advisor](https://www.investopedia.com/terms/a/accredited-advisor-in-insurance.asp) is always there for you to help you with the tricky terms in the insurance forms, but you should also know for yourself what your contract says. In this article, we'll make reading your insurance contract easy, so you understand their basic principles and how they are put to use in daily life. ### Key Takeaways * Life insurance contracts spell out the terms of your policy, including what's covered and what's not as well as what you'll pay. * A life insurance contract can contain terminology and jargon that you may not be immediately familiar with. * It's important to read through an insurance contract carefully before signing so you understand what you're agreeing to. * You should also review the contract to check for any errors that may affect your coverage or costs. ## Insurance Contract Essentials When reviewing an insurance contract, there are certain things included that are typically universal. * *Offer and Acceptance.*When applying for insurance, the first thing you do is get the proposal form of a particular insurance company. After filling in the requested details, you send the form to the company (sometimes with a [premium](https://www.investopedia.com/terms/i/insurance-premium.asp) check). This is your offer. If the insurance company agrees to insure you, this is called [acceptance](https://www.investopedia.com/terms/a/acceptance.asp). In some cases, your insurer may agree to accept your offer after making some changes to your proposed terms. * *Consideration.*This is the premium or the future premiums that you have to pay to your insurance company. For insurers, consideration also refers to the money paid out to you should you file an [insurance claim](https://www.investopedia.com/terms/i/insurance_claim.asp). This means that each party to the contract must provide some value to the relationship. * *Legal Capacity.*You need to be legally competent to enter into an agreement with your insurer. If you are a minor or are mentally ill, for example, then you may not be qualified to make contracts. Similarly, insurers are considered to be competent if they are licensed under the prevailing regulations that govern them. * *Legal Purpose.* If the purpose of your contract is to encourage illegal activities, it is invalid. ### Important You may not want to sign an insurance contract if you don't fully understand the terms without first consulting an insurance expert. ## Contract Values This section of an insurance contract specifies what the insurance company may pay out to you for an eligible claim, as well as what you may pay to the insurer for a deductible. How these sections of an insurance contract are structured often depends on whether you have an indemnity or non-indemnity policy. ### Indemnity Contracts Most insurance contracts are [indemnity contracts](https://www.investopedia.com/terms/i/indemnity.asp). Indemnity contracts apply to insurances where the loss suffered can be measured in terms of money. * *Principle of Indemnity.*This states that insurers pay no more than the [actual loss](https://www.investopedia.com/terms/a/actual-total-loss.asp) suffered. The purpose of an insurance contract is to leave you in the same financial position you were in immediately prior to the incident leading to an insurance claim. When your old Chevy Cavalier is stolen, you can't expect your insurer to replace it with a brand new Mercedes-Benz. In other words, you will be [remunerated](https://www.investopedia.com/terms/r/remuneration.asp) according to the total sum you have [assured](https://www.investopedia.com/terms/a/assurance.asp) for the car. (To read more on indemnity contracts, see "[Shopping for Car Insurance](https://www.investopedia.com/articles/pf/08/car-insurance-costs.asp)" and "[How Does the 80% Rule for Home Insurance Work?](https://www.investopedia.com/ask/answers/06/80percentrule.asp)") There are some additional factors of your insurance contract that create situations in which the [full value](https://www.investopedia.com/terms/f/full-value.asp) of an insured asset is not remunerated. * *Under-Insurance.*Often, in order to save on premiums, you may insure your house at $80,000 when the total value of the house actually comes to $100,000. At the time of partial loss, your insurer will pay only a proportion of $80,000 while you have to dig into your savings to cover the remaining portion of the loss. This is called [under-insurance](https://www.investopedia.com/terms/u/underinsurance.asp), and you should try to avoid it as much as possible. * *Excess.*To avoid trivial claims, the insurers have introduced provisions like excess. For example, you have [auto insurance](https://www.investopedia.com/terms/a/auto-insurance.asp) with the applicable excess of $5,000. Unfortunately, your car had an accident with the loss amounting to $7,000. Your insurer will pay you the $7,000 because the loss has exceeded the specified limit of $5,000. But, if the loss comes to $3,000 then the insurance company will not pay a single penny and you have to bear the loss expenses yourself. In short, the insurers will not entertain claims unless and until your losses exceed a minimum amount set by the insurer. * *[Deductible](https://www.investopedia.com/terms/d/deductible.asp).* Thisis the amount you pay in [out-of-pocket expenses](https://www.investopedia.com/terms/o/outofpocket.asp) before your insurer covers the remaining expense. Therefore, if the deductible is $5,000 and the total insured loss comes to $15,000, your insurance company will only pay $10,000. The higher the deductible, the lower the premium and vice versa. ### Non-Indemnity Contracts [Life insurance](https://www.investopedia.com/terms/l/lifeinsurance.asp) contracts and most personal accident insurance contracts are non-indemnity contracts. You may purchase a life insurance policy of $1 million, but that does not imply that your life's value is equal to this dollar amount. Because you can't calculate your life's [net worth](https://www.investopedia.com/terms/n/networth.asp) and fix a price on it, an indemnity contract does not apply. A life insurance contract typically includes the following: * *[Declarations page](https://www.investopedia.com/terms/c/common-policy-declarations.asp):* This is often the first page of a life insurance policy and it includes the policy owner's name, the policy type and number, issue date, effective date, premium class or rate class and any riders you've chosen to add on. If you purchased a term life policy, the declarations page should also specify the length of the coverage term. * *Policy terms and definitions:* You may see a separate section in your life insurance contract that breaks down terms and definitions, including death benefit, premium, beneficiary and insurance age. Your insurance age may be your actual age or the nearest age assigned to you by the life insurance company. * *Coverage details:* The coverage details section of a life insurance contract provides in-depth information about your policy, including how much you'll pay for premiums, when those payments are due, penalties for missing payments and who your policy's death benefits should be paid out to. For example, you may have just one [primary beneficiary](https://www.investopedia.com/terms/p/primary-beneficiary.asp) or a primary beneficiary with several [contingent beneficiaries](https://www.investopedia.com/terms/c/contingent_beneficiary.asp). * *Additional policy details:* There may be a separate section in your life insurance contract that covers riders if you've chosen to add any on. [Riders](https://www.investopedia.com/terms/r/rider.asp) expand your policy's coverage. [Common life insurance riders](https://www.investopedia.com/articles/pf/07/life_insurance_rider.asp) include accelerated death benefit riders, long-term care riders and critical illness riders. These add-ons allow you to tap into your death benefit while still living if you need money to cover expenses related to a terminal illness. When you've determined that life insurance is something you need, it's important to compare the options carefully. For example, you may lean toward [term life insurance](https://www.investopedia.com/terms/t/termlife.asp) versus [permanent life insurance](https://www.investopedia.com/terms/p/permanentlife.asp) if you don't need lifetime coverage. Or you may prefer permanent coverage if you're treating life insurance like an investment. In either scenario, it's important to shop around to find the [best life insurance companies](https://www.investopedia.com/best-life-insurance-companies-4845858). (For more information on non-indemnity contracts, read "[Buying Life Insurance: Term Versus Permanent](https://www.investopedia.com/articles/pf/05/012405.asp)" and "[Shifting Life Insurance Ownership](https://www.investopedia.com/articles/pf/06/transferlifeinsurance.asp).") ### Tip Using a [life insurance calculator](https://www.investopedia.com/articles/pf/06/insureneeds.asp) can help you determine what type and what amount of coverage you need. ## Insurable Interest It is your legal right to insure any type of property or [any event that may cause financial loss](https://www.investopedia.com/best-event-insurance-5077590) or create legal [liability](https://www.investopedia.com/terms/l/liability.asp) for you. This is called [insurable interest](https://www.investopedia.com/terms/i/insurable-interest.asp). Suppose you are living in your uncle's house, and you apply for [homeowners insurance](https://www.investopedia.com/terms/h/homeowners-insurance.asp) because you believe that you may inherit the house later. Insurers will decline your offer because you are not the owner of the house and, therefore, you do not stand to suffer financially in the event of a loss. When it comes to insurance, it is not the house, car or machinery that is insured. Rather, it is the monetary interest in that house, car or machinery to which your policy applies. It is also the principle of insurable interest that allows married couples to take out insurance policies on each other's lives, on the principle that one may suffer financially if the spouse dies. Insurable interest also exists in some business arrangements, as seen between a [creditor](https://www.investopedia.com/terms/c/creditor.asp) and [debtor](https://www.investopedia.com/terms/d/debtor.asp), between business partners or between employers and employees. ### Tip In life insurance contracts, someone with an insurable interest can include your spouse, your children or grandchildren, a special needs adult who is also a dependent or aging parents. ## Principle of Subrogation [Subrogation](https://www.investopedia.com/terms/s/subrogation.asp) allows an insurer to sue a [third party](https://www.investopedia.com/terms/t/third-party.asp) that has caused a loss to the insured and pursues all methods of getting back some of the money that it has paid to the insured as a result of the loss. For example, if you are injured in a road accident that is caused by the reckless driving of another party, you will be compensated by your insurer. However, your insurance company may also sue the reckless driver in an attempt to recover that money. ## The Doctrine of Good Faith All insurance contracts are based on the concept of *uberrima fides,* or the [doctrine of utmost good faith](https://www.investopedia.com/terms/d/doctrineofutmostgoodfaith.asp). This doctrine emphasizes the presence of mutual faith between the insured and the insurer. In simple terms, while applying for insurance, it becomes [your duty to disclose your relevant facts](https://www.investopedia.com/ask/answers/042415/what-difference-between-moral-hazard-and-adverse-selection.asp) and information truthfully to the insurer. Likewise, the insurer cannot hide information about the [insurance coverage](https://www.investopedia.com/terms/i/insurance-coverage.asp) that is being sold. * *Duty of [Disclosure](https://www.investopedia.com/terms/f/fulldisclosure.asp).* You are legally obliged to reveal all information that would influence the insurer's decision to enter into the insurance contract. Factors that increase the risks*—*previous losses and claims under other policies, insurance coverage that has been declined to you in the past, the existence of other insurance contracts, full facts and descriptions regarding the [property](https://www.investopedia.com/terms/p/property.asp) or the event to be insured*—*must be disclosed. These facts are called material facts. Depending on these material facts, your insurer will decide whether to insure you as well as what premium to charge. For instance, in life insurance, your smoking habit is an important material fact for the insurer. As a result, your insurance company may decide to charge a significantly higher premium as a result of your smoking habits. * *Representations and Warranty.* In most kinds of insurances, you have to sign a declaration at the end of the application form, which states that the given answers to the questions in the application form and other personal statements and questionnaires are true and complete. Therefore, when applying for fire insurance, for example, you should make sure that the information that you provide regarding the type of construction of your building or the nature of its use is technically correct. Depending on their nature, these statements may either be representations or warranties. A) Representations: These are the written statements made by you on your application form, which represent the proposed risk to the insurance company. For instance, on a life insurance application form, information about your age, details of family history, occupation, etc. are the representations that should be true in every respect. Breach of representations occurs only when you give false information (for example, your age) in important statements. However, the contract may or may not be void depending on the type of the misrepresentation that occurs B) Warranties: Warranties in insurance contracts are different from those of ordinary commercial contracts. They are imposed by the insurer to ensure that the risk remains the same throughout the policy and does not increase. For example, in auto insurance, if you lend your car to a friend who doesn't have a license and that friend is involved in an accident, your insurer may consider it a breach of warranty because it wasn't informed about this alteration. As a result, your claim could be rejected. As we've already mentioned, insurance works on the principle of mutual trust. It is your responsibility to disclose all the relevant facts to your insurer. Normally, a breach of the principle of utmost good faith arises when you, whether deliberately or accidentally, fail to divulge these important facts. There are two kinds of non-disclosure: * Innocent non-disclosure relates to failing to supply the information you didn't know about * Deliberate non-disclosure means providing incorrect material information intentionally For example, suppose that you are unaware that your grandfather died from cancer and, therefore, you did not disclose this material fact in the family history questionnaire when applying for life insurance; this is innocent non-disclosure. However, if you knew about this material fact and purposely held it back from the insurer, you are guilty of fraudulent non-disclosure. When you supply inaccurate information with the intention to deceive, your insurance contract becomes void. * If this deliberate breach was discovered at the time of the claim, your insurance company will not pay the claim. * If the insurer considers the breach as innocent but significant to the risk, it may choose to punish you by collecting additional premiums. * In case of an innocent breach that is irrelevant to the risk, the insurer may decide to ignore the breach as if it had never occurred. ## Other Policy Aspects *The Doctrine of Adhesion.* The [doctrine of adhesion](https://www.investopedia.com/terms/a/adhesion-contract.asp) states that you must accept the entire insurance contract and all of its terms and conditions without bargaining. Because the insured has no opportunity to change the terms, any ambiguities in the contract will be interpreted in their favor. *Principle of Waiver and Estoppel*. A [waiver](https://www.investopedia.com/terms/w/waiver.asp) is a voluntary surrender of a known right. [Estoppel](https://www.investopedia.com/terms/e/estoppel.asp) prevents a person from asserting those rights because they have acted in such a way as to deny interest in preserving those rights. Presume that you fail to disclose some information in the insurance proposal form. Your insurer doesn't request that information and issues the insurance policy. This is a waiver. In the future, when a claim arises, your insurer cannot question the contract on the basis of non-disclosure. This is estoppel. For this reason, your insurer will have to pay the claim. [*Endorsements*](https://www.investopedia.com/terms/e/endorsement.asp) are normally used when the terms of insurance contracts are to be altered. They could also be issued to add specific conditions to the policy. [*Co-insurance*](https://www.investopedia.com/terms/c/coinsurance.asp) refers to the sharing of insurance by two or more insurance companies in an agreed proportion. For the insurance of a large shopping mall, for example, the risk is very high. Therefore, the insurance company may choose to involve two or more insurers to share the risk. Coinsurance can also exist between you and your insurance company. This provision is quite popular in medical insurance, in which you and the insurance company decide to share the covered costs in the ratio of 20:80. Therefore, during the claim, your insurer will pay 80% of the covered loss while you shell out the remaining 20%. [*Reinsurance*](https://www.investopedia.com/terms/r/reinsurance.asp) occurs when your insurer "sells" some of your coverage to another insurance company. Suppose you are a famous rock star and you want your voice to be insured for $50 million. Your offer is accepted by the Insurance Company A. However, Insurance Company A is unable to retain the entire risk, so it passes part of this risk*—*let's say $40 million*—*to Insurance Company B. Should you lose your singing voice, you will receive $50 million from insurer A ($10 million + $40 million) with insurer B contributing the reinsured amount ($40 million) to insurer A. This practice is known as reinsurance. Generally, reinsurance is practiced to a much greater extent by general insurers than life insurers. ## The Bottom Line When applying for insurance, you will find a huge range of insurance products available in the market. If you have an insurance advisor or broker, they can shop around and make sure that you are getting adequate insurance coverage for your money. Even so, a little understanding of insurance contracts can go a long way in making sure that your advisor's recommendations are on track. Furthermore, there may be times when your claim is canceled because you didn't pay attention to certain information requested by your insurance company. In this case, a lack of knowledge and carelessness can cost you a lot. Go through your insurer's policy features instead of signing them without delving into the fine print. If you understand what you're reading, you'll be able to ensure that the insurance product that you are signing up for will cover you when you need it most.

There are certain types of insurance most people need to have. For example, if you own a home then homeowner's insurance may be standard. Auto insurance covers your vehicle while life insurance protects you and your loved ones in a worst-case scenario. When your insurer gives you the policy document, it's important to read through it carefully to make sure you understand it. Your insurance advisor is always there for you to help you with the tricky terms in the insurance forms, but you should also know for yourself what your contract says. In this article, we'll make reading your insurance contract easy, so you understand their basic principles and how they are put to use in daily life. Key Takeaways Life insurance contracts spell out the terms of your policy, including what's covered and what's not as well as what you'll pay.A life insurance contract can contain terminology and jargon that you may not be immediately familiar with. It's important to read through an insurance contract carefully before signing so you understand what you're agreeing to. You should also review the contract to check for any errors that may affect your coverage or costs. Insurance Contract Essentials When reviewing an insurance contract, there are certain things included that are typically universal. Offer and Acceptance. When applying for insurance, the first thing you do is get the proposal form of a particular insurance company. After filling in the requested details, you send the form to the company (sometimes with a premium check). This is your offer. If the insurance company agrees to insure you, this is called acceptance. In some cases, your insurer may agree to accept your offer after making some changes to your proposed terms. Consideration. This is the premium or the future premiums that you have to pay to your insurance company. For insurers, consideration also refers to the money paid out to you should you file an insurance claim. This means that each party to the contract must provide some value to the relationship. Legal Capacity. You need to be legally competent to enter into an agreement with your insurer. If you are a minor or are mentally ill, for example, then you may not be qualified to make contracts. Similarly, insurers are considered to be competent if they are licensed under the prevailing regulations that govern them. Legal Purpose. If the purpose of your contract is to encourage illegal activities, it is invalid. Important You may not want to sign an insurance contract if you don't fully understand the terms without first consulting an insurance expert. Contract Values This section of an insurance contract specifies what the insurance company may pay out to you for an eligible claim, as well as what you may pay to the insurer for a deductible. How these sections of an insurance contract are structured often depends on whether you have an indemnity or non-indemnity policy. Indemnity Contracts Most insurance contracts are indemnity contracts. Indemnity contracts apply to insurances where the loss suffered can be measured in terms of money. Principle of Indemnity. This states that insurers pay no more than the actual loss suffered. The purpose of an insurance contract is to leave you in the same financial position you were in immediately prior to the incident leading to an insurance claim. When your old Chevy Cavalier is stolen, you can't expect your insurer to replace it with a brand new Mercedes-Benz. In other words, you will be remunerated according to the total sum you have assured for the car. (To read more on indemnity contracts, see "Shopping for Car Insurance" and "How Does the 80% Rule for Home Insurance Work?") There are some additional factors of your insurance contract that create situations in which the full value of an insured asset is not remunerated. Under-Insurance. Often, in order to save on premiums, you may insure your house at $80,000 when the total value of the house actually comes to $100,000. At the time of partial loss, your insurer will pay only a proportion of $80,000 while you have to dig into your savings to cover the remaining portion of the loss. This is called under-insurance, and you should try to avoid it as much as possible. Excess. To avoid trivial claims, the insurers have introduced provisions like excess. For example, you have auto insurance with the applicable excess of $5,000. Unfortunately, your car had an accident with the loss amounting to $7,000. Your insurer will pay you the $7,000 because the loss has exceeded the specified limit of $5,000. But, if the loss comes to $3,000 then the insurance company will not pay a single penny and you have to bear the loss expenses yourself. In short, the insurers will not entertain claims unless and until your losses exceed a minimum amount set by the insurer. Deductible. This is the amount you pay in out-of-pocket expenses before your insurer covers the remaining expense. Therefore, if the deductible is $5,000 and the total insured loss comes to $15,000, your insurance company will only pay $10,000. The higher the deductible, the lower the premium and vice versa. Non-Indemnity Contracts Life insurance contracts and most personal accident insurance contracts are non-indemnity contracts. You may purchase a life insurance policy of $1 million, but that does not imply that your life's value is equal to this dollar amount. Because you can't calculate your life's net worth and fix a price on it, an indemnity contract does not apply. A life insurance contract typically includes the following: Declarations page: This is often the first page of a life insurance policy and it includes the policy owner's name, the policy type and number, issue date, effective date, premium class or rate class and any riders you've chosen to add on. If you purchased a term life policy, the declarations page should also specify the length of the coverage term. Policy terms and definitions: You may see a separate section in your life insurance contract that breaks down terms and definitions, including death benefit, premium, beneficiary and insurance age. Your insurance age may be your actual age or the nearest age assigned to you by the life insurance company. Coverage details: The coverage details section of a life insurance contract provides in-depth information about your policy, including how much you'll pay for premiums, when those payments are due, penalties for missing payments and who your policy's death benefits should be paid out to. For example, you may have just one primary beneficiary or a primary beneficiary with several contingent beneficiaries. Additional policy details: There may be a separate section in your life insurance contract that covers riders if you've chosen to add any on. Riders expand your policy's coverage. Common life insurance riders include accelerated death benefit riders, long-term care riders and critical illness riders. These add-ons allow you to tap into your death benefit while still living if you need money to cover expenses related to a terminal illness. When you've determined that life insurance is something you need, it's important to compare the options carefully. For example, you may lean toward term life insurance versus permanent life insurance if you don't need lifetime coverage. Or you may prefer permanent coverage if you're treating life insurance like an investment. In either scenario, it's important to shop around to find the best life insurance companies. (For more information on non-indemnity contracts, read "Buying Life Insurance: Term Versus Permanent" and "Shifting Life Insurance Ownership.") Tip Using a life insurance calculator can help you determine what type and what amount of coverage you need. Insurable Interest It is your legal right to insure any type of property or any event that may cause financial loss or create legal liability for you. This is called insurable interest. Suppose you are living in your uncle's house, and you apply for homeowners insurance because you believe that you may inherit the house later. Insurers will decline your offer because you are not the owner of the house and, therefore, you do not stand to suffer financially in the event of a loss. When it comes to insurance, it is not the house, car or machinery that is insured. Rather, it is the monetary interest in that house, car or machinery to which your policy applies. It is also the principle of insurable interest that allows married couples to take out insurance policies on each other's lives, on the principle that one may suffer financially if the spouse dies. Insurable interest also exists in some business arrangements, as seen between a creditor and debtor, between business partners or between employers and employees. Tip In life insurance contracts, someone with an insurable interest can include your spouse, your children or grandchildren, a special needs adult who is also a dependent or aging parents. Principle of Subrogation Subrogation allows an insurer to sue a third party that has caused a loss to the insured and pursues all methods of getting back some of the money that it has paid to the insured as a result of the loss. For example, if you are injured in a road accident that is caused by the reckless driving of another party, you will be compensated by your insurer. However, your insurance company may also sue the reckless driver in an attempt to recover that money. The Doctrine of Good Faith All insurance contracts are based on the concept of uberrima fides, or the doctrine of utmost good faith. This doctrine emphasizes the presence of mutual faith between the insured and the insurer. In simple terms, while applying for insurance, it becomes your duty to disclose your relevant facts and information truthfully to the insurer. Likewise, the insurer cannot hide information about the insurance coverage that is being sold. Duty of Disclosure. You are legally obliged to reveal all information that would influence the insurer's decision to enter into the insurance contract. Factors that increase the risks—previous losses and claims under other policies, insurance coverage that has been declined to you in the past, the existence of other insurance contracts, full facts and descriptions regarding the property or the event to be insured—must be disclosed. These facts are called material facts. Depending on these material facts, your insurer will decide whether to insure you as well as what premium to charge. For instance, in life insurance, your smoking habit is an important material fact for the insurer. As a result, your insurance company may decide to charge a significantly higher premium as a result of your smoking habits. Representations and Warranty. In most kinds of insurances, you have to sign a declaration at the end of the application form, which states that the given answers to the questions in the application form and other personal statements and questionnaires are true and complete. Therefore, when applying for fire insurance, for example, you should make sure that the information that you provide regarding the type of construction of your building or the nature of its use is technically correct. Depending on their nature, these statements may either be representations or warranties. A) Representations: These are the written statements made by you on your application form, which represent the proposed risk to the insurance company. For instance, on a life insurance application form, information about your age, details of family history, occupation, etc. are the representations that should be true in every respect. Breach of representations occurs only when you give false information (for example, your age) in important statements. However, the contract may or may not be void depending on the type of the misrepresentation that occurs B) Warranties: Warranties in insurance contracts are different from those of ordinary commercial contracts. They are imposed by the insurer to ensure that the risk remains the same throughout the policy and does not increase. For example, in auto insurance, if you lend your car to a friend who doesn't have a license and that friend is involved in an accident, your insurer may consider it a breach of warranty because it wasn't informed about this alteration. As a result, your claim could be rejected. As we've already mentioned, insurance works on the principle of mutual trust. It is your responsibility to disclose all the relevant facts to your insurer. Normally, a breach of the principle of utmost good faith arises when you, whether deliberately or accidentally, fail to divulge these important facts. There are two kinds of non-disclosure: Innocent non-disclosure relates to failing to supply the information you didn't know aboutDeliberate non-disclosure means providing incorrect material information intentionally For example, suppose that you are unaware that your grandfather died from cancer and, therefore, you did not disclose this material fact in the family history questionnaire when applying for life insurance; this is innocent non-disclosure. However, if you knew about this material fact and purposely held it back from the insurer, you are guilty of fraudulent non-disclosure. When you supply inaccurate information with the intention to deceive, your insurance contract becomes void. If this deliberate breach was discovered at the time of the claim, your insurance company will not pay the claim.If the insurer considers the breach as innocent but significant to the risk, it may choose to punish you by collecting additional premiums.In case of an innocent breach that is irrelevant to the risk, the insurer may decide to ignore the breach as if it had never occurred. Other Policy Aspects The Doctrine of Adhesion. The doctrine of adhesion states that you must accept the entire insurance contract and all of its terms and conditions without bargaining. Because the insured has no opportunity to change the terms, any ambiguities in the contract will be interpreted in their favor. Principle of Waiver and Estoppel. A waiver is a voluntary surrender of a known right. Estoppel prevents a person from asserting those rights because they have acted in such a way as to deny interest in preserving those rights. Presume that you fail to disclose some information in the insurance proposal form. Your insurer doesn't request that information and issues the insurance policy. This is a waiver. In the future, when a claim arises, your insurer cannot question the contract on the basis of non-disclosure. This is estoppel. For this reason, your insurer will have to pay the claim. Endorsements are normally used when the terms of insurance contracts are to be altered. They could also be issued to add specific conditions to the policy. Co-insurance refers to the sharing of insurance by two or more insurance companies in an agreed proportion. For the insurance of a large shopping mall, for example, the risk is very high. Therefore, the insurance company may choose to involve two or more insurers to share the risk. Coinsurance can also exist between you and your insurance company. This provision is quite popular in medical insurance, in which you and the insurance company decide to share the covered costs in the ratio of 20:80. Therefore, during the claim, your insurer will pay 80% of the covered loss while you shell out the remaining 20%. Reinsurance occurs when your insurer "sells" some of your coverage to another insurance company. Suppose you are a famous rock star and you want your voice to be insured for $50 million. Your offer is accepted by the Insurance Company A. However, Insurance Company A is unable to retain the entire risk, so it passes part of this risk—let's say $40 million—to Insurance Company B. Should you lose your singing voice, you will receive $50 million from insurer A ($10 million + $40 million) with insurer B contributing the reinsured amount ($40 million) to insurer A. This practice is known as reinsurance. Generally, reinsurance is practiced to a much greater extent by general insurers than life insurers. The Bottom Line When applying for insurance, you will find a huge range of insurance products available in the market. If you have an insurance advisor or broker, they can shop around and make sure that you are getting adequate insurance coverage for your money. Even so, a little understanding of insurance contracts can go a long way in making sure that your advisor's recommendations are on track. Furthermore, there may be times when your claim is canceled because you didn't pay attention to certain information requested by your insurance company. In this case, a lack of knowledge and carelessness can cost you a lot. Go through your insurer's policy features instead of signing them without delving into the fine print. If you understand what you're reading, you'll be able to ensure that the insurance product that you are signing up for will cover you when you need it most.

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

Check: What It Is, How Bank Checks Work, and How to Write One

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-check"></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 Check? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A check is a written, dated, and signed draft that directs a bank to pay a specific sum of money to the bearer. The person or entity writing the check is known as the payor or drawer, while the person to whom the check is written is the payee. The drawee, on the other hand, is the bank on which the check is drawn. </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 check is a written, dated, and signed draft that directs a bank to pay a specific sum of money to the bearer. </li><li>Checks instruct a financial institution to transfer funds from the payor’s account to the payee or that person's account. </li><li>Check features include the date, the payee line, the amount of the check, the payor’s endorsement, and a memo line.</li><li>Types of checks include certified checks, cashier’s checks, and payroll checks, also called paychecks.</li><li>In some countries, such as Canada and England, the spelling used is “cheque.”</li></ul></div></div></div> <span class="heading-toc" id="toc-how-checks-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> How Checks Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A check is a bill of exchange or document that guarantees a certain amount of money. It is printed for the drawing bank to provide to an account holder (the payor) to use. The payor writes the check and gives it to the payee, who then takes it to their bank for cash or to deposit into an account.<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_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Checks essentially provide a way to instruct the bank to transfer funds from the payor’s account to the payee or the payee’s account. </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 use of checks allows two or more parties to make a monetary transaction without using physical <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency.asp">currency</a>. Instead, the amount for which the check is written is a substitute for physical currency of the same amount. </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"> Checks are generally <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/complete-guide-checking-accounts/">written against a checking account</a>, but they can also be used to move funds from a savings or other type of account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Checks can be used to make bill payments, as gifts, or to transfer sums between two people or entities. They are generally seen as a more secure way of transferring money than cash, especially with large sums. If a check is lost or stolen, a third party is not able to cash it, as the payee is the only one who can negotiate the check. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_18-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Modern financial tools that work similarly to checks in that they provide a substitute for physical currency include: debit and credit cards, money orders, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wiretransfer.asp">wire transfers</a>, and internet banking.</p></div></div></div> <span class="heading-toc" id="toc-history-of-checks"></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"> History of Checks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Checks have been in existence in one form or another since ancient times. Many people believe a type of check was used among the ancient Romans.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Modern checks, as we know them today, became popular in the 20th century. Check usage surged in the 1950s as the check process became automated and machines were able to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/positive-pay.asp">sort and clear checks</a>. Check cards, first created in the 1960s, were the precursors to today’s debit cards.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Credit and debit cards—and other forms of electronic payment—have since overshadowed checks as the dominant means of paying for most goods and services. Checks are now somewhat uncommon but still occasionally used. </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-features-of-a-check"></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"> Features of a Check </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> While not all checks look alike, they generally share the same key features. The name and contact information of the person writing the check is located at the top left. The name of the bank that holds the drawer’s account appears on the check as well. </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"> There are a number of lines that need to be filled in by the payor:<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> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <li>The date must be written on the line in the top right corner of the check.</li><li>The payee’s name goes on the first line in the center of the check. This is indicated by the phrase "Pay to the Order Of."</li><li>The amount of the check in a dollar figure is filled out in the box next to the payee’s name.</li><li>The amount written out in words goes on the line below the payee’s name.</li><li>The payor signs the check on the line at the bottom right corner of the check. The check must be signed to be considered valid.</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"> There is also a memo line in the bottom left corner of the check. The payor may use it to make notes, such as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reference-number.asp">reference number</a>, an account number, or any particular reason for writing the check. </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 series of coded numbers is found along the bottom edge of the check, directly underneath the memo line and extending toward the payor’s signature line. These numbers are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> <li>the bank’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/routing_transit_number.asp">routing number</a></li> <li>the payor’s account number</li> <li>the check number</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> In certain countries, such as Canada, the routing number is replaced with an institution number—which represents the bank’s identifying code—and the transit or branch number where the account is held. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_41-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:60.6%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/wxqkbg4eU781B20-Oz4bgoLmCBk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-1130ab2dae1b495b8cff8d988ebc9440.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/wxqkbg4eU781B20-Oz4bgoLmCBk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-1130ab2dae1b495b8cff8d988ebc9440.jpg" data-srcset="https://www.investopedia.com/thmb/KIo-ARG2PjnRQ5j6ytQNYP-FHYY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-1130ab2dae1b495b8cff8d988ebc9440.jpg 750w" data-tracking-container="true" height="3792" id="mntl-sc-block-image_1-0" width="6250"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3792" sizes="750px" src="https://www.investopedia.com/thmb/wxqkbg4eU781B20-Oz4bgoLmCBk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-1130ab2dae1b495b8cff8d988ebc9440.jpg" srcset="https://www.investopedia.com/thmb/KIo-ARG2PjnRQ5j6ytQNYP-FHYY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-1130ab2dae1b495b8cff8d988ebc9440.jpg 750w" width="6250"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2020</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> The back of the check has an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/endorsement.asp">endorsement</a> line for the payee’s signature when they are cashing or depositing the check. The receiving bank often stamps the back with a deposit stamp at the time it is deposited or cashed, after which it goes for clearing. Once the drawing bank receives the check, it is stamped again and filed. In some cases the check is sent back to the payor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The oldest surviving American checkbook, from the Bank of New York, dates to the 1790s.<span class="ql-inline-citation" data-cite="15"></span></p></div></div></div> <span class="heading-toc" id="toc-types-of-checks"></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"> Types of Checks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> In addition to the standard personal check, types of checks include certified checks, cashier's checks, and payroll checks, which are all used for different purposes. </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"> Certified Check </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certifiedcheck.asp">certified check</a> verifies that the drawer’s account has enough funds to honor the amount of the check. In other words, the check is guaranteed not to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bouncedcheck.asp">bounce</a>. To certify a check, it must be presented at the bank on which it is drawn, at which time the bank will ascertain its authenticity with the payor.<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_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"> Cashier's Check </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashierscheck.asp">cashier’s check</a> is guaranteed by the banking institution and signed by a bank cashier, which means the bank is responsible for the funds. This type of check is often <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-ways-to-get-a-cashier-s-check-4590106">required for large transactions</a>, such as buying a car or house.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Payroll Check </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Another type is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payroll.asp">payroll</a> check, or paycheck, which an employer issues to compensate an employee for their work. In recent years, physical paychecks have given way to direct deposit systems and other forms of electronic transfer.<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_57-0"></div> <span class="heading-toc" id="toc-bounced-checks"></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"> Bounced Checks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> When someone writes a check for an amount larger than what is held in their checking account, the check cannot be negotiated. This is referred to as a bounced check. </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 check bounces because it cannot be processed, as there are insufficient or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nsf.asp">non-sufficient funds (NSF)</a> in the account (the two terms are interchangeable). A bounced check usually results in a penalty fee for the payor. In some cases, the payee is also charged a fee.<br/> </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"> Other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-free-checking-accounts-7153155">checking account</a> fees can include a monthly service fee, a per-check fee (a charge for every check you write), a check printing fee, and returned deposit item fee. A returned deposit item fee is a fee charged when you deposit a check in your account that bounces.<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_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-do-banks-forgive-bounced-checks"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Banks Forgive Bounced Checks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Banks have different policies on bounced checks. Oftentimes, a bank charges overdraft fees or nonsufficient funds fees on bounced checks. Some banks may provide a grace period, such as 24 hours, in which time you can deposit funds to avoid the overdraft fees.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="5"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-do-cashiers-checks-clear-immediately"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Cashier's Checks Clear Immediately?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Typically, funds from a deposited cashier's check must be available the next business day. However, a bank may place a hold on some of those funds if the check exceeds $5,252. It can also place a hold on the entire amount if it has a reason to believe the check will not clear.<span class="ql-inline-citation" data-cite="7"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_69-0"><span class="heading-toc" id="toc-what-is-the-difference-between-a-certified-and-cashiers-check"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Certified and Cashier's Check?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Both a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/certified-check-vs-cashiers-check-which-safer/">certified check and a cashier's check</a> are considered more secure checks than personal checks. Cashier's checks are signed by banks and drawn against a bank's account, while certified checks are signed by an individual and drawn against a personal account. Both checks are guaranteed by the bank, which makes them more secure.</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"> Checks are a useful financial tool that makes payments and money transfers more convenient and potentially safer than cash. Different checks are designed for different purposes and for different risk levels. Learning <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-void-a-check-4797998">how to use a check</a> correctly can provide you with a secure payment method that you may need or prefer to use in certain circumstances.<br/> </p></div>

## What Is a Check? A check is a written, dated, and signed draft that directs a bank to pay a specific sum of money to the bearer. The person or entity writing the check is known as the payor or drawer, while the person to whom the check is written is the payee. The drawee, on the other hand, is the bank on which the check is drawn. ### Key Takeaways * A check is a written, dated, and signed draft that directs a bank to pay a specific sum of money to the bearer. * Checks instruct a financial institution to transfer funds from the payor’s account to the payee or that person's account. * Check features include the date, the payee line, the amount of the check, the payor’s endorsement, and a memo line. * Types of checks include certified checks, cashier’s checks, and payroll checks, also called paychecks. * In some countries, such as Canada and England, the spelling used is “cheque.” ## How Checks Work A check is a bill of exchange or document that guarantees a certain amount of money. It is printed for the drawing bank to provide to an account holder (the payor) to use. The payor writes the check and gives it to the payee, who then takes it to their bank for cash or to deposit into an account. Checks essentially provide a way to instruct the bank to transfer funds from the payor’s account to the payee or the payee’s account. The use of checks allows two or more parties to make a monetary transaction without using physical [currency](https://www.investopedia.com/terms/c/currency.asp). Instead, the amount for which the check is written is a substitute for physical currency of the same amount. Checks are generally [written against a checking account](https://www.investopedia.com/personal-finance/complete-guide-checking-accounts/), but they can also be used to move funds from a savings or other type of account. Checks can be used to make bill payments, as gifts, or to transfer sums between two people or entities. They are generally seen as a more secure way of transferring money than cash, especially with large sums. If a check is lost or stolen, a third party is not able to cash it, as the payee is the only one who can negotiate the check. ### Modern financial tools that work similarly to checks in that they provide a substitute for physical currency include: debit and credit cards, money orders, [wire transfers](https://www.investopedia.com/terms/w/wiretransfer.asp), and internet banking. ## History of Checks Checks have been in existence in one form or another since ancient times. Many people believe a type of check was used among the ancient Romans. Modern checks, as we know them today, became popular in the 20th century. Check usage surged in the 1950s as the check process became automated and machines were able to [sort and clear checks](https://www.investopedia.com/terms/p/positive-pay.asp). Check cards, first created in the 1960s, were the precursors to today’s debit cards. Credit and debit cards—and other forms of electronic payment—have since overshadowed checks as the dominant means of paying for most goods and services. Checks are now somewhat uncommon but still occasionally used. ## Features of a Check While not all checks look alike, they generally share the same key features. The name and contact information of the person writing the check is located at the top left. The name of the bank that holds the drawer’s account appears on the check as well. There are a number of lines that need to be filled in by the payor: * The date must be written on the line in the top right corner of the check. * The payee’s name goes on the first line in the center of the check. This is indicated by the phrase "Pay to the Order Of." * The amount of the check in a dollar figure is filled out in the box next to the payee’s name. * The amount written out in words goes on the line below the payee’s name. * The payor signs the check on the line at the bottom right corner of the check. The check must be signed to be considered valid. There is also a memo line in the bottom left corner of the check. The payor may use it to make notes, such as a [reference number](https://www.investopedia.com/terms/r/reference-number.asp), an account number, or any particular reason for writing the check. A series of coded numbers is found along the bottom edge of the check, directly underneath the memo line and extending toward the payor’s signature line. These numbers are: * the bank’s [routing number](https://www.investopedia.com/terms/r/routing_transit_number.asp) * the payor’s account number * the check number In certain countries, such as Canada, the routing number is replaced with an institution number—which represents the bank’s identifying code—and the transit or branch number where the account is held. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-1130ab2dae1b495b8cff8d988ebc9440.jpg) Image by Sabrina Jiang © Investopedia 2020 The back of the check has an [endorsement](https://www.investopedia.com/terms/e/endorsement.asp) line for the payee’s signature when they are cashing or depositing the check. The receiving bank often stamps the back with a deposit stamp at the time it is deposited or cashed, after which it goes for clearing. Once the drawing bank receives the check, it is stamped again and filed. In some cases the check is sent back to the payor. ### The oldest surviving American checkbook, from the Bank of New York, dates to the 1790s. ## Types of Checks In addition to the standard personal check, types of checks include certified checks, cashier's checks, and payroll checks, which are all used for different purposes. ### Certified Check A [certified check](https://www.investopedia.com/terms/c/certifiedcheck.asp) verifies that the drawer’s account has enough funds to honor the amount of the check. In other words, the check is guaranteed not to [bounce](https://www.investopedia.com/terms/b/bouncedcheck.asp). To certify a check, it must be presented at the bank on which it is drawn, at which time the bank will ascertain its authenticity with the payor. ### Cashier's Check A [cashier’s check](https://www.investopedia.com/terms/c/cashierscheck.asp) is guaranteed by the banking institution and signed by a bank cashier, which means the bank is responsible for the funds. This type of check is often [required for large transactions](https://www.investopedia.com/best-ways-to-get-a-cashier-s-check-4590106), such as buying a car or house. ### Payroll Check Another type is a [payroll](https://www.investopedia.com/terms/p/payroll.asp) check, or paycheck, which an employer issues to compensate an employee for their work. In recent years, physical paychecks have given way to direct deposit systems and other forms of electronic transfer. ## Bounced Checks When someone writes a check for an amount larger than what is held in their checking account, the check cannot be negotiated. This is referred to as a bounced check. The check bounces because it cannot be processed, as there are insufficient or [non-sufficient funds (NSF)](https://www.investopedia.com/terms/n/nsf.asp) in the account (the two terms are interchangeable). A bounced check usually results in a penalty fee for the payor. In some cases, the payee is also charged a fee. Other [checking account](https://www.investopedia.com/best-free-checking-accounts-7153155) fees can include a monthly service fee, a per-check fee (a charge for every check you write), a check printing fee, and returned deposit item fee. A returned deposit item fee is a fee charged when you deposit a check in your account that bounces. ## Do Banks Forgive Bounced Checks? Banks have different policies on bounced checks. Oftentimes, a bank charges overdraft fees or nonsufficient funds fees on bounced checks. Some banks may provide a grace period, such as 24 hours, in which time you can deposit funds to avoid the overdraft fees. ## Do Cashier's Checks Clear Immediately? Typically, funds from a deposited cashier's check must be available the next business day. However, a bank may place a hold on some of those funds if the check exceeds $5,252. It can also place a hold on the entire amount if it has a reason to believe the check will not clear. ## What Is the Difference Between a Certified and Cashier's Check? Both a [certified check and a cashier's check](https://www.investopedia.com/personal-finance/certified-check-vs-cashiers-check-which-safer/) are considered more secure checks than personal checks. Cashier's checks are signed by banks and drawn against a bank's account, while certified checks are signed by an individual and drawn against a personal account. Both checks are guaranteed by the bank, which makes them more secure. ## The Bottom Line Checks are a useful financial tool that makes payments and money transfers more convenient and potentially safer than cash. Different checks are designed for different purposes and for different risk levels. Learning [how to use a check](https://www.investopedia.com/how-to-void-a-check-4797998) correctly can provide you with a secure payment method that you may need or prefer to use in certain circumstances.

What Is a Check? A check is a written, dated, and signed draft that directs a bank to pay a specific sum of money to the bearer. The person or entity writing the check is known as the payor or drawer, while the person to whom the check is written is the payee. The drawee, on the other hand, is the bank on which the check is drawn. Key Takeaways A check is a written, dated, and signed draft that directs a bank to pay a specific sum of money to the bearer. Checks instruct a financial institution to transfer funds from the payor’s account to the payee or that person's account. Check features include the date, the payee line, the amount of the check, the payor’s endorsement, and a memo line.Types of checks include certified checks, cashier’s checks, and payroll checks, also called paychecks.In some countries, such as Canada and England, the spelling used is “cheque.” How Checks Work A check is a bill of exchange or document that guarantees a certain amount of money. It is printed for the drawing bank to provide to an account holder (the payor) to use. The payor writes the check and gives it to the payee, who then takes it to their bank for cash or to deposit into an account. Checks essentially provide a way to instruct the bank to transfer funds from the payor’s account to the payee or the payee’s account. The use of checks allows two or more parties to make a monetary transaction without using physical currency. Instead, the amount for which the check is written is a substitute for physical currency of the same amount. Checks are generally written against a checking account, but they can also be used to move funds from a savings or other type of account. Checks can be used to make bill payments, as gifts, or to transfer sums between two people or entities. They are generally seen as a more secure way of transferring money than cash, especially with large sums. If a check is lost or stolen, a third party is not able to cash it, as the payee is the only one who can negotiate the check. Modern financial tools that work similarly to checks in that they provide a substitute for physical currency include: debit and credit cards, money orders, wire transfers, and internet banking. History of Checks Checks have been in existence in one form or another since ancient times. Many people believe a type of check was used among the ancient Romans. Modern checks, as we know them today, became popular in the 20th century. Check usage surged in the 1950s as the check process became automated and machines were able to sort and clear checks. Check cards, first created in the 1960s, were the precursors to today’s debit cards. Credit and debit cards—and other forms of electronic payment—have since overshadowed checks as the dominant means of paying for most goods and services. Checks are now somewhat uncommon but still occasionally used. Features of a Check While not all checks look alike, they generally share the same key features. The name and contact information of the person writing the check is located at the top left. The name of the bank that holds the drawer’s account appears on the check as well. There are a number of lines that need to be filled in by the payor: The date must be written on the line in the top right corner of the check.The payee’s name goes on the first line in the center of the check. This is indicated by the phrase "Pay to the Order Of."The amount of the check in a dollar figure is filled out in the box next to the payee’s name.The amount written out in words goes on the line below the payee’s name.The payor signs the check on the line at the bottom right corner of the check. The check must be signed to be considered valid. There is also a memo line in the bottom left corner of the check. The payor may use it to make notes, such as a reference number, an account number, or any particular reason for writing the check. A series of coded numbers is found along the bottom edge of the check, directly underneath the memo line and extending toward the payor’s signature line. These numbers are: the bank’s routing number the payor’s account number the check number In certain countries, such as Canada, the routing number is replaced with an institution number—which represents the bank’s identifying code—and the transit or branch number where the account is held. Image by Sabrina Jiang © Investopedia 2020 The back of the check has an endorsement line for the payee’s signature when they are cashing or depositing the check. The receiving bank often stamps the back with a deposit stamp at the time it is deposited or cashed, after which it goes for clearing. Once the drawing bank receives the check, it is stamped again and filed. In some cases the check is sent back to the payor. The oldest surviving American checkbook, from the Bank of New York, dates to the 1790s. Types of Checks In addition to the standard personal check, types of checks include certified checks, cashier's checks, and payroll checks, which are all used for different purposes. Certified Check A certified check verifies that the drawer’s account has enough funds to honor the amount of the check. In other words, the check is guaranteed not to bounce. To certify a check, it must be presented at the bank on which it is drawn, at which time the bank will ascertain its authenticity with the payor. Cashier's Check A cashier’s check is guaranteed by the banking institution and signed by a bank cashier, which means the bank is responsible for the funds. This type of check is often required for large transactions, such as buying a car or house. Payroll Check Another type is a payroll check, or paycheck, which an employer issues to compensate an employee for their work. In recent years, physical paychecks have given way to direct deposit systems and other forms of electronic transfer. Bounced Checks When someone writes a check for an amount larger than what is held in their checking account, the check cannot be negotiated. This is referred to as a bounced check. The check bounces because it cannot be processed, as there are insufficient or non-sufficient funds (NSF) in the account (the two terms are interchangeable). A bounced check usually results in a penalty fee for the payor. In some cases, the payee is also charged a fee. Other checking account fees can include a monthly service fee, a per-check fee (a charge for every check you write), a check printing fee, and returned deposit item fee. A returned deposit item fee is a fee charged when you deposit a check in your account that bounces. Do Banks Forgive Bounced Checks? Banks have different policies on bounced checks. Oftentimes, a bank charges overdraft fees or nonsufficient funds fees on bounced checks. Some banks may provide a grace period, such as 24 hours, in which time you can deposit funds to avoid the overdraft fees. Do Cashier's Checks Clear Immediately? Typically, funds from a deposited cashier's check must be available the next business day. However, a bank may place a hold on some of those funds if the check exceeds $5,252. It can also place a hold on the entire amount if it has a reason to believe the check will not clear. What Is the Difference Between a Certified and Cashier's Check? Both a certified check and a cashier's check are considered more secure checks than personal checks. Cashier's checks are signed by banks and drawn against a bank's account, while certified checks are signed by an individual and drawn against a personal account. Both checks are guaranteed by the bank, which makes them more secure. The Bottom Line Checks are a useful financial tool that makes payments and money transfers more convenient and potentially safer than cash. Different checks are designed for different purposes and for different risk levels. Learning how to use a check correctly can provide you with a secure payment method that you may need or prefer to use in certain circumstances.

https://www.investopedia.com/how-to-invest-in-your-20s-8620961

How To Start Investing in Your 20s: Building a Strong Financial Foundation

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Young adults in their 20s who are in a position to save money have a unique opportunity to enter the world of investing at a time when doing so can maximize its long-term financial impact. Thanks to the power of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compound.asp">compounding</a> gains, money invested in your 20s can achieve much more significant growth over the remainder of a lifetime than investments started later on. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> At just an annual 4% return, not counting inflation, a single dollar invested at age 20 would grow to $5.84 at age 65, while a dollar invested at age 30 would only be worth $3.95 by retirement age.<span class="ql-inline-citation" data-cite="1"></span>  Because young people today may expect to spend 20 years or more in retirement, every extra dollar saved counts.<span class="ql-inline-citation" data-cite="2"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Investing in your 20s can have significant long-term benefits for building wealth.</li><li>Setting clear financial goals is crucial for effective investment planning.</li><li>Understanding risk and return is essential for making informed investment decisions.</li><li>Creating a personalized investment plan based on individual goals and risk tolerance is key.</li><li>Choosing the right investment vehicles based on risk tolerance and investment goals is also crucial.</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"> Starting to invest early on can help to ensure a stable financial future. However, the world of investing can be daunting for newcomers because of the plethora of resources and information and all of the decisions investing entails. Below, we take an in-depth look at various considerations to keep in mind to help you start investing in your 20s. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-how-to-invest-in-your-20s"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> How To Invest in Your 20s </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> If you’re a 20-something, you can make the most of your money if you learn how to set financial goals, understand risk and return, make financial plans, differentiate between investment vehicles, and more. Here’s how. </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-set-financial-goals"></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"> Set Financial Goals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Young adults may be eager to start allocating their money toward investments. Before doing so, however, it’s essential to examine your financial goals, considering both short- and long-term plans. </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"> Some of the most common things that young investors save toward in the short term include a vehicle, housing, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discretionaryincome.asp">discretionary</a> costs like entertainment or travel. Long-term goals may include <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/05/061305.asp">retirement</a>, a home, expenses related to medical care or care for a loved one, and expenses related to children, among other things.  </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 listing your financial goals, you’ll want to take note of the expected <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> of each one. A smaller goal, like a vacation, will require different financial resources and potentially different investment choices compared with a larger one, like buying a home. If in doubt, calculators like the ones at <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.investor.gov/free-financial-planning-tools">Investor.gov</a> can help determine how long it may take to reach a specific goal.  </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"> With your goals and time frames in mind, you can then go about prioritizing. Some things—like an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/how-to-build-emergency-fund/">emergency fund</a> to cover expenses if you unexpectedly lose your job, or various types of debt—are generally seen as the most important to take care of first. Beyond this, your financial priorities will depend upon your preferences and situation. You may want to prioritize a couple of smaller goals in order to achieve them sooner, or you may wish to begin planning right away for a longer-term goal to get a head start.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/charlene-rhinehart-5091940">Charlene Rhinehart</a>, CPA and editor-in-chief of the Wealthy Women Daily, says that “while you're in your 20s, you should check in with yourself and think about the type of life you want to live now and what you envision for your future self. Then do some reverse engineering to make sure your current actions align with your vision.” </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>It’s important to return to your financial goals periodically throughout your journey as an investor.<br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Undoubtedly, some things will change over time, and you may find that a goal you set for yourself years ago is no longer relevant, or perhaps the ways that you are going about planning toward that goal will need to change as well. </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-understand-risk-and-return"></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"> Understand Risk and Return </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> One axiom of investing is that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskreturntradeoff.asp">the higher the risk, the greater the potential reward</a> (and, by the same token, the lower the risk, the smaller the possible reward). Consider a highly speculative area of the investing world like <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrencies</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> If you invested all of your savings in Bitcoin when it first launched, you may have seen your initial investment grow by many orders of magnitude. However, though this may seem like a wise move in hindsight, it would nonetheless have been incredibly risky. After all, there was no guarantee in 2009 that Bitcoin would usher in the highly popular cryptocurrency trend, nor even that it would continue to exist beyond that time. </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"> Investors should always be mindful of the level of risk of a particular investment, as well as of their own <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>. </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"> Younger investors can afford to have a higher risk tolerance than older investors, particularly when it comes to retirement planning. For a young investor, a bet that doesn’t pay off now leaves plenty of time in the future to make corrections; someone just a few years out from retirement may be far less able to recoup the loss of a significant percentage of their retirement savings on a risky investment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> That means an older investor may be more likely to opt for a low-risk, low-reward investment like bonds or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybill.asp">T-bills</a> than a speculative one like crypto.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-start-with-a-plan"></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"> Start With a Plan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Once you’ve determined your risk tolerance, a strong investment plan is necessary to ensure your money has the best chance of growing. An investment plan factors in considerations such as asset allocation, diversification, and investment timeline to make the best possible decisions for you based on your current situation and goals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Some young investors may feel overwhelmed at the prospect of coming up with a plan on their own. Rhinehart recommends consulting a professional for guidance, suggesting that a new investor “consider reaching out to a financial planner who can help you think about your future goals and put a plan in place to achieve them.” </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"> Whether you work on your own or with a planner, you’ll need to begin with a good sense of what you own and what you owe—in other words, what your current financial situation is—in order to plan. A budget for your income and expenses is essential to determine how much you have to work with in your investment activities. </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/a/assetallocation.asp">Asset allocation</a> is the process of dividing your investments among different types of assets, such as stocks, bonds, or real estate. Properly allocating your assets will help to ensure that you have a broadly <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversified</a> portfolio, essential in case an asset class suddenly loses value (as in a stock market crash, for example). </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-callout mntl-block" id="mntl-sc-block_47-0"><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_48-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>When creating your investment plan, you’ll want to know the risk levels associated with various asset classes and work to match them with your own tolerance while also maintaining diversification.</p></div></div></div> <span class="heading-toc" id="toc-choose-the-right-investment-vehicles"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-heading__text"> Choose the Right Investment Vehicles </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> <br/>Some of the most common investment options for young investors include stocks, bonds, <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>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a>. Let’s look briefly at some pros and cons of each. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> <li><strong>Stocks: </strong>Stocks tend to be higher risk than bonds, although the level of risk depends greatly on the sector, industry, and specific company. Over a long time horizon, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/08/passive-active-investing.asp">buy-and-hold</a> strategy like the one employed by Warren Buffett can yield tremendous returns, although it depends on how you go about selecting stocks for investment. On the other hand, with thousands of stocks available, this can also be a daunting area of the investing world for young investors.</li> <li><strong>Bonds: </strong>Bonds provide a low-risk access point for investors. These investments often require less day-to-day management than stocks, although they also are limited in their potential for payout. One common approach is to allocate a percentage of your portfolio in bonds equal to your age, which means that many young investors may not focus heavily on this asset class.<span class="ql-inline-citation" data-cite="5"></span></li> <li><strong>Mutual Funds:</strong> Mutual funds are an excellent choice for many new investors. They provide broad diversification while minimizing the amount of trading and oversight required. They are also good for a buy-and-hold strategy. However, mutual fund returns tend to be relatively modest.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>ETFs: </strong>ETFs are a highly popular option among both new and seasoned investors. Baskets of other securities, ETFs provide a one-stop-shop approach for investors not eager to manage individual stocks or other assets. ETF risk and return profiles also vary considerably, allowing you to tailor your investment strategy to your risk tolerance.</li> </ul> <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-start-investing-early"></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"> Start Investing Early </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> As mentioned above, compounding growth means that assets invested in your 20s can potentially yield far greater returns over a lifetime compared with those invested even just a few years later. </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"> To achieve this long-term growth potential, you’ll need to gain access to the investing world as early as possible. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-brokers-4587872">One of our top-rated brokerage accounts</a> is a good place to start. When you select a brokerage, opening and funding an account can often be accomplished quickly and in many cases entirely online. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Some brokerages use <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> tools to automate a large portion of the investment process, further reducing barriers to access for inexperienced investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> To choose a suitable investment platform, be sure to look at fees, the types of assets offered, educational resources provided, customer support, and the user interface, as well as any other factors that may be important to you. Choosing the right platform can make a big difference in your experience as an investor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <span class="heading-toc" id="toc-manage-debt-and-build-an-emergency-fund"></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"> Manage Debt and Build an Emergency Fund </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> For many young people, debt is a major hurdle to investing. Student loan debt, credit card debt, and many other types of debt can present a financial burden.<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_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> To manage your debt, consider a debt-reduction system like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/snowball.asp">the snowball method</a>: List your debts in order of balance size, make all minimum payments necessary, and then allocate any extra money available to pay off the smallest debt first. This may achieve more immediate results in reducing the number of debts you have than other methods. And “paying off high interest debt will allow you to save more and can help you boost your credit score,” Rhinehart says.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> If you have student loans, be sure to pay close attention to federal programs that may help you reduce this burden. Staying on top of your payments will ensure you don’t default on your loans, which can have a detrimental impact on your credit score.<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_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> Rhinehart also points out that an emergency fund can protect your retirement savings. </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"> “Creating an emergency fund and building your savings account will decrease the odds of you dipping into your retirement account to fund unexpected expenses,” she says. However large your emergency fund is, you’ll want to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/13/safe-liquid-investment-for-emergencies.asp">make sure it’s in liquid assets</a> that can be converted to cash quickly if need be. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <span class="heading-toc" id="toc-open-retirement-accounts"></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"> Open Retirement Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Employer-sponsored <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement-savings-accounts-4689692">retirement plans such as 401(k) and 403(b) accounts</a> are a must for any young investor. Many employers offer a contribution to those accounts without any input from an employee, meaning that this is free money for you to set aside to compound over many years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> Even if you are unable to reach the annual limit in retirement contributions, making regular payments of any amount is a good way to start. And, “if you want to retire early,” Rhinehart says, “you’ll want to look into investing strategies that help you generate income so that you have a steady flow during retirement.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <span class="heading-toc" id="toc-keep-short-term-savings-accessible"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_79-0"> <span class="mntl-sc-block-heading__text"> Keep Short-Term Savings Accessible </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> You never know what type of unexpected expense may come up, and the last thing you want is to have your money stuck in a place where it’s not readily accessible when you need it quickly. Maintaining a liquid savings account or emergency fund is essential, even if you don’t anticipate any upcoming expenses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_82-0"><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_83-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Most professionals recommend having at least three to six months’ worth of salary in an emergency fund to make sure you have a cushion in case the unexpected happens.<span class="ql-inline-citation" data-cite="8"></span></p></div></div></div> <span class="heading-toc" id="toc-continuously-educate-yourself"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_84-0"> <span class="mntl-sc-block-heading__text"> Continuously Educate Yourself </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> There is always more to learn about investing. Whether it’s keeping up to date on the latest market trends, learning about emerging asset classes and opportunities, or finding a more ideal portfolio strategy for your shifting needs over time, you will benefit if you continuously educate yourself on investing strategies.  </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"> At the same time, be sure to vet your sources: Look for educational resources provided by federal agencies like 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> and the Federal Reserve, or by your brokerage. Books by leading investors and economists, such as “The Intelligent Investor” by Benjamin Graham, daily podcasts by publications like <em>The Wall Street Journal</em>, and similar tools can also be valuable. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <span class="heading-toc" id="toc-frequently-asked-questions-faqs"></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"> Frequently Asked Questions (FAQs) </span> </h2> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_90-0"><span class="heading-toc" id="toc-what-are-the-benefits-of-investing-in-your-20s"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Benefits of Investing in Your 20s?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investing in your 20s allows you to capitalize on compounding growth, meaning that your money invested now has the potential to increase more significantly over the course of your investment career than money invested later. This can help you tackle debt; establish savings, emergency, and retirement accounts; and save for bigger financial goals.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_92-0"><span class="heading-toc" id="toc-what-is-the-relationship-between-risk-and-return-in-investing"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Relationship Between Risk and Return in Investing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Riskier investments tend to have the potential for higher rewards, while those that are less risky are more likely to only offer relatively lower rewards.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_94-0"><span class="heading-toc" id="toc-what-investment-options-are-suitable-for-young-investors"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Investment Options Are Suitable for Young Investors?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some of the most popular investments for young investors include stocks, bonds, mutual funds, and ETFs, although there are many other options that may be right for you depending on your circumstances. Online brokerages and robo-advisors can take the day-to-day management of an investment portfolio out of your hands, allowing you to set investments and then leave them to be controlled by professionals.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></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_96-0"> <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_97-0"> While many young adults feel they are not able to begin to invest because of financial instability, debt burden, and other factors, beginning to take hold of your finances at an early age can pay off considerably down the line.<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_98-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_99-0"> One of the first things to do is to set clear financial goals for yourself, both short- and long-term, as this will help to determine the best investment strategies for you. Always keep in mind that risk and return go hand-in-hand in investing, and know what your personal risk tolerance is. Taking stock of your expenses and income allows you to be aware of how much money you can reasonably invest after setting aside a liquid savings account and emergency fund for unexpected expenses.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_100-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_101-0"> Finally, learn about the host of different investment vehicles available to you so that you can make an informed selection based on your risk tolerance, diversification needs, and investing time frame.<br> </br></p></div>

Young adults in their 20s who are in a position to save money have a unique opportunity to enter the world of investing at a time when doing so can maximize its long-term financial impact. Thanks to the power of [compounding](https://www.investopedia.com/terms/c/compound.asp) gains, money invested in your 20s can achieve much more significant growth over the remainder of a lifetime than investments started later on. At just an annual 4% return, not counting inflation, a single dollar invested at age 20 would grow to $5.84 at age 65, while a dollar invested at age 30 would only be worth $3.95 by retirement age.  Because young people today may expect to spend 20 years or more in retirement, every extra dollar saved counts.  ### Key Takeaways * Investing in your 20s can have significant long-term benefits for building wealth. * Setting clear financial goals is crucial for effective investment planning. * Understanding risk and return is essential for making informed investment decisions. * Creating a personalized investment plan based on individual goals and risk tolerance is key. * Choosing the right investment vehicles based on risk tolerance and investment goals is also crucial. Starting to invest early on can help to ensure a stable financial future. However, the world of investing can be daunting for newcomers because of the plethora of resources and information and all of the decisions investing entails. Below, we take an in-depth look at various considerations to keep in mind to help you start investing in your 20s. ## How To Invest in Your 20s If you’re a 20-something, you can make the most of your money if you learn how to set financial goals, understand risk and return, make financial plans, differentiate between investment vehicles, and more. Here’s how. ## Set Financial Goals Young adults may be eager to start allocating their money toward investments. Before doing so, however, it’s essential to examine your financial goals, considering both short- and long-term plans. Some of the most common things that young investors save toward in the short term include a vehicle, housing, and [discretionary](https://www.investopedia.com/terms/d/discretionaryincome.asp) costs like entertainment or travel. Long-term goals may include [retirement](https://www.investopedia.com/articles/retirement/05/061305.asp), a home, expenses related to medical care or care for a loved one, and expenses related to children, among other things.  After listing your financial goals, you’ll want to take note of the expected [time horizon](https://www.investopedia.com/terms/t/timehorizon.asp) of each one. A smaller goal, like a vacation, will require different financial resources and potentially different investment choices compared with a larger one, like buying a home. If in doubt, calculators like the ones at [Investor.gov](https://www.investor.gov/free-financial-planning-tools) can help determine how long it may take to reach a specific goal.  With your goals and time frames in mind, you can then go about prioritizing. Some things—like an [emergency fund](https://www.investopedia.com/personal-finance/how-to-build-emergency-fund/) to cover expenses if you unexpectedly lose your job, or various types of debt—are generally seen as the most important to take care of first. Beyond this, your financial priorities will depend upon your preferences and situation. You may want to prioritize a couple of smaller goals in order to achieve them sooner, or you may wish to begin planning right away for a longer-term goal to get a head start.  [Charlene Rhinehart](https://www.investopedia.com/charlene-rhinehart-5091940), CPA and editor-in-chief of the Wealthy Women Daily, says that “while you're in your 20s, you should check in with yourself and think about the type of life you want to live now and what you envision for your future self. Then do some reverse engineering to make sure your current actions align with your vision.” ### It’s important to return to your financial goals periodically throughout your journey as an investor. Undoubtedly, some things will change over time, and you may find that a goal you set for yourself years ago is no longer relevant, or perhaps the ways that you are going about planning toward that goal will need to change as well. ## Understand Risk and Return One axiom of investing is that [the higher the risk, the greater the potential reward](https://www.investopedia.com/terms/r/riskreturntradeoff.asp) (and, by the same token, the lower the risk, the smaller the possible reward). Consider a highly speculative area of the investing world like [cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp). If you invested all of your savings in Bitcoin when it first launched, you may have seen your initial investment grow by many orders of magnitude. However, though this may seem like a wise move in hindsight, it would nonetheless have been incredibly risky. After all, there was no guarantee in 2009 that Bitcoin would usher in the highly popular cryptocurrency trend, nor even that it would continue to exist beyond that time. Investors should always be mindful of the level of risk of a particular investment, as well as of their own [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp). Younger investors can afford to have a higher risk tolerance than older investors, particularly when it comes to retirement planning. For a young investor, a bet that doesn’t pay off now leaves plenty of time in the future to make corrections; someone just a few years out from retirement may be far less able to recoup the loss of a significant percentage of their retirement savings on a risky investment. That means an older investor may be more likely to opt for a low-risk, low-reward investment like bonds or [T-bills](https://www.investopedia.com/terms/t/treasurybill.asp) than a speculative one like crypto. ## Start With a Plan Once you’ve determined your risk tolerance, a strong investment plan is necessary to ensure your money has the best chance of growing. An investment plan factors in considerations such as asset allocation, diversification, and investment timeline to make the best possible decisions for you based on your current situation and goals. Some young investors may feel overwhelmed at the prospect of coming up with a plan on their own. Rhinehart recommends consulting a professional for guidance, suggesting that a new investor “consider reaching out to a financial planner who can help you think about your future goals and put a plan in place to achieve them.” Whether you work on your own or with a planner, you’ll need to begin with a good sense of what you own and what you owe—in other words, what your current financial situation is—in order to plan. A budget for your income and expenses is essential to determine how much you have to work with in your investment activities. [Asset allocation](https://www.investopedia.com/terms/a/assetallocation.asp) is the process of dividing your investments among different types of assets, such as stocks, bonds, or real estate. Properly allocating your assets will help to ensure that you have a broadly [diversified](https://www.investopedia.com/terms/d/diversification.asp) portfolio, essential in case an asset class suddenly loses value (as in a stock market crash, for example). ### When creating your investment plan, you’ll want to know the risk levels associated with various asset classes and work to match them with your own tolerance while also maintaining diversification. ## Choose the Right Investment Vehicles Some of the most common investment options for young investors include stocks, bonds, [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp), and [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp). Let’s look briefly at some pros and cons of each. * **Stocks:** Stocks tend to be higher risk than bonds, although the level of risk depends greatly on the sector, industry, and specific company. Over a long time horizon, a [buy-and-hold](https://www.investopedia.com/articles/stocks/08/passive-active-investing.asp) strategy like the one employed by Warren Buffett can yield tremendous returns, although it depends on how you go about selecting stocks for investment. On the other hand, with thousands of stocks available, this can also be a daunting area of the investing world for young investors. * **Bonds:** Bonds provide a low-risk access point for investors. These investments often require less day-to-day management than stocks, although they also are limited in their potential for payout. One common approach is to allocate a percentage of your portfolio in bonds equal to your age, which means that many young investors may not focus heavily on this asset class. * **Mutual Funds:** Mutual funds are an excellent choice for many new investors. They provide broad diversification while minimizing the amount of trading and oversight required. They are also good for a buy-and-hold strategy. However, mutual fund returns tend to be relatively modest. * **ETFs:** ETFs are a highly popular option among both new and seasoned investors. Baskets of other securities, ETFs provide a one-stop-shop approach for investors not eager to manage individual stocks or other assets. ETF risk and return profiles also vary considerably, allowing you to tailor your investment strategy to your risk tolerance. ## Start Investing Early As mentioned above, compounding growth means that assets invested in your 20s can potentially yield far greater returns over a lifetime compared with those invested even just a few years later. To achieve this long-term growth potential, you’ll need to gain access to the investing world as early as possible. [One of our top-rated brokerage accounts](https://www.investopedia.com/best-online-brokers-4587872) is a good place to start. When you select a brokerage, opening and funding an account can often be accomplished quickly and in many cases entirely online. Some brokerages use [robo-advisor](https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp) tools to automate a large portion of the investment process, further reducing barriers to access for inexperienced investors. To choose a suitable investment platform, be sure to look at fees, the types of assets offered, educational resources provided, customer support, and the user interface, as well as any other factors that may be important to you. Choosing the right platform can make a big difference in your experience as an investor. ## Manage Debt and Build an Emergency Fund For many young people, debt is a major hurdle to investing. Student loan debt, credit card debt, and many other types of debt can present a financial burden. To manage your debt, consider a debt-reduction system like [the snowball method](https://www.investopedia.com/terms/s/snowball.asp): List your debts in order of balance size, make all minimum payments necessary, and then allocate any extra money available to pay off the smallest debt first. This may achieve more immediate results in reducing the number of debts you have than other methods. And “paying off high interest debt will allow you to save more and can help you boost your credit score,” Rhinehart says.  If you have student loans, be sure to pay close attention to federal programs that may help you reduce this burden. Staying on top of your payments will ensure you don’t default on your loans, which can have a detrimental impact on your credit score. Rhinehart also points out that an emergency fund can protect your retirement savings. “Creating an emergency fund and building your savings account will decrease the odds of you dipping into your retirement account to fund unexpected expenses,” she says. However large your emergency fund is, you’ll want to [make sure it’s in liquid assets](https://www.investopedia.com/ask/answers/13/safe-liquid-investment-for-emergencies.asp) that can be converted to cash quickly if need be. ## Open Retirement Accounts Employer-sponsored [retirement plans such as 401(k) and 403(b) accounts](https://www.investopedia.com/retirement-savings-accounts-4689692) are a must for any young investor. Many employers offer a contribution to those accounts without any input from an employee, meaning that this is free money for you to set aside to compound over many years. Even if you are unable to reach the annual limit in retirement contributions, making regular payments of any amount is a good way to start. And, “if you want to retire early,” Rhinehart says, “you’ll want to look into investing strategies that help you generate income so that you have a steady flow during retirement.” ## Keep Short-Term Savings Accessible You never know what type of unexpected expense may come up, and the last thing you want is to have your money stuck in a place where it’s not readily accessible when you need it quickly. Maintaining a liquid savings account or emergency fund is essential, even if you don’t anticipate any upcoming expenses. ### Important Most professionals recommend having at least three to six months’ worth of salary in an emergency fund to make sure you have a cushion in case the unexpected happens. ## Continuously Educate Yourself There is always more to learn about investing. Whether it’s keeping up to date on the latest market trends, learning about emerging asset classes and opportunities, or finding a more ideal portfolio strategy for your shifting needs over time, you will benefit if you continuously educate yourself on investing strategies.  At the same time, be sure to vet your sources: Look for educational resources provided by federal agencies like the [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) and the Federal Reserve, or by your brokerage. Books by leading investors and economists, such as “The Intelligent Investor” by Benjamin Graham, daily podcasts by publications like *The Wall Street Journal*, and similar tools can also be valuable. ## Frequently Asked Questions (FAQs) ## What Are the Benefits of Investing in Your 20s? Investing in your 20s allows you to capitalize on compounding growth, meaning that your money invested now has the potential to increase more significantly over the course of your investment career than money invested later. This can help you tackle debt; establish savings, emergency, and retirement accounts; and save for bigger financial goals. ## What Is the Relationship Between Risk and Return in Investing? Riskier investments tend to have the potential for higher rewards, while those that are less risky are more likely to only offer relatively lower rewards. ## What Investment Options Are Suitable for Young Investors? Some of the most popular investments for young investors include stocks, bonds, mutual funds, and ETFs, although there are many other options that may be right for you depending on your circumstances. Online brokerages and robo-advisors can take the day-to-day management of an investment portfolio out of your hands, allowing you to set investments and then leave them to be controlled by professionals. ## The Bottom Line While many young adults feel they are not able to begin to invest because of financial instability, debt burden, and other factors, beginning to take hold of your finances at an early age can pay off considerably down the line. One of the first things to do is to set clear financial goals for yourself, both short- and long-term, as this will help to determine the best investment strategies for you. Always keep in mind that risk and return go hand-in-hand in investing, and know what your personal risk tolerance is. Taking stock of your expenses and income allows you to be aware of how much money you can reasonably invest after setting aside a liquid savings account and emergency fund for unexpected expenses.  Finally, learn about the host of different investment vehicles available to you so that you can make an informed selection based on your risk tolerance, diversification needs, and investing time frame.

Young adults in their 20s who are in a position to save money have a unique opportunity to enter the world of investing at a time when doing so can maximize its long-term financial impact. Thanks to the power of compounding gains, money invested in your 20s can achieve much more significant growth over the remainder of a lifetime than investments started later on. At just an annual 4% return, not counting inflation, a single dollar invested at age 20 would grow to $5.84 at age 65, while a dollar invested at age 30 would only be worth $3.95 by retirement age.  Because young people today may expect to spend 20 years or more in retirement, every extra dollar saved counts.  Key Takeaways Investing in your 20s can have significant long-term benefits for building wealth.Setting clear financial goals is crucial for effective investment planning.Understanding risk and return is essential for making informed investment decisions.Creating a personalized investment plan based on individual goals and risk tolerance is key.Choosing the right investment vehicles based on risk tolerance and investment goals is also crucial. Starting to invest early on can help to ensure a stable financial future. However, the world of investing can be daunting for newcomers because of the plethora of resources and information and all of the decisions investing entails. Below, we take an in-depth look at various considerations to keep in mind to help you start investing in your 20s. How To Invest in Your 20s If you’re a 20-something, you can make the most of your money if you learn how to set financial goals, understand risk and return, make financial plans, differentiate between investment vehicles, and more. Here’s how. Set Financial Goals Young adults may be eager to start allocating their money toward investments. Before doing so, however, it’s essential to examine your financial goals, considering both short- and long-term plans. Some of the most common things that young investors save toward in the short term include a vehicle, housing, and discretionary costs like entertainment or travel. Long-term goals may include retirement, a home, expenses related to medical care or care for a loved one, and expenses related to children, among other things.  After listing your financial goals, you’ll want to take note of the expected time horizon of each one. A smaller goal, like a vacation, will require different financial resources and potentially different investment choices compared with a larger one, like buying a home. If in doubt, calculators like the ones at Investor.gov can help determine how long it may take to reach a specific goal.  With your goals and time frames in mind, you can then go about prioritizing. Some things—like an emergency fund to cover expenses if you unexpectedly lose your job, or various types of debt—are generally seen as the most important to take care of first. Beyond this, your financial priorities will depend upon your preferences and situation. You may want to prioritize a couple of smaller goals in order to achieve them sooner, or you may wish to begin planning right away for a longer-term goal to get a head start.  Charlene Rhinehart, CPA and editor-in-chief of the Wealthy Women Daily, says that “while you're in your 20s, you should check in with yourself and think about the type of life you want to live now and what you envision for your future self. Then do some reverse engineering to make sure your current actions align with your vision.” It’s important to return to your financial goals periodically throughout your journey as an investor. Undoubtedly, some things will change over time, and you may find that a goal you set for yourself years ago is no longer relevant, or perhaps the ways that you are going about planning toward that goal will need to change as well. Understand Risk and Return One axiom of investing is that the higher the risk, the greater the potential reward (and, by the same token, the lower the risk, the smaller the possible reward). Consider a highly speculative area of the investing world like cryptocurrencies. If you invested all of your savings in Bitcoin when it first launched, you may have seen your initial investment grow by many orders of magnitude. However, though this may seem like a wise move in hindsight, it would nonetheless have been incredibly risky. After all, there was no guarantee in 2009 that Bitcoin would usher in the highly popular cryptocurrency trend, nor even that it would continue to exist beyond that time. Investors should always be mindful of the level of risk of a particular investment, as well as of their own risk tolerance. Younger investors can afford to have a higher risk tolerance than older investors, particularly when it comes to retirement planning. For a young investor, a bet that doesn’t pay off now leaves plenty of time in the future to make corrections; someone just a few years out from retirement may be far less able to recoup the loss of a significant percentage of their retirement savings on a risky investment. That means an older investor may be more likely to opt for a low-risk, low-reward investment like bonds or T-bills than a speculative one like crypto. Start With a Plan Once you’ve determined your risk tolerance, a strong investment plan is necessary to ensure your money has the best chance of growing. An investment plan factors in considerations such as asset allocation, diversification, and investment timeline to make the best possible decisions for you based on your current situation and goals. Some young investors may feel overwhelmed at the prospect of coming up with a plan on their own. Rhinehart recommends consulting a professional for guidance, suggesting that a new investor “consider reaching out to a financial planner who can help you think about your future goals and put a plan in place to achieve them.” Whether you work on your own or with a planner, you’ll need to begin with a good sense of what you own and what you owe—in other words, what your current financial situation is—in order to plan. A budget for your income and expenses is essential to determine how much you have to work with in your investment activities. Asset allocation is the process of dividing your investments among different types of assets, such as stocks, bonds, or real estate. Properly allocating your assets will help to ensure that you have a broadly diversified portfolio, essential in case an asset class suddenly loses value (as in a stock market crash, for example). When creating your investment plan, you’ll want to know the risk levels associated with various asset classes and work to match them with your own tolerance while also maintaining diversification. Choose the Right Investment Vehicles Some of the most common investment options for young investors include stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Let’s look briefly at some pros and cons of each. Stocks: Stocks tend to be higher risk than bonds, although the level of risk depends greatly on the sector, industry, and specific company. Over a long time horizon, a buy-and-hold strategy like the one employed by Warren Buffett can yield tremendous returns, although it depends on how you go about selecting stocks for investment. On the other hand, with thousands of stocks available, this can also be a daunting area of the investing world for young investors. Bonds: Bonds provide a low-risk access point for investors. These investments often require less day-to-day management than stocks, although they also are limited in their potential for payout. One common approach is to allocate a percentage of your portfolio in bonds equal to your age, which means that many young investors may not focus heavily on this asset class. Mutual Funds: Mutual funds are an excellent choice for many new investors. They provide broad diversification while minimizing the amount of trading and oversight required. They are also good for a buy-and-hold strategy. However, mutual fund returns tend to be relatively modest. ETFs: ETFs are a highly popular option among both new and seasoned investors. Baskets of other securities, ETFs provide a one-stop-shop approach for investors not eager to manage individual stocks or other assets. ETF risk and return profiles also vary considerably, allowing you to tailor your investment strategy to your risk tolerance. Start Investing Early As mentioned above, compounding growth means that assets invested in your 20s can potentially yield far greater returns over a lifetime compared with those invested even just a few years later. To achieve this long-term growth potential, you’ll need to gain access to the investing world as early as possible. One of our top-rated brokerage accounts is a good place to start. When you select a brokerage, opening and funding an account can often be accomplished quickly and in many cases entirely online. Some brokerages use robo-advisor tools to automate a large portion of the investment process, further reducing barriers to access for inexperienced investors. To choose a suitable investment platform, be sure to look at fees, the types of assets offered, educational resources provided, customer support, and the user interface, as well as any other factors that may be important to you. Choosing the right platform can make a big difference in your experience as an investor. Manage Debt and Build an Emergency Fund For many young people, debt is a major hurdle to investing. Student loan debt, credit card debt, and many other types of debt can present a financial burden. To manage your debt, consider a debt-reduction system like the snowball method: List your debts in order of balance size, make all minimum payments necessary, and then allocate any extra money available to pay off the smallest debt first. This may achieve more immediate results in reducing the number of debts you have than other methods. And “paying off high interest debt will allow you to save more and can help you boost your credit score,” Rhinehart says.  If you have student loans, be sure to pay close attention to federal programs that may help you reduce this burden. Staying on top of your payments will ensure you don’t default on your loans, which can have a detrimental impact on your credit score. Rhinehart also points out that an emergency fund can protect your retirement savings. “Creating an emergency fund and building your savings account will decrease the odds of you dipping into your retirement account to fund unexpected expenses,” she says. However large your emergency fund is, you’ll want to make sure it’s in liquid assets that can be converted to cash quickly if need be. Open Retirement Accounts Employer-sponsored retirement plans such as 401(k) and 403(b) accounts are a must for any young investor. Many employers offer a contribution to those accounts without any input from an employee, meaning that this is free money for you to set aside to compound over many years. Even if you are unable to reach the annual limit in retirement contributions, making regular payments of any amount is a good way to start. And, “if you want to retire early,” Rhinehart says, “you’ll want to look into investing strategies that help you generate income so that you have a steady flow during retirement.” Keep Short-Term Savings Accessible You never know what type of unexpected expense may come up, and the last thing you want is to have your money stuck in a place where it’s not readily accessible when you need it quickly. Maintaining a liquid savings account or emergency fund is essential, even if you don’t anticipate any upcoming expenses. Important Most professionals recommend having at least three to six months’ worth of salary in an emergency fund to make sure you have a cushion in case the unexpected happens. Continuously Educate Yourself There is always more to learn about investing. Whether it’s keeping up to date on the latest market trends, learning about emerging asset classes and opportunities, or finding a more ideal portfolio strategy for your shifting needs over time, you will benefit if you continuously educate yourself on investing strategies.  At the same time, be sure to vet your sources: Look for educational resources provided by federal agencies like the Securities and Exchange Commission (SEC) and the Federal Reserve, or by your brokerage. Books by leading investors and economists, such as “The Intelligent Investor” by Benjamin Graham, daily podcasts by publications like The Wall Street Journal, and similar tools can also be valuable. Frequently Asked Questions (FAQs) What Are the Benefits of Investing in Your 20s? Investing in your 20s allows you to capitalize on compounding growth, meaning that your money invested now has the potential to increase more significantly over the course of your investment career than money invested later. This can help you tackle debt; establish savings, emergency, and retirement accounts; and save for bigger financial goals. What Is the Relationship Between Risk and Return in Investing? Riskier investments tend to have the potential for higher rewards, while those that are less risky are more likely to only offer relatively lower rewards. What Investment Options Are Suitable for Young Investors? Some of the most popular investments for young investors include stocks, bonds, mutual funds, and ETFs, although there are many other options that may be right for you depending on your circumstances. Online brokerages and robo-advisors can take the day-to-day management of an investment portfolio out of your hands, allowing you to set investments and then leave them to be controlled by professionals. The Bottom Line While many young adults feel they are not able to begin to invest because of financial instability, debt burden, and other factors, beginning to take hold of your finances at an early age can pay off considerably down the line. One of the first things to do is to set clear financial goals for yourself, both short- and long-term, as this will help to determine the best investment strategies for you. Always keep in mind that risk and return go hand-in-hand in investing, and know what your personal risk tolerance is. Taking stock of your expenses and income allows you to be aware of how much money you can reasonably invest after setting aside a liquid savings account and emergency fund for unexpected expenses.  Finally, learn about the host of different investment vehicles available to you so that you can make an informed selection based on your risk tolerance, diversification needs, and investing time frame.

https://www.investopedia.com/terms/l/loan-commitment.asp

What Is a Loan Commitment? Definition, How it Works, and Types

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-loan-commitment"></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 Commitment? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A loan commitment is an agreement by a commercial bank or other financial institution to lend a business or individual a specified sum of money. A loan commitment is useful for consumers looking to buy a home or a business planning to make a major purchase. </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 loan can take the form of a single lump sum or—in the case of an open-end loan commitment—a <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</a> that the borrower can draw upon as needed (up to a predetermined limit). </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 commitment is an agreement by a commercial bank or other financial institution to lend a business or individual a specified sum of money.</li><li>Loan commitments are useful for consumers looking to buy a home or businesses planning to make a major purchase.</li><li>The loan can take the form of a single lump sum or a line of credit that the borrower can draw upon as needed (up to a predetermined limit).</li><li>Loan commitments can be either secured or unsecured; a secured commitment is typically based on the borrower’s creditworthiness and has some form of collateral backing it. whereas an unsecured commitment is solely based on the borrower's creditworthiness (it has no collateral backing it).</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-loan-commitment"></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 Loan Commitment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Financial institutions make loan commitments based 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-worthiness.asp">creditworthiness</a> and—in if it's a secured commitment—on the value of some form of collateral. In the case of individual consumers, this collateral may be a home. Borrowers can then use the funds made available under the loan commitment, up to the agreed-upon limit. An open-end loan commitment works like a revolving line of credit: When the borrower pays back a portion of the loan's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a>, the lender adds that amount back to the available loan limit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Interest rates when obtaining a secured loan commitment may be lower, but this type of loan requires putting up collateral; if you can't repay the loan, you may risk losing the collateral.</p></div></div></div> <span class="heading-toc" id="toc-types-of-loan-commitments"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Types of Loan Commitments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Loan commitments can be either secured or unsecured. </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"> Secured Loan Commitment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> A secured commitment is typically based on the borrower’s creditworthiness and it has some form of collateral backing it. Two examples of open-end secured loan commitments for consumers are a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/securedcard.asp" rel="noopener noreferrer">secured credit card</a>–where money in a bank account serves as collateral–and a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/heloc/" rel="noopener noreferrer">home equity line of credit (HELOC)</a>–in which the equity in a home is used as collateral. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Because the credit limit is typically based on the value of the secured asset, the credit limit is often higher for a secured loan commitment than for an unsecured loan commitment. In addition, the loan’s interest rate may be lower and the payback time may be longer for a secured loan commitment than for an unsecured one. However, the approval process typically requires more paperwork and takes longer than with an unsecured loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The lender holds the collateral’s deed or title–or places a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lien.asp" rel="noopener noreferrer">lien</a> on the asset–until the loan is completely paid. Defaulting on a secured loan may result in the lender assuming ownership of and selling the secured asset, at which point they would then be responsible for using the proceeds to cover the loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-subheading__text"> Unsecured Loan Commitment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> A loan that doesn't have any collateral backing it is primarily based on the borrower’s creditworthiness. An unsecured credit card is one very basic example of an unsecured open-end loan commitment. Typically, the higher the borrower’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a>, the higher the credit limit. </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"> However, the interest rate may be higher than on a secured loan commitment because no collateral is backing the debt. Unsecured loans typically have a fixed minimum payment schedule and interest rate. The process for acquiring this type of loan often takes less paperwork and approval time than a secured loan commitment. </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-advantages-and-disadvantages-of-loan-commitments"></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"> Advantages and Disadvantages of Loan Commitments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Open-end loan commitments are flexible and can be useful for paying unexpected <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shorttermdebt.asp">short-term debt</a> obligations or covering financial emergencies. In addition, HELOCs typically have low interest rates, which may make their payments more affordable. Secured credit cards can help consumers establish or rebuild their credit; paying their bill on time and keeping total credit card debt low will improve their credit scores, and in time they may be eligible for an unsecured credit card. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The downside of a secured loan commitment is that borrowers who take out too much money and are unable to repay the loan may have to forfeit their collateral. For example, this could mean losing their home. Unsecured commitments have a higher interest rate, which makes borrowing more expensive. </p></div>

## What Is a Loan Commitment? A loan commitment is an agreement by a commercial bank or other financial institution to lend a business or individual a specified sum of money. A loan commitment is useful for consumers looking to buy a home or a business planning to make a major purchase. The loan can take the form of a single lump sum or—in the case of an open-end loan commitment—a [line of credit](https://www.investopedia.com/terms/l/lineofcredit.asp) that the borrower can draw upon as needed (up to a predetermined limit). ### Key Takeaways * A loan commitment is an agreement by a commercial bank or other financial institution to lend a business or individual a specified sum of money. * Loan commitments are useful for consumers looking to buy a home or businesses planning to make a major purchase. * The loan can take the form of a single lump sum or a line of credit that the borrower can draw upon as needed (up to a predetermined limit). * Loan commitments can be either secured or unsecured; a secured commitment is typically based on the borrower’s creditworthiness and has some form of collateral backing it. whereas an unsecured commitment is solely based on the borrower's creditworthiness (it has no collateral backing it). ## Understanding a Loan Commitment Financial institutions make loan commitments based on the borrower’s [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp) and—in if it's a secured commitment—on the value of some form of collateral. In the case of individual consumers, this collateral may be a home. Borrowers can then use the funds made available under the loan commitment, up to the agreed-upon limit. An open-end loan commitment works like a revolving line of credit: When the borrower pays back a portion of the loan's [principal](https://www.investopedia.com/terms/p/principal.asp), the lender adds that amount back to the available loan limit. ### Interest rates when obtaining a secured loan commitment may be lower, but this type of loan requires putting up collateral; if you can't repay the loan, you may risk losing the collateral. ## Types of Loan Commitments Loan commitments can be either secured or unsecured. ### Secured Loan Commitment A secured commitment is typically based on the borrower’s creditworthiness and it has some form of collateral backing it. Two examples of open-end secured loan commitments for consumers are a [secured credit card](https://www.investopedia.com/terms/s/securedcard.asp)–where money in a bank account serves as collateral–and a [home equity line of credit (HELOC)](https://www.investopedia.com/mortgage/heloc/)–in which the equity in a home is used as collateral. Because the credit limit is typically based on the value of the secured asset, the credit limit is often higher for a secured loan commitment than for an unsecured loan commitment. In addition, the loan’s interest rate may be lower and the payback time may be longer for a secured loan commitment than for an unsecured one. However, the approval process typically requires more paperwork and takes longer than with an unsecured loan. The lender holds the collateral’s deed or title–or places a [lien](https://www.investopedia.com/terms/l/lien.asp) on the asset–until the loan is completely paid. Defaulting on a secured loan may result in the lender assuming ownership of and selling the secured asset, at which point they would then be responsible for using the proceeds to cover the loan. ### Unsecured Loan Commitment A loan that doesn't have any collateral backing it is primarily based on the borrower’s creditworthiness. An unsecured credit card is one very basic example of an unsecured open-end loan commitment. Typically, the higher the borrower’s [credit score](https://www.investopedia.com/terms/c/credit_score.asp), the higher the credit limit. However, the interest rate may be higher than on a secured loan commitment because no collateral is backing the debt. Unsecured loans typically have a fixed minimum payment schedule and interest rate. The process for acquiring this type of loan often takes less paperwork and approval time than a secured loan commitment. ## Advantages and Disadvantages of Loan Commitments Open-end loan commitments are flexible and can be useful for paying unexpected [short-term debt](https://www.investopedia.com/terms/s/shorttermdebt.asp) obligations or covering financial emergencies. In addition, HELOCs typically have low interest rates, which may make their payments more affordable. Secured credit cards can help consumers establish or rebuild their credit; paying their bill on time and keeping total credit card debt low will improve their credit scores, and in time they may be eligible for an unsecured credit card. The downside of a secured loan commitment is that borrowers who take out too much money and are unable to repay the loan may have to forfeit their collateral. For example, this could mean losing their home. Unsecured commitments have a higher interest rate, which makes borrowing more expensive.

What Is a Loan Commitment? A loan commitment is an agreement by a commercial bank or other financial institution to lend a business or individual a specified sum of money. A loan commitment is useful for consumers looking to buy a home or a business planning to make a major purchase. The loan can take the form of a single lump sum or—in the case of an open-end loan commitment—a line of credit that the borrower can draw upon as needed (up to a predetermined limit). Key Takeaways A loan commitment is an agreement by a commercial bank or other financial institution to lend a business or individual a specified sum of money.Loan commitments are useful for consumers looking to buy a home or businesses planning to make a major purchase.The loan can take the form of a single lump sum or a line of credit that the borrower can draw upon as needed (up to a predetermined limit).Loan commitments can be either secured or unsecured; a secured commitment is typically based on the borrower’s creditworthiness and has some form of collateral backing it. whereas an unsecured commitment is solely based on the borrower's creditworthiness (it has no collateral backing it). Understanding a Loan Commitment Financial institutions make loan commitments based on the borrower’s creditworthiness and—in if it's a secured commitment—on the value of some form of collateral. In the case of individual consumers, this collateral may be a home. Borrowers can then use the funds made available under the loan commitment, up to the agreed-upon limit. An open-end loan commitment works like a revolving line of credit: When the borrower pays back a portion of the loan's principal, the lender adds that amount back to the available loan limit. Interest rates when obtaining a secured loan commitment may be lower, but this type of loan requires putting up collateral; if you can't repay the loan, you may risk losing the collateral. Types of Loan Commitments Loan commitments can be either secured or unsecured. Secured Loan Commitment A secured commitment is typically based on the borrower’s creditworthiness and it has some form of collateral backing it. Two examples of open-end secured loan commitments for consumers are a secured credit card–where money in a bank account serves as collateral–and a home equity line of credit (HELOC)–in which the equity in a home is used as collateral. Because the credit limit is typically based on the value of the secured asset, the credit limit is often higher for a secured loan commitment than for an unsecured loan commitment. In addition, the loan’s interest rate may be lower and the payback time may be longer for a secured loan commitment than for an unsecured one. However, the approval process typically requires more paperwork and takes longer than with an unsecured loan. The lender holds the collateral’s deed or title–or places a lien on the asset–until the loan is completely paid. Defaulting on a secured loan may result in the lender assuming ownership of and selling the secured asset, at which point they would then be responsible for using the proceeds to cover the loan. Unsecured Loan Commitment A loan that doesn't have any collateral backing it is primarily based on the borrower’s creditworthiness. An unsecured credit card is one very basic example of an unsecured open-end loan commitment. Typically, the higher the borrower’s credit score, the higher the credit limit. However, the interest rate may be higher than on a secured loan commitment because no collateral is backing the debt. Unsecured loans typically have a fixed minimum payment schedule and interest rate. The process for acquiring this type of loan often takes less paperwork and approval time than a secured loan commitment. Advantages and Disadvantages of Loan Commitments Open-end loan commitments are flexible and can be useful for paying unexpected short-term debt obligations or covering financial emergencies. In addition, HELOCs typically have low interest rates, which may make their payments more affordable. Secured credit cards can help consumers establish or rebuild their credit; paying their bill on time and keeping total credit card debt low will improve their credit scores, and in time they may be eligible for an unsecured credit card. The downside of a secured loan commitment is that borrowers who take out too much money and are unable to repay the loan may have to forfeit their collateral. For example, this could mean losing their home. Unsecured commitments have a higher interest rate, which makes borrowing more expensive.

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

Commodity Pool Operator (CPO): Meaning, Overview, 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-commodity-pool-operator-cpo"></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 Pool Operator (CPO)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A commodity pool operator (CPO) is a money manager or investment fund (called a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commoditypool.asp">commodity pool</a>) that oversees investments made in commodities securities such as futures and options contracts, or foreign exchange (forex) contracts. The commodity pool operator may also make trading decisions or advise other members of the commodity pool on potential investments for the pool. </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 CPO is similar to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cta.asp">commodity trading advisor</a> (CTA), but a CTA is an individual or firm that instead provides individualized advice regarding the buying and selling of commodities-related securities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A commodity pool operator (CPO) manages pooled funds that invest in commodities futures and related securities.</li><li>A CPO may work for a hedge fund or investment fund that takes positions in commodities.</li><li>CPOs must register with the Commodities Futures Trading Commission (CFTC).</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-commodity-pool-operators-cpos"></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 Commodity Pool Operators (CPOs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A commodity pool is a type of investment fund, but federal regulations require those funds that trade in commodities to register with the Commodities Futures Trading Commission (CFTC) as commodity pools. Commodity pools have been subject to additional reporting requirements since the enactment of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp">Dodd-Frank Act</a> in 2010. </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 commodity pool buys and sells <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/11/securities-market-introduction.asp">securities</a> that track the underlying prices of goods such as corn or beef or natural resources such as gold or oil. The commodity pool operator is the salesperson who finds new investors for that fund, or pool. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> A principal is a partner in the firm and controls the business interests of the commodity pool. An associated person is an employee who solicits orders and seeks new investors for the commodity pool. In short, the associated person is the salesperson for a commodity pool or a supervisor of its sales team. </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"> Commodity pools benefit investors since they gain access to trades that would not be possible for an individual investor. Investing in futures and options contracts can be quite complex, and by deferring to an expert that's licensed to trade derivatives, investors save money from the potential costly mistakes of going it alone when investing in commodity futures. </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>Commodity pool operators are regulated by the CFTC. They must register with the CFTC as principals or as associated persons. A CPO may also be asked to pass the FINRA <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/series31.asp">Series 31</a> exam.</p></div></div></div> <span class="heading-toc" id="toc-example-of-a-cpo"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Example of a CPO </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A CPO may work for a hedge fund or investment fund that takes positions in crude oil through the vehicles of futures or options contracts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The hedge fund might have underlying equity positions in large oil companies. Typically, as the price of crude oil rises and falls, so do the stock prices of oil-producing companies. The hedge fund might hedge their equity positions with crude oil options contracts. That is intended to reduce the downside risk of holding equity shares in oil producers if there is a bear market in crude oil. The CPO's job would be to solicit new investors in that fund. </p></div>

## What Is a Commodity Pool Operator (CPO)? A commodity pool operator (CPO) is a money manager or investment fund (called a [commodity pool](https://www.investopedia.com/terms/c/commoditypool.asp)) that oversees investments made in commodities securities such as futures and options contracts, or foreign exchange (forex) contracts. The commodity pool operator may also make trading decisions or advise other members of the commodity pool on potential investments for the pool. A CPO is similar to a [commodity trading advisor](https://www.investopedia.com/terms/c/cta.asp) (CTA), but a CTA is an individual or firm that instead provides individualized advice regarding the buying and selling of commodities-related securities. ### Key Takeaways * A commodity pool operator (CPO) manages pooled funds that invest in commodities futures and related securities. * A CPO may work for a hedge fund or investment fund that takes positions in commodities. * CPOs must register with the Commodities Futures Trading Commission (CFTC). ## Understanding Commodity Pool Operators (CPOs) A commodity pool is a type of investment fund, but federal regulations require those funds that trade in commodities to register with the Commodities Futures Trading Commission (CFTC) as commodity pools. Commodity pools have been subject to additional reporting requirements since the enactment of the [Dodd-Frank Act](https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp) in 2010. A commodity pool buys and sells [securities](https://www.investopedia.com/articles/stocks/11/securities-market-introduction.asp) that track the underlying prices of goods such as corn or beef or natural resources such as gold or oil. The commodity pool operator is the salesperson who finds new investors for that fund, or pool. A principal is a partner in the firm and controls the business interests of the commodity pool. An associated person is an employee who solicits orders and seeks new investors for the commodity pool. In short, the associated person is the salesperson for a commodity pool or a supervisor of its sales team. Commodity pools benefit investors since they gain access to trades that would not be possible for an individual investor. Investing in futures and options contracts can be quite complex, and by deferring to an expert that's licensed to trade derivatives, investors save money from the potential costly mistakes of going it alone when investing in commodity futures. ### Commodity pool operators are regulated by the CFTC. They must register with the CFTC as principals or as associated persons. A CPO may also be asked to pass the FINRA [Series 31](https://www.investopedia.com/terms/s/series31.asp) exam. ## Example of a CPO A CPO may work for a hedge fund or investment fund that takes positions in crude oil through the vehicles of futures or options contracts. The hedge fund might have underlying equity positions in large oil companies. Typically, as the price of crude oil rises and falls, so do the stock prices of oil-producing companies. The hedge fund might hedge their equity positions with crude oil options contracts. That is intended to reduce the downside risk of holding equity shares in oil producers if there is a bear market in crude oil. The CPO's job would be to solicit new investors in that fund.

What Is a Commodity Pool Operator (CPO)? A commodity pool operator (CPO) is a money manager or investment fund (called a commodity pool) that oversees investments made in commodities securities such as futures and options contracts, or foreign exchange (forex) contracts. The commodity pool operator may also make trading decisions or advise other members of the commodity pool on potential investments for the pool. A CPO is similar to a commodity trading advisor (CTA), but a CTA is an individual or firm that instead provides individualized advice regarding the buying and selling of commodities-related securities. Key Takeaways A commodity pool operator (CPO) manages pooled funds that invest in commodities futures and related securities.A CPO may work for a hedge fund or investment fund that takes positions in commodities.CPOs must register with the Commodities Futures Trading Commission (CFTC). Understanding Commodity Pool Operators (CPOs) A commodity pool is a type of investment fund, but federal regulations require those funds that trade in commodities to register with the Commodities Futures Trading Commission (CFTC) as commodity pools. Commodity pools have been subject to additional reporting requirements since the enactment of the Dodd-Frank Act in 2010. A commodity pool buys and sells securities that track the underlying prices of goods such as corn or beef or natural resources such as gold or oil. The commodity pool operator is the salesperson who finds new investors for that fund, or pool. A principal is a partner in the firm and controls the business interests of the commodity pool. An associated person is an employee who solicits orders and seeks new investors for the commodity pool. In short, the associated person is the salesperson for a commodity pool or a supervisor of its sales team. Commodity pools benefit investors since they gain access to trades that would not be possible for an individual investor. Investing in futures and options contracts can be quite complex, and by deferring to an expert that's licensed to trade derivatives, investors save money from the potential costly mistakes of going it alone when investing in commodity futures. Commodity pool operators are regulated by the CFTC. They must register with the CFTC as principals or as associated persons. A CPO may also be asked to pass the FINRA Series 31 exam. Example of a CPO A CPO may work for a hedge fund or investment fund that takes positions in crude oil through the vehicles of futures or options contracts. The hedge fund might have underlying equity positions in large oil companies. Typically, as the price of crude oil rises and falls, so do the stock prices of oil-producing companies. The hedge fund might hedge their equity positions with crude oil options contracts. That is intended to reduce the downside risk of holding equity shares in oil producers if there is a bear market in crude oil. The CPO's job would be to solicit new investors in that fund.

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

Constant Proportion Debt Obligation (CPDO): Meaning, Limitations

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-constant-proportion-debt-obligation-cpdo"></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 Constant Proportion Debt Obligation (CPDO)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Constant proportion debt obligations (CPDO) are incredibly complex <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtsecurity.asp">debt securities</a> that promise investors the high yields of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/junkbond.asp">junk bonds</a> with the low-default risk of investment-grade bonds. CPDOs do this by rolling their exposure to the underlying credit indices they track, such as the Thomson Reuters Eikon code (iTraxx) or the <a class="pseudoStyle" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dowjonescdx.asp">credit default swap index</a> (CDX). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> As the given index sheds or adds bonds based on creditworthiness, a CPDO manager will limit default risk by updating their exposure, hence the term “constant proportion.” But the strategy leaves constant proportion debt obligations highly exposed to spread volatility and at the risk of catastrophic loss. </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>Constant proportion debt obligations (CPDOs) promise investors the high yields of junk bonds with the low-default risk of investment-grade bonds.</li><li>CPDOs roll their exposure to the underlying credit indices they track.</li><li>CPDOs are highly exposed to spread volatility.</li><li>Fundamentally, CPDOs represent the arbitrage of bond indices, and the strategy can lead to catastrophic loss.</li><li>CPDOs started defaulting in the early part of the Great Recession, and rating agencies, such as S&amp;P and Moody's, came under scrutiny for rating CPDOs highly.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-constant-proportion-debt-obligation-cpdo"></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 Constant Proportion Debt Obligation (CPDO) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Constant proportion debt obligations were invented in 2006 by the Dutch bank ABN AMRO. The bank sought to create a high interest-bearing instrument <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pegging.asp">pegged</a> to bonds with the most exceptional debt ratings against <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a>. During a period of historically low bond rates, such a strategy was appealing to the managers of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pensionplan.asp">pension funds</a> who sought higher returns but were not allowed to invest in risky junk bonds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> CPDOs are similar to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/syntheticcdo.asp">synthetic collateralized debt obligations </a>as they are a “basket” containing not actual bonds, but <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditdefaultswap.asp">credit default swaps</a> against bonds. These swaps synthetically transfer gains from the bonds to the investor. But unlike synthetic collateralized debt obligations (CDOs), a CPDO is rolled over every six months. The turnover comes from buying <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">derivatives</a> on the old bond index and selling derivatives on a new index. By continually buying and selling derivatives on the underlying index, the manager of the CPDO will be able to customize the amount of leverage it employs in an attempt to make additional returns from index price spreads. It is an arbitrage of bond indices. </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, this strategy is at root a double-or-nothing, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/martingalesystem.asp">Martingale</a> bet, which has been mathematically debunked. Martingale is an 18th century game of chance where a bettor doubles their bet with every losing toss of a coin on the theory that an eventual winning coin toss will gain back all their losses plus the original bet. Among other limitations, the Martingale strategy only works if a bettor has unlimited funds, which is never the case in the real world. </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-limitations-of-constant-proportion-debt-obligations-cpdos"></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"> Limitations of Constant Proportion Debt Obligations (CPDOs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The first CPDOs came under immediate scrutiny after both Moody’s and Standard and Poor's (S&amp;P) rated them <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aaa.asp">AAA</a> investments. The agencies noted that the strategy of rolling with the underlying AAA indices would mitigate default risk. But critics focused on the risk of spread volatility inherent in the strategy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> In typical times, this risk was arguably small since investment-grade bond spreads tend to revert to mean. In that sense, the coin toss strategy could work. But <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yieldspread.asp">bond spreads</a> are historically <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stochastic-volatility.asp">stochastic</a>, meaning they are difficult if impossible to predict and, in fact, remarkably few managers predicted the credit crisis of late 2008 that unwound many CPDOs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The first CPDO default came in November 2007 to a fund administered by UBS. It was the canary in the coal mine, as bond spreads began spiking in advance of the 2008 market crash. As more funds began to unwind, the rating agencies Moody’s and S&amp;P fell under increased scrutiny for granting AAA ratings to CPDOs. As their credibility suffered, Moody’s discovered an internal software glitch that they said was at least partly responsible for the positive rating, although that did nothing to explain S&amp;P’s rating.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> In hindsight, both agencies had assigned an effective zero risk probability of the 2008 event, and they also assigned a very small probability to the more mundane spread rise that occurred in late 2007. The debacle of 2007 to 2008 made CPDOs the poster child for overly complex financial instruments and the head-in-the-sand optimism that has them defying gravity. </p></div>

## What Is a Constant Proportion Debt Obligation (CPDO)? Constant proportion debt obligations (CPDO) are incredibly complex [debt securities](https://www.investopedia.com/terms/d/debtsecurity.asp) that promise investors the high yields of [junk bonds](https://www.investopedia.com/terms/j/junkbond.asp) with the low-default risk of investment-grade bonds. CPDOs do this by rolling their exposure to the underlying credit indices they track, such as the Thomson Reuters Eikon code (iTraxx) or the [credit default swap index](https://www.investopedia.com/terms/d/dowjonescdx.asp) (CDX). As the given index sheds or adds bonds based on creditworthiness, a CPDO manager will limit default risk by updating their exposure, hence the term “constant proportion.” But the strategy leaves constant proportion debt obligations highly exposed to spread volatility and at the risk of catastrophic loss. ### Key Takeaways * Constant proportion debt obligations (CPDOs) promise investors the high yields of junk bonds with the low-default risk of investment-grade bonds. * CPDOs roll their exposure to the underlying credit indices they track. * CPDOs are highly exposed to spread volatility. * Fundamentally, CPDOs represent the arbitrage of bond indices, and the strategy can lead to catastrophic loss. * CPDOs started defaulting in the early part of the Great Recession, and rating agencies, such as S&P and Moody's, came under scrutiny for rating CPDOs highly. ## Understanding a Constant Proportion Debt Obligation (CPDO) Constant proportion debt obligations were invented in 2006 by the Dutch bank ABN AMRO. The bank sought to create a high interest-bearing instrument [pegged](https://www.investopedia.com/terms/p/pegging.asp) to bonds with the most exceptional debt ratings against [default](https://www.investopedia.com/terms/d/default2.asp). During a period of historically low bond rates, such a strategy was appealing to the managers of [pension funds](https://www.investopedia.com/terms/p/pensionplan.asp) who sought higher returns but were not allowed to invest in risky junk bonds. CPDOs are similar to [synthetic collateralized debt obligations](https://www.investopedia.com/terms/s/syntheticcdo.asp) as they are a “basket” containing not actual bonds, but [credit default swaps](https://www.investopedia.com/terms/c/creditdefaultswap.asp) against bonds. These swaps synthetically transfer gains from the bonds to the investor. But unlike synthetic collateralized debt obligations (CDOs), a CPDO is rolled over every six months. The turnover comes from buying [derivatives](https://www.investopedia.com/terms/d/derivative.asp) on the old bond index and selling derivatives on a new index. By continually buying and selling derivatives on the underlying index, the manager of the CPDO will be able to customize the amount of leverage it employs in an attempt to make additional returns from index price spreads. It is an arbitrage of bond indices. However, this strategy is at root a double-or-nothing, [Martingale](https://www.investopedia.com/terms/m/martingalesystem.asp) bet, which has been mathematically debunked. Martingale is an 18th century game of chance where a bettor doubles their bet with every losing toss of a coin on the theory that an eventual winning coin toss will gain back all their losses plus the original bet. Among other limitations, the Martingale strategy only works if a bettor has unlimited funds, which is never the case in the real world. ## Limitations of Constant Proportion Debt Obligations (CPDOs) The first CPDOs came under immediate scrutiny after both Moody’s and Standard and Poor's (S&P) rated them [AAA](https://www.investopedia.com/terms/a/aaa.asp) investments. The agencies noted that the strategy of rolling with the underlying AAA indices would mitigate default risk. But critics focused on the risk of spread volatility inherent in the strategy. In typical times, this risk was arguably small since investment-grade bond spreads tend to revert to mean. In that sense, the coin toss strategy could work. But [bond spreads](https://www.investopedia.com/terms/y/yieldspread.asp) are historically [stochastic](https://www.investopedia.com/terms/s/stochastic-volatility.asp), meaning they are difficult if impossible to predict and, in fact, remarkably few managers predicted the credit crisis of late 2008 that unwound many CPDOs. The first CPDO default came in November 2007 to a fund administered by UBS. It was the canary in the coal mine, as bond spreads began spiking in advance of the 2008 market crash. As more funds began to unwind, the rating agencies Moody’s and S&P fell under increased scrutiny for granting AAA ratings to CPDOs. As their credibility suffered, Moody’s discovered an internal software glitch that they said was at least partly responsible for the positive rating, although that did nothing to explain S&P’s rating. In hindsight, both agencies had assigned an effective zero risk probability of the 2008 event, and they also assigned a very small probability to the more mundane spread rise that occurred in late 2007. The debacle of 2007 to 2008 made CPDOs the poster child for overly complex financial instruments and the head-in-the-sand optimism that has them defying gravity.

What Is a Constant Proportion Debt Obligation (CPDO)? Constant proportion debt obligations (CPDO) are incredibly complex debt securities that promise investors the high yields of junk bonds with the low-default risk of investment-grade bonds. CPDOs do this by rolling their exposure to the underlying credit indices they track, such as the Thomson Reuters Eikon code (iTraxx) or the credit default swap index (CDX). As the given index sheds or adds bonds based on creditworthiness, a CPDO manager will limit default risk by updating their exposure, hence the term “constant proportion.” But the strategy leaves constant proportion debt obligations highly exposed to spread volatility and at the risk of catastrophic loss. Key Takeaways Constant proportion debt obligations (CPDOs) promise investors the high yields of junk bonds with the low-default risk of investment-grade bonds.CPDOs roll their exposure to the underlying credit indices they track.CPDOs are highly exposed to spread volatility.Fundamentally, CPDOs represent the arbitrage of bond indices, and the strategy can lead to catastrophic loss.CPDOs started defaulting in the early part of the Great Recession, and rating agencies, such as S&P and Moody's, came under scrutiny for rating CPDOs highly. Understanding a Constant Proportion Debt Obligation (CPDO) Constant proportion debt obligations were invented in 2006 by the Dutch bank ABN AMRO. The bank sought to create a high interest-bearing instrument pegged to bonds with the most exceptional debt ratings against default. During a period of historically low bond rates, such a strategy was appealing to the managers of pension funds who sought higher returns but were not allowed to invest in risky junk bonds. CPDOs are similar to synthetic collateralized debt obligations as they are a “basket” containing not actual bonds, but credit default swaps against bonds. These swaps synthetically transfer gains from the bonds to the investor. But unlike synthetic collateralized debt obligations (CDOs), a CPDO is rolled over every six months. The turnover comes from buying derivatives on the old bond index and selling derivatives on a new index. By continually buying and selling derivatives on the underlying index, the manager of the CPDO will be able to customize the amount of leverage it employs in an attempt to make additional returns from index price spreads. It is an arbitrage of bond indices. However, this strategy is at root a double-or-nothing, Martingale bet, which has been mathematically debunked. Martingale is an 18th century game of chance where a bettor doubles their bet with every losing toss of a coin on the theory that an eventual winning coin toss will gain back all their losses plus the original bet. Among other limitations, the Martingale strategy only works if a bettor has unlimited funds, which is never the case in the real world. Limitations of Constant Proportion Debt Obligations (CPDOs) The first CPDOs came under immediate scrutiny after both Moody’s and Standard and Poor's (S&P) rated them AAA investments. The agencies noted that the strategy of rolling with the underlying AAA indices would mitigate default risk. But critics focused on the risk of spread volatility inherent in the strategy. In typical times, this risk was arguably small since investment-grade bond spreads tend to revert to mean. In that sense, the coin toss strategy could work. But bond spreads are historically stochastic, meaning they are difficult if impossible to predict and, in fact, remarkably few managers predicted the credit crisis of late 2008 that unwound many CPDOs. The first CPDO default came in November 2007 to a fund administered by UBS. It was the canary in the coal mine, as bond spreads began spiking in advance of the 2008 market crash. As more funds began to unwind, the rating agencies Moody’s and S&P fell under increased scrutiny for granting AAA ratings to CPDOs. As their credibility suffered, Moody’s discovered an internal software glitch that they said was at least partly responsible for the positive rating, although that did nothing to explain S&P’s rating. In hindsight, both agencies had assigned an effective zero risk probability of the 2008 event, and they also assigned a very small probability to the more mundane spread rise that occurred in late 2007. The debacle of 2007 to 2008 made CPDOs the poster child for overly complex financial instruments and the head-in-the-sand optimism that has them defying gravity.

https://www.investopedia.com/ask/answers/why-should-i-invest/

Why Should I Consider 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"> Investing is an effective way to have your money work for you and build wealth. Holding cash and bank savings accounts are considered safe strategies, but investing your money allows it to grow in value over time with the benefit of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compounding.asp">compounding</a> and long-term growth. </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"> Whether you invest in stocks, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bonds</a>, <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>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp">options</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a>, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/preciousmetal.asp">precious metals</a>, real estate, or small businesses, investing is important to generate future income, increase value and equity, and build wealth. </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 is an effective way to have your money work for you and build wealth. </li><li>Investments may include a range of choices, including stocks, bonds, mutual funds, exchange-traded funds, and real estate.<span class="ql-inline-citation" data-cite="1"></span></li><li>An individual's investment goals depend on their income, age, and risk tolerance.</li></ul></div></div></div> <span class="heading-toc" id="toc-why-investing-is-important-at-any-age"></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 Investing Is Important at Any Age </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> An individual's goals depend on a host of factors that may include age, income, and risk profiles. Age can be further subdivided into the following three categories: </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>Young and starting in a career</li><li>Middle-aged and family-building</li><li>Retirement age and self-directed</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"> These segments often miss their marks at the appropriate age, with middle-aged folks considering investments for the first time or the elderly forced to budget, employing the discipline they lacked as young adults. </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"> Income provides the natural starting point for investment planning because you can’t invest what you don’t have. A young adult's first job issues a wake-up call, forcing decisions about IRA contributions, savings, or money market accounts, and the sacrifices needed to balance growing affluence with the desire for gratification. Don't worry too much about setbacks during this period, like getting overwhelmed by student loans and car payments, or forgetting that your parents no longer pay the monthly credit card bill. </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"> Outlook defines the playing field on which we operate during our lifetimes and the choices that impact wealth management. Family planning sits at the top of this list for many individuals, with couples figuring out how many kids they want, where they want to live, and how much money is needed to accomplish those goals. Career expectations often complicate these calculations, with the highly-educated enjoying increased earning power while those stuck in low-level jobs are forced to cut back to make ends meet. </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 never too late to become an investor. You may be well into middle age before realizing that life is moving quickly, requiring a plan to deal with old age and retirement. Fear can take control if waiting too long to set investment goals, but that should go away once you set the plan into motion. Remember that all investments start with the first dollar, whatever your age, income, or outlook. That said, those investing for decades have the advantage, with growing wealth allowing them to enjoy the lifestyle that others cannot afford. </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>Whether your goal is to send your kids to college, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-build-generational-wealth-8417999">build wealth to hand down</a>, or to retire on a yacht in the Mediterranean, investing is essential in reaching your financial objectives in life.</p></div></div></div></div>

Investing is an effective way to have your money work for you and build wealth. Holding cash and bank savings accounts are considered safe strategies, but investing your money allows it to grow in value over time with the benefit of [compounding](https://www.investopedia.com/terms/c/compounding.asp) and long-term growth. Whether you invest in stocks, [bonds](https://www.investopedia.com/terms/b/bond.asp), [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp), [options](https://www.investopedia.com/terms/o/option.asp), [futures](https://www.investopedia.com/terms/f/futures.asp), [precious metals](https://www.investopedia.com/terms/p/preciousmetal.asp), real estate, or small businesses, investing is important to generate future income, increase value and equity, and build wealth. ### Key Takeaways * Investing is an effective way to have your money work for you and build wealth. * Investments may include a range of choices, including stocks, bonds, mutual funds, exchange-traded funds, and real estate. * An individual's investment goals depend on their income, age, and risk tolerance. ## Why Investing Is Important at Any Age An individual's goals depend on a host of factors that may include age, income, and risk profiles. Age can be further subdivided into the following three categories: * Young and starting in a career * Middle-aged and family-building * Retirement age and self-directed These segments often miss their marks at the appropriate age, with middle-aged folks considering investments for the first time or the elderly forced to budget, employing the discipline they lacked as young adults. Income provides the natural starting point for investment planning because you can’t invest what you don’t have. A young adult's first job issues a wake-up call, forcing decisions about IRA contributions, savings, or money market accounts, and the sacrifices needed to balance growing affluence with the desire for gratification. Don't worry too much about setbacks during this period, like getting overwhelmed by student loans and car payments, or forgetting that your parents no longer pay the monthly credit card bill. Outlook defines the playing field on which we operate during our lifetimes and the choices that impact wealth management. Family planning sits at the top of this list for many individuals, with couples figuring out how many kids they want, where they want to live, and how much money is needed to accomplish those goals. Career expectations often complicate these calculations, with the highly-educated enjoying increased earning power while those stuck in low-level jobs are forced to cut back to make ends meet. It’s never too late to become an investor. You may be well into middle age before realizing that life is moving quickly, requiring a plan to deal with old age and retirement. Fear can take control if waiting too long to set investment goals, but that should go away once you set the plan into motion. Remember that all investments start with the first dollar, whatever your age, income, or outlook. That said, those investing for decades have the advantage, with growing wealth allowing them to enjoy the lifestyle that others cannot afford. ### Whether your goal is to send your kids to college, [build wealth to hand down](https://www.investopedia.com/how-to-build-generational-wealth-8417999), or to retire on a yacht in the Mediterranean, investing is essential in reaching your financial objectives in life.

Investing is an effective way to have your money work for you and build wealth. Holding cash and bank savings accounts are considered safe strategies, but investing your money allows it to grow in value over time with the benefit of compounding and long-term growth. Whether you invest in stocks, bonds, mutual funds, options, futures, precious metals, real estate, or small businesses, investing is important to generate future income, increase value and equity, and build wealth. Key Takeaways Investing is an effective way to have your money work for you and build wealth. Investments may include a range of choices, including stocks, bonds, mutual funds, exchange-traded funds, and real estate.An individual's investment goals depend on their income, age, and risk tolerance. Why Investing Is Important at Any Age An individual's goals depend on a host of factors that may include age, income, and risk profiles. Age can be further subdivided into the following three categories: Young and starting in a careerMiddle-aged and family-buildingRetirement age and self-directed These segments often miss their marks at the appropriate age, with middle-aged folks considering investments for the first time or the elderly forced to budget, employing the discipline they lacked as young adults. Income provides the natural starting point for investment planning because you can’t invest what you don’t have. A young adult's first job issues a wake-up call, forcing decisions about IRA contributions, savings, or money market accounts, and the sacrifices needed to balance growing affluence with the desire for gratification. Don't worry too much about setbacks during this period, like getting overwhelmed by student loans and car payments, or forgetting that your parents no longer pay the monthly credit card bill. Outlook defines the playing field on which we operate during our lifetimes and the choices that impact wealth management. Family planning sits at the top of this list for many individuals, with couples figuring out how many kids they want, where they want to live, and how much money is needed to accomplish those goals. Career expectations often complicate these calculations, with the highly-educated enjoying increased earning power while those stuck in low-level jobs are forced to cut back to make ends meet. It’s never too late to become an investor. You may be well into middle age before realizing that life is moving quickly, requiring a plan to deal with old age and retirement. Fear can take control if waiting too long to set investment goals, but that should go away once you set the plan into motion. Remember that all investments start with the first dollar, whatever your age, income, or outlook. That said, those investing for decades have the advantage, with growing wealth allowing them to enjoy the lifestyle that others cannot afford. Whether your goal is to send your kids to college, build wealth to hand down, or to retire on a yacht in the Mediterranean, investing is essential in reaching your financial objectives in life.

https://www.investopedia.com/apple-surges-on-reported-plans-to-overhaul-macs-with-in-house-chips-focused-on-ai-8630282

Apple Surges on Reported Plans To Overhaul Macs With In-House Chips Focused on AI

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 shares surged Thursday following a report it plans to overhaul its Mac computers with updated versions of its in-house processors with AI features.</li><li>The tech giant is expected to begin rolling out the machines with the M4 chip beginning late this year and into early next year, <em>Bloomberg</em> reported.</li><li>The move is part of Apple's efforts to put AI capabilities in all of its devices.</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>) shares gained over 4% Thursday following a report the tech giant is preparing to overhaul its entire Mac computer line by switching to an updated family of in-house processors highlighting <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> features. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The company is close to beginning production of the M4 processor, an upgrade to the current M3, <em>Bloomberg </em>reported. Apple began releasing Macs with the M3 five months ago.<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 report said that the M4 is expected to come in at least three main varieties, and this move is part of the company’s broader effort to include AI capabilities into all of its products. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Apple could be targeting the release of Macs with the M4 beginning late this year and into early 2025, according to <em>Bloomberg</em>. Several new iMacs are expected be launched with the M4: a lower-priced 14-inch MacBook Pro, higher-priced 14-inch and 16-inch MacBook Pros, and Mac minis. </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"> Apple did not immediately respond to a request for comment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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 Apple closed 4.3% higher at $175.04 Thursday. Even with Thursday’s gains, shares of Apple have lost over 5% so far this year.<br/> </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:65.4%;"> <img alt="AAPL" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/YxxiGh7dxXZqymKfm3ruSP2cNes=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AAPL_2024-04-11_16-05-38-2817d80879a04334b34e60884fc4c780.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/YxxiGh7dxXZqymKfm3ruSP2cNes=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AAPL_2024-04-11_16-05-38-2817d80879a04334b34e60884fc4c780.png" data-srcset="https://www.investopedia.com/thmb/f3uaq5C-ZBI7TeMzCpO3ESgC_C4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AAPL_2024-04-11_16-05-38-2817d80879a04334b34e60884fc4c780.png 750w" data-tracking-container="true" height="1148" id="mntl-sc-block-image_1-0" width="1755"/> <noscript> <img alt="AAPL" class="img--noscript universal-image__image" height="1148" sizes="750px" src="https://www.investopedia.com/thmb/YxxiGh7dxXZqymKfm3ruSP2cNes=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AAPL_2024-04-11_16-05-38-2817d80879a04334b34e60884fc4c780.png" srcset="https://www.investopedia.com/thmb/f3uaq5C-ZBI7TeMzCpO3ESgC_C4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AAPL_2024-04-11_16-05-38-2817d80879a04334b34e60884fc4c780.png 750w" width="1755"/> </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 * Apple shares surged Thursday following a report it plans to overhaul its Mac computers with updated versions of its in-house processors with AI features. * The tech giant is expected to begin rolling out the machines with the M4 chip beginning late this year and into early next year, *Bloomberg* reported. * The move is part of Apple's efforts to put AI capabilities in all of its devices. Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) shares gained over 4% Thursday following a report the tech giant is preparing to overhaul its entire Mac computer line by switching to an updated family of in-house processors highlighting [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) features. The company is close to beginning production of the M4 processor, an upgrade to the current M3, *Bloomberg* reported. Apple began releasing Macs with the M3 five months ago. The report said that the M4 is expected to come in at least three main varieties, and this move is part of the company’s broader effort to include AI capabilities into all of its products. Apple could be targeting the release of Macs with the M4 beginning late this year and into early 2025, according to *Bloomberg*. Several new iMacs are expected be launched with the M4: a lower-priced 14-inch MacBook Pro, higher-priced 14-inch and 16-inch MacBook Pros, and Mac minis. Apple did not immediately respond to a request for comment. Shares of Apple closed 4.3% higher at $175.04 Thursday. Even with Thursday’s gains, shares of Apple have lost over 5% so far this year. ![AAPL]() :max_bytes(150000):strip_icc()/AAPL_2024-04-11_16-05-38-2817d80879a04334b34e60884fc4c780.png) TradingView Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Apple shares surged Thursday following a report it plans to overhaul its Mac computers with updated versions of its in-house processors with AI features.The tech giant is expected to begin rolling out the machines with the M4 chip beginning late this year and into early next year, Bloomberg reported.The move is part of Apple's efforts to put AI capabilities in all of its devices. Apple (AAPL) shares gained over 4% Thursday following a report the tech giant is preparing to overhaul its entire Mac computer line by switching to an updated family of in-house processors highlighting artificial intelligence (AI) features. The company is close to beginning production of the M4 processor, an upgrade to the current M3, Bloomberg reported. Apple began releasing Macs with the M3 five months ago. The report said that the M4 is expected to come in at least three main varieties, and this move is part of the company’s broader effort to include AI capabilities into all of its products. Apple could be targeting the release of Macs with the M4 beginning late this year and into early 2025, according to Bloomberg. Several new iMacs are expected be launched with the M4: a lower-priced 14-inch MacBook Pro, higher-priced 14-inch and 16-inch MacBook Pros, and Mac minis. Apple did not immediately respond to a request for comment. Shares of Apple closed 4.3% higher at $175.04 Thursday. Even with Thursday’s gains, shares of Apple have lost over 5% so far this year. TradingView Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Line of Credit (LOC) Definition, Types, and Examples

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-line-of-credit-loc"></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 Line of Credit (LOC)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A line of credit (LOC) is a preset borrowing limit offered by banks and financial institutions to their personal and business customers. Lines of credit can be used at any time until the limit is reached. The limit is set by the issuer based 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-worthiness.asp">creditworthiness</a>. As money is repaid, it can be borrowed again in the case of an open line of credit. The borrower can access funds from the LOC at any time as long as they do not exceed the maximum amount (or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_limit.asp">credit limit</a>) set in the agreement. </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 line of credit is a preset borrowing limit that a borrower can draw on at any time that the line of credit is open.</li><li>Types of credit lines include personal, business, and home equity, among others.</li><li>The built-in flexibility of a line of credit is its main advantage.</li><li>Potential downsides include high interest rates, late payments penalties, and the potential to overspend.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Line of Credit (LOC)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/GQIt6WHMFoZknjjYKdGf-M-CVYg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LOC-13d791780aa54b6a9a28120d6d1c9f65.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/GQIt6WHMFoZknjjYKdGf-M-CVYg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LOC-13d791780aa54b6a9a28120d6d1c9f65.jpg" data-srcset="https://www.investopedia.com/thmb/Or9ZvzB2FdASJkU2VupSupegQHc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/LOC-13d791780aa54b6a9a28120d6d1c9f65.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Line of Credit (LOC)" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/GQIt6WHMFoZknjjYKdGf-M-CVYg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LOC-13d791780aa54b6a9a28120d6d1c9f65.jpg" srcset="https://www.investopedia.com/thmb/Or9ZvzB2FdASJkU2VupSupegQHc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/LOC-13d791780aa54b6a9a28120d6d1c9f65.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 / Julie Bang</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-lines-of-credit-locs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Understanding Lines of Credit (LOCs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A line of credit is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit.asp">credit</a> product that banks and other financial institutions offer their customers. They are available for both personal customers and business clients. Like other credit products, customers must qualify to be approved for a line of credit. Customers may apply for or be pre-approved for a credit line. The limit on the LOC is based on the borrower's creditworthiness.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> All LOCs consist of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank_confirmation_letter.asp">set amount of money that can be borrowed</a> as needed, paid back, and borrowed again. The amount of interest, size of payments, and other rules are set by the lender. Some LOCs allow you to write checks, while others issue a debit card that can be used to access the available credit. A line of credit can be <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/110614/whats-difference-between-secured-line-credit-and-unsecured-line-credit.asp">secured or unsecured</a>. Secured LOCs come with lower rates as they are backed by collateral while unsecured LOCs typically come with higher rates. </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 LOC is highly flexibility, which is its main advantage. Borrowers can request a certain amount, but they do not have to use it all. Rather, they can tailor their spending from the LOC to their needs and owe <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> only on the amount that they draw, not on the entire credit line. In addition, borrowers can adjust their repayment amounts as needed based on their budget or cash flow. They can repay, for example, the entire outstanding balance all at once or just make the minimum monthly payments. </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"> There are different types of LOCs that financial institutions offer. Some of the most common types of LOCs include personal, business, and <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>. We explore these in more detail below.<br/> </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:65.9%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/OB4RpUS-ySlDKERmFYICPsgxohU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Line_of_Credit_LOC_May_2020-01-b6dd7853664d4c03bde6b16adc22f806.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/OB4RpUS-ySlDKERmFYICPsgxohU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Line_of_Credit_LOC_May_2020-01-b6dd7853664d4c03bde6b16adc22f806.jpg" data-srcset="https://www.investopedia.com/thmb/V0Ag3vIrC37R-5fkqr5ZD1_aFho=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Line_of_Credit_LOC_May_2020-01-b6dd7853664d4c03bde6b16adc22f806.jpg 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_2-0" width="6001"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/OB4RpUS-ySlDKERmFYICPsgxohU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Line_of_Credit_LOC_May_2020-01-b6dd7853664d4c03bde6b16adc22f806.jpg" srcset="https://www.investopedia.com/thmb/V0Ag3vIrC37R-5fkqr5ZD1_aFho=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Line_of_Credit_LOC_May_2020-01-b6dd7853664d4c03bde6b16adc22f806.jpg 750w" width="6001"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_2-0"> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2020</span> </figcaption></figure> <span class="heading-toc" id="toc-unsecured-vs-secured-lines-of-credit-locs"></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"> Unsecured vs. Secured Lines of Credit (LOCs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Most LOCs are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredloan.asp">unsecured loans</a>. This means that the borrower does not promise the lender any <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a> to back the LOC. One notable exception is a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/home-equity-line-of-credit-heloc-definition-5217473">home equity line of credit (HELOC)</a>, which is secured by the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/home_equity.asp">equity in the borrower’s home</a>. From the lender’s perspective, secured LOCs are attractive because they provide a way to recoup the advanced funds in the event of nonpayment.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> For individuals or business owners, secured LOCs are attractive because they typically come with a higher maximum credit limit and significantly lower interest rates than unsecured LOCs. Unsecured LOCs are also more difficult to obtain and often require a higher <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> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrating.asp">credit rating</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"> Lenders attempt to compensate for the increased <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp">risk</a> by limiting how much can be borrowed and by charging higher interest rates. That is one reason why the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rate (APR)</a> on credit cards is so high. </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"> Credit cards are technically unsecured LOCs, with the credit limit—how much you can charge on the card—representing its parameters. But you do not pledge any assets when you open the card. If you start missing payments, there’s nothing that the credit card issuer can seize in compensation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_26-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_27-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>An LOC can have a major impact on your credit score. In general, if you use more than 30% of the borrowing limit, your credit score will drop.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-revolving-vs-non-revolving-lines-of-credit-locs"></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"> Revolving vs. Non-Revolving Lines of Credit (LOCs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> An LOC is often considered to be a type of revolving account, also known as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/openendcredit.asp">open-end credit </a>account. This arrangement allows borrowers to spend the money, repay it, and spend it again in a virtually never-ending, revolving cycle. Revolving accounts such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/110614/what-difference-between-loan-and-line-credit.asp">LOCs and credit cards are different from installment loans</a> such as mortgages and car loans. </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"> With <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/072316/how-installment-loans-work.asp">installment loans</a>, consumers borrow a set amount of money and repay it in equal monthly installments until the loan is paid off. Once an installment loan has been paid off, consumers cannot spend the funds again unless they apply for a new loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Non-revolving LOCs have the same features as revolving credit (or a revolving LOC). A credit limit is established, funds can be used for a variety of purposes, interest is charged normally, and payments may be made at any time. There is one major exception: The pool of available credit does not replenish after payments are made. Once you pay off the LOC in full, the account is closed and cannot be used again. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> As an example, personal LOCs are sometimes offered by banks in the form of an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/overdraft.asp">overdraft</a> protection plan. A banking customer can sign up to have an overdraft plan linked to their checking account. If the customer goes over the amount available in checking, the overdraft keeps them from bouncing a check or having a purchase denied. Like any LOC, an overdraft must be paid back, with interest. </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-types-of-lines-of-credit-locs"></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"> Types of Lines of Credit (LOCs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> LOCs come in a variety of forms, with each falling into either the secured or unsecured category. Beyond that, each type of LOC has its own characteristics. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-subheading__text"> Personal Line of Credit (LOC) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> This provides access to unsecured funds that can be borrowed, repaid, and borrowed again. Opening a personal LOC usually requires a <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> of no defaults, a credit score of 670 or higher, and reliable income. </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"> Having savings helps, as does collateral in the form of stocks or <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>, though collateral is not required for a personal LOC. Personal LOCs are used for emergencies, weddings, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/overdraft-protection.asp">overdraft protection</a>, travel, and entertainment, and to help smooth out bumps for those with irregular income. </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"> Home Equity Line of Credit (HELOC) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> HELOCs are the most common type of secured LOC. A HELOC is secured by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/070715/how-do-i-calculate-how-much-home-equity-i-have.asp">market value of the home</a> minus the amount owed, which becomes the basis for determining the size of the LOC. Typically, the credit limit is equal to 75% or 80% of the market value of the home, minus the balance owed on the mortgage. </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"> HELOCs often come with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/heloc-draw-period-definition-5211694">draw period</a> (usually 10 years) during which the borrower can access available funds, repay them, and borrow again. After the draw period, the balance is due, or a loan is extended to pay off the balance over time.<span class="ql-inline-citation" data-cite="8"></span> HELOCs typically have closing costs, including the cost of an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appraisal.asp">appraisal</a> on the property used as collateral. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_50-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_51-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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>Since 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> of 2017, interest paid on a HELOC is only deductible if the funds<strong> </strong>are used to “buy, build or substantially improve” the property that serves as collateral for the HELOC.<span class="ql-inline-citation" data-cite="9"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-subheading__text"> Business Line of Credit </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Businesses use these to borrow on an as-needed basis instead of taking out a fixed loan. The financial institution extending the LOC evaluates the market value, profitability, and risk taken on by the business and extends an LOC based on that evaluation. The LOC may be unsecured or secured, depending on the size of the LOC requested and the evaluation results. As with almost all LOCs, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variableinterestrate.asp">the interest rate is variable</a>. </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"> Demand Line of Credit (LOC) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> This type can be either secured or unsecured but is rarely used. With a demand LOC, the lender can call the amount borrowed due at any time. Payback (until the loan is called) can be interest only or interest plus <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a>, depending on the terms of the LOC. The borrower can spend up to the credit limit at any time. </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"> Securities-Backed Line of Credit (SBLOC) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> This is a special secured-demand LOC, in which collateral is provided by the borrower’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">securities</a>. Typically, an SBLOC lets the investor borrow anywhere from 50% to 95% of the value of assets in their account. SBLOCs are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/non-purpose-loan.asp">non-purpose</a> loans, meaning that the borrower may not use the money to buy or trade securities. Almost any other type of expenditure is allowed. </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"> SBLOCs require the borrower to make monthly, interest-only payments until the loan is repaid in full or the brokerage or bank demands payment, which can happen if the value of the investor’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a> falls below the level of the LOC. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <span class="heading-toc" id="toc-limitations-of-lines-of-credit-loc"></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"> Limitations of Lines of Credit (LOC) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> The main advantage of an LOC is the ability to borrow only the amount needed and avoid paying interest on a large loan. That said, borrowers need to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/072913/basics-lines-credit.asp">be aware of potential problems</a> when taking out an LOC. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> <li>Unsecured LOCs <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102814/how-interest-charged-most-lines-credit.asp">have higher interest rates</a> and credit requirements than those secured by collateral.</li> <li>Interest rates for LOCs are almost always variable and vary widely from one lender to another.</li> <li>LOCs do not provide the same regulatory protection as credit cards. Penalties for late payments and going over the LOC limit can be severe.</li> <li>An open LOC can invite overspending, leading to an inability to make payments.</li> <li>Misuse of an LOC can hurt a borrower’s credit score. Depending on the severity, the services of a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-repair-companies-4843898">top credit repair company</a> might be worth considering.</li> </ul> <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-what-are-common-types-of-lines-of-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Common Types of Lines of Credit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The most common types of lines of credit are personal, business, and home equity. In general, personal LOCs are typically unsecured, while business LOCs can be secured or unsecured. HELOCs are secured and backed by the market value of your home.</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-can-i-use-a-line-of-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Use a Line of Credit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can use an LOC for many purposes. Examples include paying for a wedding, a vacation, or an unexpected financial emergency.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_72-0"><span class="heading-toc" id="toc-how-does-an-loc-affect-my-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does an LOC Affect My Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Lenders conduct a credit check when you apply for an LOC. This results in a <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-inquiry.asp">hard inquiry</a> on your credit report, which lowers your credit score in the short term. Your credit score will also drop if you tap into more than 30% of the borrowing limit.<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_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"> Consumers and businesses rely on credit to make large purchases, keep their operations going, or make investments in their growth. A line of credit is one type of product offered to consumers to help them achieve these goals. To qualify for a line of credit, a borrower must first qualify and be approved by a lender. Credit lines can be used by borrowers more than once up to their credit limit as long as they make the minimum payment. </p></div>

## What Is a Line of Credit (LOC)? A line of credit (LOC) is a preset borrowing limit offered by banks and financial institutions to their personal and business customers. Lines of credit can be used at any time until the limit is reached. The limit is set by the issuer based on the borrower's [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp). As money is repaid, it can be borrowed again in the case of an open line of credit. The borrower can access funds from the LOC at any time as long as they do not exceed the maximum amount (or [credit limit](https://www.investopedia.com/terms/c/credit_limit.asp)) set in the agreement. ### Key Takeaways * A line of credit is a preset borrowing limit that a borrower can draw on at any time that the line of credit is open. * Types of credit lines include personal, business, and home equity, among others. * The built-in flexibility of a line of credit is its main advantage. * Potential downsides include high interest rates, late payments penalties, and the potential to overspend. ![Line of Credit (LOC)]() :max_bytes(150000):strip_icc()/LOC-13d791780aa54b6a9a28120d6d1c9f65.jpg) Investopedia / Julie Bang ## Understanding Lines of Credit (LOCs) A line of credit is a [credit](https://www.investopedia.com/terms/c/credit.asp) product that banks and other financial institutions offer their customers. They are available for both personal customers and business clients. Like other credit products, customers must qualify to be approved for a line of credit. Customers may apply for or be pre-approved for a credit line. The limit on the LOC is based on the borrower's creditworthiness. All LOCs consist of a [set amount of money that can be borrowed](https://www.investopedia.com/terms/b/bank_confirmation_letter.asp) as needed, paid back, and borrowed again. The amount of interest, size of payments, and other rules are set by the lender. Some LOCs allow you to write checks, while others issue a debit card that can be used to access the available credit. A line of credit can be [secured or unsecured](https://www.investopedia.com/ask/answers/110614/whats-difference-between-secured-line-credit-and-unsecured-line-credit.asp). Secured LOCs come with lower rates as they are backed by collateral while unsecured LOCs typically come with higher rates. The LOC is highly flexibility, which is its main advantage. Borrowers can request a certain amount, but they do not have to use it all. Rather, they can tailor their spending from the LOC to their needs and owe [interest](https://www.investopedia.com/terms/i/interest.asp) only on the amount that they draw, not on the entire credit line. In addition, borrowers can adjust their repayment amounts as needed based on their budget or cash flow. They can repay, for example, the entire outstanding balance all at once or just make the minimum monthly payments. There are different types of LOCs that financial institutions offer. Some of the most common types of LOCs include personal, business, and [home equity lines of credit (HELOCs)](https://www.investopedia.com/home-equity-line-of-credit-heloc-definition-5217473). We explore these in more detail below. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Line_of_Credit_LOC_May_2020-01-b6dd7853664d4c03bde6b16adc22f806.jpg) Image by Sabrina Jiang © Investopedia 2020 ## Unsecured vs. Secured Lines of Credit (LOCs) Most LOCs are [unsecured loans](https://www.investopedia.com/terms/u/unsecuredloan.asp). This means that the borrower does not promise the lender any [collateral](https://www.investopedia.com/terms/c/collateral.asp) to back the LOC. One notable exception is a [home equity line of credit (HELOC)](https://www.investopedia.com/home-equity-line-of-credit-heloc-definition-5217473), which is secured by the [equity in the borrower’s home](https://www.investopedia.com/terms/h/home_equity.asp). From the lender’s perspective, secured LOCs are attractive because they provide a way to recoup the advanced funds in the event of nonpayment. For individuals or business owners, secured LOCs are attractive because they typically come with a higher maximum credit limit and significantly lower interest rates than unsecured LOCs. Unsecured LOCs are also more difficult to obtain and often require a higher [credit score](https://www.investopedia.com/terms/c/credit_score.asp) or [credit rating](https://www.investopedia.com/terms/c/creditrating.asp). Lenders attempt to compensate for the increased [risk](https://www.investopedia.com/terms/r/risk.asp) by limiting how much can be borrowed and by charging higher interest rates. That is one reason why the [annual percentage rate (APR)](https://www.investopedia.com/terms/a/apr.asp) on credit cards is so high. Credit cards are technically unsecured LOCs, with the credit limit—how much you can charge on the card—representing its parameters. But you do not pledge any assets when you open the card. If you start missing payments, there’s nothing that the credit card issuer can seize in compensation. ### An LOC can have a major impact on your credit score. In general, if you use more than 30% of the borrowing limit, your credit score will drop. ## Revolving vs. Non-Revolving Lines of Credit (LOCs) An LOC is often considered to be a type of revolving account, also known as an [open-end credit](https://www.investopedia.com/terms/o/openendcredit.asp) account. This arrangement allows borrowers to spend the money, repay it, and spend it again in a virtually never-ending, revolving cycle. Revolving accounts such as [LOCs and credit cards are different from installment loans](https://www.investopedia.com/ask/answers/110614/what-difference-between-loan-and-line-credit.asp) such as mortgages and car loans. With [installment loans](https://www.investopedia.com/articles/personal-finance/072316/how-installment-loans-work.asp), consumers borrow a set amount of money and repay it in equal monthly installments until the loan is paid off. Once an installment loan has been paid off, consumers cannot spend the funds again unless they apply for a new loan. Non-revolving LOCs have the same features as revolving credit (or a revolving LOC). A credit limit is established, funds can be used for a variety of purposes, interest is charged normally, and payments may be made at any time. There is one major exception: The pool of available credit does not replenish after payments are made. Once you pay off the LOC in full, the account is closed and cannot be used again. As an example, personal LOCs are sometimes offered by banks in the form of an [overdraft](https://www.investopedia.com/terms/o/overdraft.asp) protection plan. A banking customer can sign up to have an overdraft plan linked to their checking account. If the customer goes over the amount available in checking, the overdraft keeps them from bouncing a check or having a purchase denied. Like any LOC, an overdraft must be paid back, with interest. ## Types of Lines of Credit (LOCs) LOCs come in a variety of forms, with each falling into either the secured or unsecured category. Beyond that, each type of LOC has its own characteristics. ### Personal Line of Credit (LOC) This provides access to unsecured funds that can be borrowed, repaid, and borrowed again. Opening a personal LOC usually requires a [credit history](https://www.investopedia.com/terms/c/credit-history.asp) of no defaults, a credit score of 670 or higher, and reliable income. Having savings helps, as does collateral in the form of stocks or [certificates of deposit (CDs)](https://www.investopedia.com/terms/c/certificateofdeposit.asp), though collateral is not required for a personal LOC. Personal LOCs are used for emergencies, weddings, [overdraft protection](https://www.investopedia.com/terms/o/overdraft-protection.asp), travel, and entertainment, and to help smooth out bumps for those with irregular income. ### Home Equity Line of Credit (HELOC) HELOCs are the most common type of secured LOC. A HELOC is secured by the [market value of the home](https://www.investopedia.com/ask/answers/070715/how-do-i-calculate-how-much-home-equity-i-have.asp) minus the amount owed, which becomes the basis for determining the size of the LOC. Typically, the credit limit is equal to 75% or 80% of the market value of the home, minus the balance owed on the mortgage. HELOCs often come with a [draw period](https://www.investopedia.com/heloc-draw-period-definition-5211694) (usually 10 years) during which the borrower can access available funds, repay them, and borrow again. After the draw period, the balance is due, or a loan is extended to pay off the balance over time. HELOCs typically have closing costs, including the cost of an [appraisal](https://www.investopedia.com/terms/a/appraisal.asp) on the property used as collateral. ### Since the [Tax Cuts and Jobs Act (TCJA)](https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/) of 2017, interest paid on a HELOC is only deductible if the fundsare used to “buy, build or substantially improve” the property that serves as collateral for the HELOC. ### Business Line of Credit Businesses use these to borrow on an as-needed basis instead of taking out a fixed loan. The financial institution extending the LOC evaluates the market value, profitability, and risk taken on by the business and extends an LOC based on that evaluation. The LOC may be unsecured or secured, depending on the size of the LOC requested and the evaluation results. As with almost all LOCs, [the interest rate is variable](https://www.investopedia.com/terms/v/variableinterestrate.asp). ### Demand Line of Credit (LOC) This type can be either secured or unsecured but is rarely used. With a demand LOC, the lender can call the amount borrowed due at any time. Payback (until the loan is called) can be interest only or interest plus [principal](https://www.investopedia.com/terms/p/principal.asp), depending on the terms of the LOC. The borrower can spend up to the credit limit at any time. ### Securities-Backed Line of Credit (SBLOC) This is a special secured-demand LOC, in which collateral is provided by the borrower’s [securities](https://www.investopedia.com/terms/s/security.asp). Typically, an SBLOC lets the investor borrow anywhere from 50% to 95% of the value of assets in their account. SBLOCs are [non-purpose](https://www.investopedia.com/terms/n/non-purpose-loan.asp) loans, meaning that the borrower may not use the money to buy or trade securities. Almost any other type of expenditure is allowed. SBLOCs require the borrower to make monthly, interest-only payments until the loan is repaid in full or the brokerage or bank demands payment, which can happen if the value of the investor’s [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) falls below the level of the LOC. ## Limitations of Lines of Credit (LOC) The main advantage of an LOC is the ability to borrow only the amount needed and avoid paying interest on a large loan. That said, borrowers need to [be aware of potential problems](https://www.investopedia.com/articles/personal-finance/072913/basics-lines-credit.asp) when taking out an LOC. * Unsecured LOCs [have higher interest rates](https://www.investopedia.com/ask/answers/102814/how-interest-charged-most-lines-credit.asp) and credit requirements than those secured by collateral. * Interest rates for LOCs are almost always variable and vary widely from one lender to another. * LOCs do not provide the same regulatory protection as credit cards. Penalties for late payments and going over the LOC limit can be severe. * An open LOC can invite overspending, leading to an inability to make payments. * Misuse of an LOC can hurt a borrower’s credit score. Depending on the severity, the services of a [top credit repair company](https://www.investopedia.com/best-credit-repair-companies-4843898) might be worth considering. ## What Are Common Types of Lines of Credit? The most common types of lines of credit are personal, business, and home equity. In general, personal LOCs are typically unsecured, while business LOCs can be secured or unsecured. HELOCs are secured and backed by the market value of your home. ## How Can I Use a Line of Credit? You can use an LOC for many purposes. Examples include paying for a wedding, a vacation, or an unexpected financial emergency. ## How Does an LOC Affect My Credit Score? Lenders conduct a credit check when you apply for an LOC. This results in a [hard inquiry](https://www.investopedia.com/terms/h/hard-inquiry.asp) on your credit report, which lowers your credit score in the short term. Your credit score will also drop if you tap into more than 30% of the borrowing limit. ## The Bottom Line Consumers and businesses rely on credit to make large purchases, keep their operations going, or make investments in their growth. A line of credit is one type of product offered to consumers to help them achieve these goals. To qualify for a line of credit, a borrower must first qualify and be approved by a lender. Credit lines can be used by borrowers more than once up to their credit limit as long as they make the minimum payment.

What Is a Line of Credit (LOC)? A line of credit (LOC) is a preset borrowing limit offered by banks and financial institutions to their personal and business customers. Lines of credit can be used at any time until the limit is reached. The limit is set by the issuer based on the borrower's creditworthiness. As money is repaid, it can be borrowed again in the case of an open line of credit. The borrower can access funds from the LOC at any time as long as they do not exceed the maximum amount (or credit limit) set in the agreement. Key Takeaways A line of credit is a preset borrowing limit that a borrower can draw on at any time that the line of credit is open.Types of credit lines include personal, business, and home equity, among others.The built-in flexibility of a line of credit is its main advantage.Potential downsides include high interest rates, late payments penalties, and the potential to overspend. Investopedia / Julie Bang Understanding Lines of Credit (LOCs) A line of credit is a credit product that banks and other financial institutions offer their customers. They are available for both personal customers and business clients. Like other credit products, customers must qualify to be approved for a line of credit. Customers may apply for or be pre-approved for a credit line. The limit on the LOC is based on the borrower's creditworthiness. All LOCs consist of a set amount of money that can be borrowed as needed, paid back, and borrowed again. The amount of interest, size of payments, and other rules are set by the lender. Some LOCs allow you to write checks, while others issue a debit card that can be used to access the available credit. A line of credit can be secured or unsecured. Secured LOCs come with lower rates as they are backed by collateral while unsecured LOCs typically come with higher rates. The LOC is highly flexibility, which is its main advantage. Borrowers can request a certain amount, but they do not have to use it all. Rather, they can tailor their spending from the LOC to their needs and owe interest only on the amount that they draw, not on the entire credit line. In addition, borrowers can adjust their repayment amounts as needed based on their budget or cash flow. They can repay, for example, the entire outstanding balance all at once or just make the minimum monthly payments. There are different types of LOCs that financial institutions offer. Some of the most common types of LOCs include personal, business, and home equity lines of credit (HELOCs). We explore these in more detail below. Image by Sabrina Jiang © Investopedia 2020 Unsecured vs. Secured Lines of Credit (LOCs) Most LOCs are unsecured loans. This means that the borrower does not promise the lender any collateral to back the LOC. One notable exception is a home equity line of credit (HELOC), which is secured by the equity in the borrower’s home. From the lender’s perspective, secured LOCs are attractive because they provide a way to recoup the advanced funds in the event of nonpayment. For individuals or business owners, secured LOCs are attractive because they typically come with a higher maximum credit limit and significantly lower interest rates than unsecured LOCs. Unsecured LOCs are also more difficult to obtain and often require a higher credit score or credit rating. Lenders attempt to compensate for the increased risk by limiting how much can be borrowed and by charging higher interest rates. That is one reason why the annual percentage rate (APR) on credit cards is so high. Credit cards are technically unsecured LOCs, with the credit limit—how much you can charge on the card—representing its parameters. But you do not pledge any assets when you open the card. If you start missing payments, there’s nothing that the credit card issuer can seize in compensation. An LOC can have a major impact on your credit score. In general, if you use more than 30% of the borrowing limit, your credit score will drop. Revolving vs. Non-Revolving Lines of Credit (LOCs) An LOC is often considered to be a type of revolving account, also known as an open-end credit account. This arrangement allows borrowers to spend the money, repay it, and spend it again in a virtually never-ending, revolving cycle. Revolving accounts such as LOCs and credit cards are different from installment loans such as mortgages and car loans. With installment loans, consumers borrow a set amount of money and repay it in equal monthly installments until the loan is paid off. Once an installment loan has been paid off, consumers cannot spend the funds again unless they apply for a new loan. Non-revolving LOCs have the same features as revolving credit (or a revolving LOC). A credit limit is established, funds can be used for a variety of purposes, interest is charged normally, and payments may be made at any time. There is one major exception: The pool of available credit does not replenish after payments are made. Once you pay off the LOC in full, the account is closed and cannot be used again. As an example, personal LOCs are sometimes offered by banks in the form of an overdraft protection plan. A banking customer can sign up to have an overdraft plan linked to their checking account. If the customer goes over the amount available in checking, the overdraft keeps them from bouncing a check or having a purchase denied. Like any LOC, an overdraft must be paid back, with interest. Types of Lines of Credit (LOCs) LOCs come in a variety of forms, with each falling into either the secured or unsecured category. Beyond that, each type of LOC has its own characteristics. Personal Line of Credit (LOC) This provides access to unsecured funds that can be borrowed, repaid, and borrowed again. Opening a personal LOC usually requires a credit history of no defaults, a credit score of 670 or higher, and reliable income. Having savings helps, as does collateral in the form of stocks or certificates of deposit (CDs), though collateral is not required for a personal LOC. Personal LOCs are used for emergencies, weddings, overdraft protection, travel, and entertainment, and to help smooth out bumps for those with irregular income. Home Equity Line of Credit (HELOC) HELOCs are the most common type of secured LOC. A HELOC is secured by the market value of the home minus the amount owed, which becomes the basis for determining the size of the LOC. Typically, the credit limit is equal to 75% or 80% of the market value of the home, minus the balance owed on the mortgage. HELOCs often come with a draw period (usually 10 years) during which the borrower can access available funds, repay them, and borrow again. After the draw period, the balance is due, or a loan is extended to pay off the balance over time. HELOCs typically have closing costs, including the cost of an appraisal on the property used as collateral. Since the Tax Cuts and Jobs Act (TCJA) of 2017, interest paid on a HELOC is only deductible if the funds are used to “buy, build or substantially improve” the property that serves as collateral for the HELOC. Business Line of Credit Businesses use these to borrow on an as-needed basis instead of taking out a fixed loan. The financial institution extending the LOC evaluates the market value, profitability, and risk taken on by the business and extends an LOC based on that evaluation. The LOC may be unsecured or secured, depending on the size of the LOC requested and the evaluation results. As with almost all LOCs, the interest rate is variable. Demand Line of Credit (LOC) This type can be either secured or unsecured but is rarely used. With a demand LOC, the lender can call the amount borrowed due at any time. Payback (until the loan is called) can be interest only or interest plus principal, depending on the terms of the LOC. The borrower can spend up to the credit limit at any time. Securities-Backed Line of Credit (SBLOC) This is a special secured-demand LOC, in which collateral is provided by the borrower’s securities. Typically, an SBLOC lets the investor borrow anywhere from 50% to 95% of the value of assets in their account. SBLOCs are non-purpose loans, meaning that the borrower may not use the money to buy or trade securities. Almost any other type of expenditure is allowed. SBLOCs require the borrower to make monthly, interest-only payments until the loan is repaid in full or the brokerage or bank demands payment, which can happen if the value of the investor’s portfolio falls below the level of the LOC. Limitations of Lines of Credit (LOC) The main advantage of an LOC is the ability to borrow only the amount needed and avoid paying interest on a large loan. That said, borrowers need to be aware of potential problems when taking out an LOC. Unsecured LOCs have higher interest rates and credit requirements than those secured by collateral. Interest rates for LOCs are almost always variable and vary widely from one lender to another. LOCs do not provide the same regulatory protection as credit cards. Penalties for late payments and going over the LOC limit can be severe. An open LOC can invite overspending, leading to an inability to make payments. Misuse of an LOC can hurt a borrower’s credit score. Depending on the severity, the services of a top credit repair company might be worth considering. What Are Common Types of Lines of Credit? The most common types of lines of credit are personal, business, and home equity. In general, personal LOCs are typically unsecured, while business LOCs can be secured or unsecured. HELOCs are secured and backed by the market value of your home. How Can I Use a Line of Credit? You can use an LOC for many purposes. Examples include paying for a wedding, a vacation, or an unexpected financial emergency. How Does an LOC Affect My Credit Score? Lenders conduct a credit check when you apply for an LOC. This results in a hard inquiry on your credit report, which lowers your credit score in the short term. Your credit score will also drop if you tap into more than 30% of the borrowing limit. The Bottom Line Consumers and businesses rely on credit to make large purchases, keep their operations going, or make investments in their growth. A line of credit is one type of product offered to consumers to help them achieve these goals. To qualify for a line of credit, a borrower must first qualify and be approved by a lender. Credit lines can be used by borrowers more than once up to their credit limit as long as they make the minimum payment.

https://www.investopedia.com/where-get-debt-consolidation-loan-8422778

Where to Get a Debt Consolidation Loan: Finding the Best Lenders

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764">best debt consolidation loans</a> are typically personal installment loans with fixed interest rates and fixed monthly payments. As with other types of personal loans, debt consolidation loans are offered by many banks, credit unions, personal loan fintech companies, and other kinds of lenders. So if you're struggling with high-interest debt and hoping to turn your situation around, a debt consolidation loan could be what you need. </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>Personal loans for debt consolidation offer a predictable way to get out of debt since they have fixed interest rates and fixed monthly payments.</li><li>Many of the best lenders for debt consolidation loans are online, and they often let you check your likely interest rate and gauge your approval odds before you apply.</li><li>Before you choose a debt consolidation loan, you should compare lenders based on their available loan amounts, repayment terms, loan fees, and eligibility requirements.</li><li>There are also several alternatives to debt consolidation loans.</li></ul></div></div></div> <span class="heading-toc" id="toc-factors-to-consider-before-getting-a-debt-consolidation-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Factors to Consider Before Getting a Debt Consolidation Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> You'll want to carefully assess your financial situation and find out 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> before you start researching personal loans. After all, you need to know for sure that you could afford to make the monthly payments, and that you have a credit score that's high enough to qualify for a loan with better rates than you're paying now. </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"> Consider these factors before you apply for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtconsolidation.asp">debt consolidation</a>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <li><strong>Available loan amounts</strong>: While lenders vary, you may be able to borrow between $1,000 and $100,000 for this purpose.</li> <li><strong>Eligibility requirements</strong>: Some lenders extend financing only to people with very good to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-excellent-credit-4797495">excellent credit</a>, but others accept consumers with fair or even poor credit.</li> <li><strong>Interest rates</strong>:<strong> </strong>Compare lenders based on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rates (APRs)</a> they offer to find the lowest rate you can qualify for.</li> <li><strong>Loan fees</strong>: Watch out for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/origination-fee.asp">origination fees</a>, which are deducted from the loan amount you receive upfront, leaving you with less money to pay off your debts. Additionally, check for any <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prepaymentpenalty.asp">prepayment penalties</a> or other fees.</li> <li><strong>Repayment terms</strong>: Find out how long you'll have to pay off your loan and keep in mind that your monthly payment can vary based on the repayment term you choose. Typically, the longer the repayment term, the less you'll have to pay each month, but the more you'll pay in total interest over the life of the loan.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_12-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_13-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you don't know your credit score, you can often obtain it free of charge from your bank or credit card company. There are also online <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/091714/top-websites-checking-your-credit-scores.asp">sources for free credit scores</a>.</p></div></div></div> <span class="heading-toc" id="toc-best-lenders-for-debt-consolidation-loans"></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"> Best Lenders for Debt Consolidation Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The chart below highlights some of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764">best debt consolidation loans</a> available today, how much funding they offer, repayment terms, and current interest rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_17-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td></td> <td><b>Best For</b></td> <td><b>Loan Amounts</b></td> <td><b>Repayment Terms</b></td> <td><b>APRs</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/discover-personal-loans-review-4799530" rel="noopener noreferrer">Discover</a></td> <td>No fees</td> <td>$2,500 to $40,000</td> <td>36 to 84 months</td> <td>7.99% to 24.99%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/happy-money-personal-loans-review-4842918" rel="noopener noreferrer">Happy Money</a></td> <td>Improving credit</td> <td>$5,000 to $40,000</td> <td>24 to 60 months</td> <td>11.72% to 17.99%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lightstream-personal-loans-review-4800841" rel="noopener noreferrer">LightStream</a></td> <td>Borrowers with excellent credit </td> <td>$5,000 to $100,000</td> <td>38 to 84 months</td> <td>6.99% to 25.99%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sofi-personal-loans-review-4797398" rel="noopener noreferrer">SoFi</a></td> <td>Unemployment protection</td> <td>$5,000 to $100,000</td> <td>24 to 84 months</td> <td>8.99% to 29.49%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/upgrade-personal-loans-review-4842832" rel="noopener noreferrer">Upgrade</a></td> <td>Borrowers with imperfect credit</td> <td>$1,000 to $50,000</td> <td>24 to 84 months</td> <td>8.49% to 35.99% </td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-how-to-apply-for-a-debt-consolidation-loan"></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"> How to Apply for a Debt Consolidation Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Applying for a personal loan for debt consolidation is a relatively simple process. Here are the steps involved: </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><strong>Step 1: Compare lenders</strong>: Spend some time comparing lenders based on their available loan amounts, repayment terms, interest rates, fees, and other factors. Narrow your list down to three or four lenders.</li> <li><strong>Step 2: Check your rate with several lenders</strong>: You should be able to get <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/preapproval.asp">pre-approved</a> with a few lenders without triggering a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-inquiry.asp">hard inquiry</a> on your credit reports. (A hard inquiry can have a negative impact on your credit score.) Doing so will help you determine which lenders might offer you the funding you need with the best rates and terms.</li> <li><strong>Step 3: Provide personal and financial information</strong>: <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp">Move forward with an application</a> with the lender you select. You'll need to provide a variety of information, such as your employment status and annual income.</li> <li><strong>Step 4: Submit any additional documentation that's required</strong>:<strong> </strong>You may be asked to upload certain documentation for your loan application, including pay stubs, income tax returns, or bank statements.</li> <li><strong>Step 5: Wait for an answer</strong>: Many lenders will provide you with an answer within a few hours, while others may take a few business days.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Step 6: Watch for your loan funds</strong>. If you're approved, the money may be sent directly to your bank account, so keep an eye on your balance. However, some lenders will instead pay off your other loans directly.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-alternatives-to-debt-consolidation-loans"></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"> Alternatives to Debt Consolidation Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> If you're on the fence about consolidating debt with a personal loan, there are several other loan options to consider. These include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <li><strong>Balance transfer credit cards</strong>:<strong> </strong>A<strong> </strong><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-cards/balance-transfer-credit-card/">balance transfer credit card</a> will let you consolidate your existing credit card debt at interest rates as low as 0% APR for a certain period, such as 12 months. After that, the card's regular variable APR will apply. Typically, these cards also charge upfront balance transfer fees (usually 3% or 5% of the amount you transfer).</li> <li><strong>Home equity loans</strong>: <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeequityloan.asp">Home equity loans</a> are similar to personal loans in that they have fixed interest rates, fixed monthly payments, and set repayment terms. However, these loans require that you have sufficient equity in a home and are willing to use it as collateral. If you can't repay the loan, your home can be subject to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreclosure.asp">foreclosure</a>.<span class="ql-inline-citation" data-cite="1"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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 other types of credit, there are some additional ways to begin reducing the amounts you owe. They include: </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><strong>Credit counseling</strong>: Many not-for-profit <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-counseling.asp">credit counseling</a> agencies offer free consultations and help in figuring out a plan for your debt. If you go this route, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ftc.asp">Federal Trade Commission (FTC)</a> says to vet organizations you find with your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.consumerresources.org/file-a-complaint/">state attorney general</a> and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://www.usa.gov/state-consumer">local consumer protection agency</a>.<span class="ql-inline-citation" data-cite="2"></span></li> <li><strong>Debt management plans</strong>: These plans are offered by third-party companies, and they require you to make a single payment to them so they can pay back your creditors. These companies also work with your creditors to get you lower rates and fees with the goal of helping you pay down debt faster. But make sure you're dealing with a reputable one.</li> <li><strong>Debt settlement</strong>: These plans are also offered by third-party companies. Typically, they ask you to stop making payments on your credit cards and other debts and make a payment to a savings account in your name instead. Funds that are built up in that account will eventually be used to settle debts for less than you owe. At least, that is how it is supposed to work. However, there are many risks involved with <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/debt-settlement-cheapest-way-get-out-debt/">debt settlement</a>, including the potential for considerable damage to your credit. In addition, your creditors aren't required to settle and may sue you.<span class="ql-inline-citation" data-cite="2"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-what-are-the-most-important-factors-to-consider-before-getting-a-debt-consolidation-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Most Important Factors to Consider Before Getting a Debt Consolidation Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Before you take out a debt consolidation loan, you should make sure you're financially prepared to keep up with the monthly payments. Otherwise, you may find yourself in even more debt. Also compare lenders based on their available loan amounts, repayment terms, interest rates, fees, and other factors.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-how-can-you-improve-your-chances-of-getting-approved-for-a-debt-consolidation-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can You Improve Your Chances of Getting Approved for a Debt Consolidation Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can improve your chances of getting a debt consolidation loan by working to <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">raise your credit score</a>. You can also boost your approval odds for a loan by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/getting-personal-loan-cosigner-7557665">adding a co-signer</a> who has good credit, although not all lenders allow that.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-how-do-origination-fees-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Origination Fees Work?</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/o/origination-fee.asp">Origination fees</a> for personal loans are deducted from your loan proceeds upfront, although you still have to repay the full amount of the loan. If you take out a $10,000 loan with an origination fee of 5%, for example, you'll receive $9,500 in funding but have to repay $10,000 plus interest charges. Not all personal loans charge these fees, and you may be able to avoid them if you have a solid credit score.</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-does-a-debt-consolidation-loan-hurt-your-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does a Debt Consolidation Loan Hurt Your Credit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As long as you make your payments on time, a debt consolidation loan won't hurt your credit and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/pros-cons-debt-consolidation-8424036">may actually help it</a>. The opposite is also true: If you fail to make the loan payments on time, your credit score could take a serious hit.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> A debt consolidation loan can reduce the amount of interest you're paying on your debts and allow you to pay them off more quickly. The best loans are easy to find online, and most lenders are relatively transparent when it comes to their available loan amounts, fees, interest rates, and eligibility requirements. </p></div>

The [best debt consolidation loans](https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764) are typically personal installment loans with fixed interest rates and fixed monthly payments. As with other types of personal loans, debt consolidation loans are offered by many banks, credit unions, personal loan fintech companies, and other kinds of lenders. So if you're struggling with high-interest debt and hoping to turn your situation around, a debt consolidation loan could be what you need. ### Key Takeaways * Personal loans for debt consolidation offer a predictable way to get out of debt since they have fixed interest rates and fixed monthly payments. * Many of the best lenders for debt consolidation loans are online, and they often let you check your likely interest rate and gauge your approval odds before you apply. * Before you choose a debt consolidation loan, you should compare lenders based on their available loan amounts, repayment terms, loan fees, and eligibility requirements. * There are also several alternatives to debt consolidation loans. ## Factors to Consider Before Getting a Debt Consolidation Loan You'll want to carefully assess your financial situation and find out your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) before you start researching personal loans. After all, you need to know for sure that you could afford to make the monthly payments, and that you have a credit score that's high enough to qualify for a loan with better rates than you're paying now. Consider these factors before you apply for [debt consolidation](https://www.investopedia.com/terms/d/debtconsolidation.asp): * **Available loan amounts**: While lenders vary, you may be able to borrow between $1,000 and $100,000 for this purpose. * **Eligibility requirements**: Some lenders extend financing only to people with very good to [excellent credit](https://www.investopedia.com/best-personal-loans-for-excellent-credit-4797495), but others accept consumers with fair or even poor credit. * **Interest rates**:Compare lenders based on the [annual percentage rates (APRs)](https://www.investopedia.com/terms/a/apr.asp) they offer to find the lowest rate you can qualify for. * **Loan fees**: Watch out for [origination fees](https://www.investopedia.com/terms/o/origination-fee.asp), which are deducted from the loan amount you receive upfront, leaving you with less money to pay off your debts. Additionally, check for any [prepayment penalties](https://www.investopedia.com/terms/p/prepaymentpenalty.asp) or other fees. * **Repayment terms**: Find out how long you'll have to pay off your loan and keep in mind that your monthly payment can vary based on the repayment term you choose. Typically, the longer the repayment term, the less you'll have to pay each month, but the more you'll pay in total interest over the life of the loan. ### Tip If you don't know your credit score, you can often obtain it free of charge from your bank or credit card company. There are also online [sources for free credit scores](https://www.investopedia.com/articles/personal-finance/091714/top-websites-checking-your-credit-scores.asp). ## Best Lenders for Debt Consolidation Loans The chart below highlights some of the [best debt consolidation loans](https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764) available today, how much funding they offer, repayment terms, and current interest rates. | | **Best For** | **Loan Amounts** | **Repayment Terms** | **APRs** | | --- | --- | --- | --- | --- | | [Discover](https://www.investopedia.com/discover-personal-loans-review-4799530) | No fees | $2,500 to $40,000 | 36 to 84 months | 7.99% to 24.99% | | [Happy Money](https://www.investopedia.com/happy-money-personal-loans-review-4842918) | Improving credit | $5,000 to $40,000 | 24 to 60 months | 11.72% to 17.99% | | [LightStream](https://www.investopedia.com/lightstream-personal-loans-review-4800841) | Borrowers with excellent credit | $5,000 to $100,000 | 38 to 84 months | 6.99% to 25.99% | | [SoFi](https://www.investopedia.com/sofi-personal-loans-review-4797398) | Unemployment protection | $5,000 to $100,000 | 24 to 84 months | 8.99% to 29.49% | | [Upgrade](https://www.investopedia.com/upgrade-personal-loans-review-4842832) | Borrowers with imperfect credit | $1,000 to $50,000 | 24 to 84 months | 8.49% to 35.99% | ## How to Apply for a Debt Consolidation Loan Applying for a personal loan for debt consolidation is a relatively simple process. Here are the steps involved: * **Step 1: Compare lenders**: Spend some time comparing lenders based on their available loan amounts, repayment terms, interest rates, fees, and other factors. Narrow your list down to three or four lenders. * **Step 2: Check your rate with several lenders**: You should be able to get [pre-approved](https://www.investopedia.com/terms/p/preapproval.asp) with a few lenders without triggering a [hard inquiry](https://www.investopedia.com/terms/h/hard-inquiry.asp) on your credit reports. (A hard inquiry can have a negative impact on your credit score.) Doing so will help you determine which lenders might offer you the funding you need with the best rates and terms. * **Step 3: Provide personal and financial information**: [Move forward with an application](https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp) with the lender you select. You'll need to provide a variety of information, such as your employment status and annual income. * **Step 4: Submit any additional documentation that's required**:You may be asked to upload certain documentation for your loan application, including pay stubs, income tax returns, or bank statements. * **Step 5: Wait for an answer**: Many lenders will provide you with an answer within a few hours, while others may take a few business days. * **Step 6: Watch for your loan funds**. If you're approved, the money may be sent directly to your bank account, so keep an eye on your balance. However, some lenders will instead pay off your other loans directly. ## Alternatives to Debt Consolidation Loans If you're on the fence about consolidating debt with a personal loan, there are several other loan options to consider. These include: * **Balance transfer credit cards**:A[balance transfer credit card](https://www.investopedia.com/credit-cards/balance-transfer-credit-card/) will let you consolidate your existing credit card debt at interest rates as low as 0% APR for a certain period, such as 12 months. After that, the card's regular variable APR will apply. Typically, these cards also charge upfront balance transfer fees (usually 3% or 5% of the amount you transfer). * **Home equity loans**: [Home equity loans](https://www.investopedia.com/terms/h/homeequityloan.asp) are similar to personal loans in that they have fixed interest rates, fixed monthly payments, and set repayment terms. However, these loans require that you have sufficient equity in a home and are willing to use it as collateral. If you can't repay the loan, your home can be subject to [foreclosure](https://www.investopedia.com/terms/f/foreclosure.asp). In addition to other types of credit, there are some additional ways to begin reducing the amounts you owe. They include: * **Credit counseling**: Many not-for-profit [credit counseling](https://www.investopedia.com/terms/c/credit-counseling.asp) agencies offer free consultations and help in figuring out a plan for your debt. If you go this route, the [Federal Trade Commission (FTC)](https://www.investopedia.com/terms/f/ftc.asp) says to vet organizations you find with your [state attorney general](https://www.consumerresources.org/file-a-complaint/) and [local consumer protection agency](https://www.usa.gov/state-consumer). * **Debt management plans**: These plans are offered by third-party companies, and they require you to make a single payment to them so they can pay back your creditors. These companies also work with your creditors to get you lower rates and fees with the goal of helping you pay down debt faster. But make sure you're dealing with a reputable one. * **Debt settlement**: These plans are also offered by third-party companies. Typically, they ask you to stop making payments on your credit cards and other debts and make a payment to a savings account in your name instead. Funds that are built up in that account will eventually be used to settle debts for less than you owe. At least, that is how it is supposed to work. However, there are many risks involved with [debt settlement](https://www.investopedia.com/personal-finance/debt-settlement-cheapest-way-get-out-debt/), including the potential for considerable damage to your credit. In addition, your creditors aren't required to settle and may sue you. ## What Are the Most Important Factors to Consider Before Getting a Debt Consolidation Loan? Before you take out a debt consolidation loan, you should make sure you're financially prepared to keep up with the monthly payments. Otherwise, you may find yourself in even more debt. Also compare lenders based on their available loan amounts, repayment terms, interest rates, fees, and other factors. ## How Can You Improve Your Chances of Getting Approved for a Debt Consolidation Loan? You can improve your chances of getting a debt consolidation loan by working to [raise your credit score](https://www.investopedia.com/how-to-improve-your-credit-score-4590097). You can also boost your approval odds for a loan by [adding a co-signer](https://www.investopedia.com/getting-personal-loan-cosigner-7557665) who has good credit, although not all lenders allow that. ## How Do Origination Fees Work? [Origination fees](https://www.investopedia.com/terms/o/origination-fee.asp) for personal loans are deducted from your loan proceeds upfront, although you still have to repay the full amount of the loan. If you take out a $10,000 loan with an origination fee of 5%, for example, you'll receive $9,500 in funding but have to repay $10,000 plus interest charges. Not all personal loans charge these fees, and you may be able to avoid them if you have a solid credit score. ## Does a Debt Consolidation Loan Hurt Your Credit? As long as you make your payments on time, a debt consolidation loan won't hurt your credit and [may actually help it](https://www.investopedia.com/pros-cons-debt-consolidation-8424036). The opposite is also true: If you fail to make the loan payments on time, your credit score could take a serious hit. ## The Bottom Line A debt consolidation loan can reduce the amount of interest you're paying on your debts and allow you to pay them off more quickly. The best loans are easy to find online, and most lenders are relatively transparent when it comes to their available loan amounts, fees, interest rates, and eligibility requirements.

The best debt consolidation loans are typically personal installment loans with fixed interest rates and fixed monthly payments. As with other types of personal loans, debt consolidation loans are offered by many banks, credit unions, personal loan fintech companies, and other kinds of lenders. So if you're struggling with high-interest debt and hoping to turn your situation around, a debt consolidation loan could be what you need. Key Takeaways Personal loans for debt consolidation offer a predictable way to get out of debt since they have fixed interest rates and fixed monthly payments.Many of the best lenders for debt consolidation loans are online, and they often let you check your likely interest rate and gauge your approval odds before you apply.Before you choose a debt consolidation loan, you should compare lenders based on their available loan amounts, repayment terms, loan fees, and eligibility requirements.There are also several alternatives to debt consolidation loans. Factors to Consider Before Getting a Debt Consolidation Loan You'll want to carefully assess your financial situation and find out your credit score before you start researching personal loans. After all, you need to know for sure that you could afford to make the monthly payments, and that you have a credit score that's high enough to qualify for a loan with better rates than you're paying now. Consider these factors before you apply for debt consolidation: Available loan amounts: While lenders vary, you may be able to borrow between $1,000 and $100,000 for this purpose. Eligibility requirements: Some lenders extend financing only to people with very good to excellent credit, but others accept consumers with fair or even poor credit. Interest rates: Compare lenders based on the annual percentage rates (APRs) they offer to find the lowest rate you can qualify for. Loan fees: Watch out for origination fees, which are deducted from the loan amount you receive upfront, leaving you with less money to pay off your debts. Additionally, check for any prepayment penalties or other fees. Repayment terms: Find out how long you'll have to pay off your loan and keep in mind that your monthly payment can vary based on the repayment term you choose. Typically, the longer the repayment term, the less you'll have to pay each month, but the more you'll pay in total interest over the life of the loan. Tip If you don't know your credit score, you can often obtain it free of charge from your bank or credit card company. There are also online sources for free credit scores. Best Lenders for Debt Consolidation Loans The chart below highlights some of the best debt consolidation loans available today, how much funding they offer, repayment terms, and current interest rates. Best For Loan Amounts Repayment Terms APRs Discover No fees $2,500 to $40,000 36 to 84 months 7.99% to 24.99% Happy Money Improving credit $5,000 to $40,000 24 to 60 months 11.72% to 17.99% LightStream Borrowers with excellent credit  $5,000 to $100,000 38 to 84 months 6.99% to 25.99% SoFi Unemployment protection $5,000 to $100,000 24 to 84 months 8.99% to 29.49% Upgrade Borrowers with imperfect credit $1,000 to $50,000 24 to 84 months 8.49% to 35.99%  How to Apply for a Debt Consolidation Loan Applying for a personal loan for debt consolidation is a relatively simple process. Here are the steps involved: Step 1: Compare lenders: Spend some time comparing lenders based on their available loan amounts, repayment terms, interest rates, fees, and other factors. Narrow your list down to three or four lenders. Step 2: Check your rate with several lenders: You should be able to get pre-approved with a few lenders without triggering a hard inquiry on your credit reports. (A hard inquiry can have a negative impact on your credit score.) Doing so will help you determine which lenders might offer you the funding you need with the best rates and terms. Step 3: Provide personal and financial information: Move forward with an application with the lender you select. You'll need to provide a variety of information, such as your employment status and annual income. Step 4: Submit any additional documentation that's required: You may be asked to upload certain documentation for your loan application, including pay stubs, income tax returns, or bank statements. Step 5: Wait for an answer: Many lenders will provide you with an answer within a few hours, while others may take a few business days. Step 6: Watch for your loan funds. If you're approved, the money may be sent directly to your bank account, so keep an eye on your balance. However, some lenders will instead pay off your other loans directly. Alternatives to Debt Consolidation Loans If you're on the fence about consolidating debt with a personal loan, there are several other loan options to consider. These include: Balance transfer credit cards: A balance transfer credit card will let you consolidate your existing credit card debt at interest rates as low as 0% APR for a certain period, such as 12 months. After that, the card's regular variable APR will apply. Typically, these cards also charge upfront balance transfer fees (usually 3% or 5% of the amount you transfer). Home equity loans: Home equity loans are similar to personal loans in that they have fixed interest rates, fixed monthly payments, and set repayment terms. However, these loans require that you have sufficient equity in a home and are willing to use it as collateral. If you can't repay the loan, your home can be subject to foreclosure. In addition to other types of credit, there are some additional ways to begin reducing the amounts you owe. They include: Credit counseling: Many not-for-profit credit counseling agencies offer free consultations and help in figuring out a plan for your debt. If you go this route, the Federal Trade Commission (FTC) says to vet organizations you find with your state attorney general and local consumer protection agency. Debt management plans: These plans are offered by third-party companies, and they require you to make a single payment to them so they can pay back your creditors. These companies also work with your creditors to get you lower rates and fees with the goal of helping you pay down debt faster. But make sure you're dealing with a reputable one. Debt settlement: These plans are also offered by third-party companies. Typically, they ask you to stop making payments on your credit cards and other debts and make a payment to a savings account in your name instead. Funds that are built up in that account will eventually be used to settle debts for less than you owe. At least, that is how it is supposed to work. However, there are many risks involved with debt settlement, including the potential for considerable damage to your credit. In addition, your creditors aren't required to settle and may sue you. What Are the Most Important Factors to Consider Before Getting a Debt Consolidation Loan? Before you take out a debt consolidation loan, you should make sure you're financially prepared to keep up with the monthly payments. Otherwise, you may find yourself in even more debt. Also compare lenders based on their available loan amounts, repayment terms, interest rates, fees, and other factors. How Can You Improve Your Chances of Getting Approved for a Debt Consolidation Loan? You can improve your chances of getting a debt consolidation loan by working to raise your credit score. You can also boost your approval odds for a loan by adding a co-signer who has good credit, although not all lenders allow that. How Do Origination Fees Work? Origination fees for personal loans are deducted from your loan proceeds upfront, although you still have to repay the full amount of the loan. If you take out a $10,000 loan with an origination fee of 5%, for example, you'll receive $9,500 in funding but have to repay $10,000 plus interest charges. Not all personal loans charge these fees, and you may be able to avoid them if you have a solid credit score. Does a Debt Consolidation Loan Hurt Your Credit? As long as you make your payments on time, a debt consolidation loan won't hurt your credit and may actually help it. The opposite is also true: If you fail to make the loan payments on time, your credit score could take a serious hit. The Bottom Line A debt consolidation loan can reduce the amount of interest you're paying on your debts and allow you to pay them off more quickly. The best loans are easy to find online, and most lenders are relatively transparent when it comes to their available loan amounts, fees, interest rates, and eligibility requirements.

https://www.investopedia.com/viking-therapeutics-soars-after-reporting-positive-results-from-oral-weight-loss-drug-8620370

Viking Therapeutics Soars After Reporting Positive Results From Oral Weight-Loss Drug

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Viking Therapeutics reported its experimental oral weight-loss drug showed positive results in an early trial, and shares soared in early trading Tuesday.</li><li>The biotech firm said its VK2735 medicine reduced the weight of obese patients in a 28-day Phase 1 study, and plans to begin a Phase 2 trial in the second half of the year.</li><li>Viking shares soared to an all-time high last month after it announced an injectable form of VK2735 produced successful outcomes in a Phase 2 trial.</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 Viking Therapeutics (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VKTX">VKTX</a>) jumped over 25% in early trading Tuesday after the company reported positive results in a test of its experimental weight-loss treatment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The company said a Phase 1 trial of an oral version of its VK2735 drug showed obese patients who took it for 28 days demonstrated a dose-dependent decline in average body weight of 5.3% versus the baseline, and a 3.3% drop compared to those who took a placebo.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Viking also suggested taking VK2735 for longer than 28 days at potentially higher doses could increase the benefits. Because of the findings, Viking said it plans to begin Phase 2 testing in the second half of this year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/ceo.asp">Chief Executive Officer (CEO</a>) Brian Lian said “an oral agent with good tolerability could represent an attractive potential treatment option for patients with obesity.” </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"> Last month, shares of Viking soared to an all-time high after the company <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/viking-therapeutics-stock-more-than-doubles-on-weight-loss-drug-trial-results-8601129">posted</a> positive Phase 2 results of an injectable form of VK2735. Both the oral and injectable versions notably use GLP-1/GPT receptor agonists found in weight-loss medicines such as Novo Nordisk’s (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVO">NVO</a>) Ozempic and Wegovy. Demand for such medicines has boomed, and pharmaceutical firms have been rushing to find a way to market them in pill form. </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"> Viking Therapeutics shares were up about 25% to $86.78 as of 11:10 a.m. ET Tuesday. They have more than quadrupled in value so far this year.<br/> </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:68.9%;"> <img alt="VKTX" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/ukowU69GL0d-w22KPXagCcQN8Bc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/VKTX_2024-03-26_11-14-01-16b6547d6fc94dbc9c0b03765456e1a4.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/ukowU69GL0d-w22KPXagCcQN8Bc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/VKTX_2024-03-26_11-14-01-16b6547d6fc94dbc9c0b03765456e1a4.png" data-srcset="https://www.investopedia.com/thmb/BXiqdT8ZyfH44blqdVgyTHQXtAA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/VKTX_2024-03-26_11-14-01-16b6547d6fc94dbc9c0b03765456e1a4.png 750w" data-tracking-container="true" height="1066" id="mntl-sc-block-image_1-0" width="1545"/> <noscript> <img alt="VKTX" class="img--noscript universal-image__image" height="1066" sizes="750px" src="https://www.investopedia.com/thmb/ukowU69GL0d-w22KPXagCcQN8Bc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/VKTX_2024-03-26_11-14-01-16b6547d6fc94dbc9c0b03765456e1a4.png" srcset="https://www.investopedia.com/thmb/BXiqdT8ZyfH44blqdVgyTHQXtAA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/VKTX_2024-03-26_11-14-01-16b6547d6fc94dbc9c0b03765456e1a4.png 750w" width="1545"/> </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>

### Key Takeaways * Viking Therapeutics reported its experimental oral weight-loss drug showed positive results in an early trial, and shares soared in early trading Tuesday. * The biotech firm said its VK2735 medicine reduced the weight of obese patients in a 28-day Phase 1 study, and plans to begin a Phase 2 trial in the second half of the year. * Viking shares soared to an all-time high last month after it announced an injectable form of VK2735 produced successful outcomes in a Phase 2 trial. Shares of Viking Therapeutics ([VKTX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VKTX)) jumped over 25% in early trading Tuesday after the company reported positive results in a test of its experimental weight-loss treatment. The company said a Phase 1 trial of an oral version of its VK2735 drug showed obese patients who took it for 28 days demonstrated a dose-dependent decline in average body weight of 5.3% versus the baseline, and a 3.3% drop compared to those who took a placebo. Viking also suggested taking VK2735 for longer than 28 days at potentially higher doses could increase the benefits. Because of the findings, Viking said it plans to begin Phase 2 testing in the second half of this year. [Chief Executive Officer (CEO](https://www.investopedia.com/terms/c/ceo.asp)) Brian Lian said “an oral agent with good tolerability could represent an attractive potential treatment option for patients with obesity.” Last month, shares of Viking soared to an all-time high after the company [posted](https://www.investopedia.com/viking-therapeutics-stock-more-than-doubles-on-weight-loss-drug-trial-results-8601129) positive Phase 2 results of an injectable form of VK2735. Both the oral and injectable versions notably use GLP-1/GPT receptor agonists found in weight-loss medicines such as Novo Nordisk’s ([NVO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVO)) Ozempic and Wegovy. Demand for such medicines has boomed, and pharmaceutical firms have been rushing to find a way to market them in pill form. Viking Therapeutics shares were up about 25% to $86.78 as of 11:10 a.m. ET Tuesday. They have more than quadrupled in value so far this year. ![VKTX]() :max_bytes(150000):strip_icc()/VKTX_2024-03-26_11-14-01-16b6547d6fc94dbc9c0b03765456e1a4.png) TradingView

Key Takeaways Viking Therapeutics reported its experimental oral weight-loss drug showed positive results in an early trial, and shares soared in early trading Tuesday.The biotech firm said its VK2735 medicine reduced the weight of obese patients in a 28-day Phase 1 study, and plans to begin a Phase 2 trial in the second half of the year.Viking shares soared to an all-time high last month after it announced an injectable form of VK2735 produced successful outcomes in a Phase 2 trial. Shares of Viking Therapeutics (VKTX) jumped over 25% in early trading Tuesday after the company reported positive results in a test of its experimental weight-loss treatment. The company said a Phase 1 trial of an oral version of its VK2735 drug showed obese patients who took it for 28 days demonstrated a dose-dependent decline in average body weight of 5.3% versus the baseline, and a 3.3% drop compared to those who took a placebo. Viking also suggested taking VK2735 for longer than 28 days at potentially higher doses could increase the benefits. Because of the findings, Viking said it plans to begin Phase 2 testing in the second half of this year. Chief Executive Officer (CEO) Brian Lian said “an oral agent with good tolerability could represent an attractive potential treatment option for patients with obesity.” Last month, shares of Viking soared to an all-time high after the company posted positive Phase 2 results of an injectable form of VK2735. Both the oral and injectable versions notably use GLP-1/GPT receptor agonists found in weight-loss medicines such as Novo Nordisk’s (NVO) Ozempic and Wegovy. Demand for such medicines has boomed, and pharmaceutical firms have been rushing to find a way to market them in pill form. Viking Therapeutics shares were up about 25% to $86.78 as of 11:10 a.m. ET Tuesday. They have more than quadrupled in value so far this year. TradingView

https://www.investopedia.com/brokerage-account-vs-ira-5213909

Brokerage Account vs. IRA: 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"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> If you’re new to investing, you might want to compare brokerage accounts and individual retirement accounts (IRA) to decide where to invest. After all, you can invest in stocks and other securities in either account—so what’s the difference? <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Broadly speaking, brokerage accounts are taxable accounts that allow you to buy and sell various investments whenever you want—with no contribution limits and no penalties for withdrawals. On the other hand, IRAs are tax-deferred or tax-free accounts (depending on the type of IRA you choose), but there are strict contribution limits, and withdrawals may trigger a penalty.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Here’s a closer look at brokerage accounts and IRAs, with tips to help you decide where to put your hard-earned money. </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>Brokerage accounts are taxable investment accounts through which you can buy and sell stocks and other securities.</li><li>IRAs are designed for retirement savers and allow tax-free or tax-deferred growth on the investments you hold in the account. </li><li>Unlike brokerage accounts, IRAs have strict contribution limits, and withdrawals may trigger a penalty.</li><li>Brokerage accounts and IRAs are taxed differently, which can be a deciding factor when choosing an account.<span class="ql-inline-citation" data-cite="2"></span><br/></li></ul></div></div></div> <span class="heading-toc" id="toc-brokerage-account-vs-ira-an-overview"></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"> Brokerage Account vs. IRA: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Brokerage accounts and IRAs are investment accounts that allow you to buy and sell stocks, ETFs, bonds, mutual funds, real estate investment trusts (REITs), and other securities. <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"> Investors generally use brokerage accounts for day trading, long-term investing, and saving for short-term financial goals like buying a house or car. Meanwhile, IRAs offer investors a tax-advantaged way to save for retirement. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> It can be a smart financial move to have both types of accounts. That way, you can take advantage of the brokerage account’s flexibility and the IRA’s tax benefits simultaneously. Financial planners often recommend investing in this order:<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <li>If you have a 401(k) plan, contribute enough to get the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/120315/what-good-401k-match.asp">company match</a> first—it’s like getting free money.</li> <li>Max out your IRAs to take advantage of the tax benefits and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compounding.asp">power of compounding</a>. </li> <li>Invest through your brokerage account.</li> </ol> <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-what-is-a-brokerage-account"></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"> What Is a Brokerage Account? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> As noted, a brokerage account is a taxable account that enables you to buy and sell stocks and other securities. You can buy and sell securities freely, with no caps on the amount you invest—and you can sell your investments anytime without penalty. As far as tax treatment goes, you’ll pay taxes on interest, dividends, and capital gains in the tax year you earn them. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> There are dozens of brokerage firms, and choosing the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-brokers-4587872">best broker</a> depends on your investing style, preferred investments, and the features you want in a trading platform. Once you decide on a brokerage firm, you can open and fund an account online in minutes. </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-what-is-an-ira"></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"> What Is an IRA? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> An IRA is a tax-advantaged investment account designed for retirement savers. The investment choices are limited compared to brokerage accounts (for example, you can’t hold <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nakedoption.asp">naked options</a>), but contributions and earnings grow tax-free or tax-deferred, depending on whether you have a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/">Roth or traditional IRA</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_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Unlike brokerage accounts, IRAs have strict contribution limits. You can contribute up to $6,500 ($6,000 for 2022) to your IRA accounts or $7,500 ($7,000 for 2022) if you’re 50 or older.<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> <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-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_29-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The limits on IRA contributions change annually to account for cost of living fluctutations.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/081615/basics-roth-ira-contribution-rules.asp">Roth IRAs</a> (but not traditional IRAs) also have income limits: For 2023, you can only contribute the full amount if your income is less than $138,000 ($129,000 for 2022) for single filers or $218,000 ($204,000 for 2022) if you’re married filing jointly. For 2023, these limits phaseout at incomes between:<span class="ql-inline-citation" data-cite="12"></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_31-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <li>$138,000 and $153,000 for single filers ($129,000 and $144,000 for 2022)</li><li>$218,000 and $228,000 for married couples filing jointly ($204,000 and $214,000 for 2022).</li> </ul> <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-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_35-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>In general, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102714/how-are-ira-withdrawals-taxed.asp">withdrawals made before age 59½</a> can trigger a 10% penalty with either type of IRA, although there are some exceptions to this rule. However, you can withdraw your Roth IRA contributions at any time—for any reason—tax-free and penalty-free.<span class="ql-inline-citation" data-cite="2"></span> </p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> You can open an IRA with a bank or brokerage firm. Keep in mind that an IRA is not an investment itself—it’s an account that holds the investments you choose. You can pick from various investments, including stocks, bonds, mutual funds, ETFs, REITs, and even real estate (in a self-directed IRA). </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-how-are-brokerage-accounts-and-iras-taxed"></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"> How Are Brokerage Accounts and IRAs Taxed? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> It's clear that picking profitable investments is vital to investing and growing wealth. However, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/11/intro-tax-efficient-investing.asp">investing for tax efficiency</a> is equally important since it lets you keep as much of your gains as possible. Depending on your account type, earnings from dividends, interest, and capital gains may or may not be taxable—which brings us to a key difference between brokerage accounts and IRAs.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-subheading__text"> Brokerage Account Taxes </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Brokerage accounts are taxable investment accounts. If you make money because your investments pay interest or dividends or increase in value, you’ll owe tax on that income. The tax liability depends on the source of income: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> <li><strong>Interest</strong>: You might <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/tax/10/interest-income.asp">earn interest</a> from investments like bonds, certificates of deposit (CDs), or any uninvested cash you hold in the account. In general, interest income is taxed as ordinary income, with two exceptions: U.S. Treasuries are not subject to state or local income tax, and municipal bonds are usually exempt from federal taxes (and sometimes state and local taxes, too).<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="6"></span> </li> <li><strong>Dividends</strong>: Dividends are your share of a company’s earnings. There are two types of dividends, each with a specific tax treatment. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/090116/are-qualified-dividends-included-ordinary-dividends.asp">Qualified dividends</a>—which represent most dividends paid to shareholders by public companies—are taxed at the lower, long-term capital gains rate. Unqualified dividends—which usually apply to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/etfs/top-real-estate-etfs/">REITs</a>, master limited partnerships (MLPs), and business development companies (BDCs)—are taxed at the higher ordinary income tax rate.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="7"></span> </li> <li><strong>Capital gains</strong>: If you sell an investment for a profit, you will owe tax on that gain—but how much tax depends on <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/101515/comparing-longterm-vs-shortterm-capital-gain-tax-rates.asp">how long you held the investment</a>. Gains on investments you held for less than a year are considered short-term capital gains and taxed as ordinary income. On the other hand, gains on investments you held for more than a year are taxed at the more favorable, long-term capital gains rate.<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_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"> IRA Account Taxes </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Contributions to a traditional IRA are made with pre-tax dollars and may be tax-deductible, depending on your income and if a retirement plan at work covers you or your spouse. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-roth-ira-taxes-work-4769988">Roth IRA contributions</a> are made with after-tax dollars, so there's no tax break the year you make the contribution. Instead, the tax benefit comes in retirement, when your withdrawals are tax-free. </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"> Earnings in IRAs <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/taxes/avoid-overpaying-taxes-ira-distributions/">grow tax-free or tax-deferred</a>, depending on the type of IRA you have: </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><strong>Roth IRA</strong>: There’s no upfront tax break, so contributions don’t lower your taxable income. But qualified withdrawals in retirement are tax-free, and you can withdraw your contributions at any time—for any reason—without penalty. And, unlike traditional IRAs, there are no <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/requiredminimumdistribution.asp">required minimum distributions (RMDs)</a>.<span class="ql-inline-citation" data-cite="9"></span> <br/></li> <li><strong>Traditional IRA</strong>:<strong> </strong>You may be able to deduct traditional IRA contributions the year you make them, which can lower your taxable income (and your tax liability). But <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102714/how-are-ira-withdrawals-taxed.asp">withdrawals are subject to income taxes</a>, and early withdrawals usually trigger a 10% penalty. You can avoid the penalty (but not the tax) in certain circumstances—like using the money to pay for qualified first-time homebuyer expenses.<span class="ql-inline-citation" data-cite="10"></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_52-0"></div> <span class="heading-toc" id="toc-frequently-asked-questions"></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"> Frequently Asked Questions </span> </h2> <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-should-i-open-an-ira-at-a-bank-or-brokerage-firm"></span> <h2 class="mntl-sc-block-questionandanswer__question">Should I Open an IRA at a Bank or Brokerage Firm?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Whichever you're comfortable with, but you'll have more investment options—and higher potential earnings—at a brokerage firm. Banks tend to offer minimal, low-yield investment options, such as savings accounts and certificates of deposit (CDs). These low-risk investments may appeal to some retirement savers, but they won’t allow your nest egg to grow substantially—even over the long haul.</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-there-a-minimum-to-open-a-brokerage-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is There a Minimum to Open a Brokerage Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>That depends on the brokerage firm. Many brokers today offer very low minimum deposits (e.g., even zero) to start. Of course, you will need to deposit at least $2,000 if you want to enable margin trading and $25,000 if you want to day trade.<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_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-is-a-roth-or-traditional-ira-better"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a Roth or Traditional IRA Better?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It depends on your expected income before and after you retire. In general, you’re better off with a traditional IRA if you expect to be in a lower tax bracket when you retire than you are now. If you think you will be in the same tax bracket or higher when you retire, a Roth may be the better choice because you’ll get your tax bill out of the way at your current, lower tax rate.<span class="ql-inline-citation" data-cite="2"></span> </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Financial planners recommend having both accounts, if possible. You can use a brokerage account for day trading, long-term investing, and saving for short-term financial goals. In addition, brokerage accounts offer more flexibility than an IRA, and there are no limits on contributions, withdrawals, or income to fund one.<br> </br></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"> IRAs are intended for retirement savings and have lower annual contribution limits. Withdrawals may trigger a penalty, and if your income is too high, you might not be able to contribute. But the IRA limits and penalties exist to encourage you to keep your money in the account to help you save for retirement. Brokerages—while necessary for trading and certain investing activities—are businesses that exist to make money while helping you access the investments you want. </p></div>

If you’re new to investing, you might want to compare brokerage accounts and individual retirement accounts (IRA) to decide where to invest. After all, you can invest in stocks and other securities in either account—so what’s the difference?  Broadly speaking, brokerage accounts are taxable accounts that allow you to buy and sell various investments whenever you want—with no contribution limits and no penalties for withdrawals. On the other hand, IRAs are tax-deferred or tax-free accounts (depending on the type of IRA you choose), but there are strict contribution limits, and withdrawals may trigger a penalty. Here’s a closer look at brokerage accounts and IRAs, with tips to help you decide where to put your hard-earned money. ### Key Takeaways * Brokerage accounts are taxable investment accounts through which you can buy and sell stocks and other securities. * IRAs are designed for retirement savers and allow tax-free or tax-deferred growth on the investments you hold in the account. * Unlike brokerage accounts, IRAs have strict contribution limits, and withdrawals may trigger a penalty. * Brokerage accounts and IRAs are taxed differently, which can be a deciding factor when choosing an account. ## Brokerage Account vs. IRA: An Overview Brokerage accounts and IRAs are investment accounts that allow you to buy and sell stocks, ETFs, bonds, mutual funds, real estate investment trusts (REITs), and other securities.  Investors generally use brokerage accounts for day trading, long-term investing, and saving for short-term financial goals like buying a house or car. Meanwhile, IRAs offer investors a tax-advantaged way to save for retirement.  It can be a smart financial move to have both types of accounts. That way, you can take advantage of the brokerage account’s flexibility and the IRA’s tax benefits simultaneously. Financial planners often recommend investing in this order: 1. If you have a 401(k) plan, contribute enough to get the [company match](https://www.investopedia.com/articles/personal-finance/120315/what-good-401k-match.asp) first—it’s like getting free money. 2. Max out your IRAs to take advantage of the tax benefits and the [power of compounding](https://www.investopedia.com/terms/c/compounding.asp). 3. Invest through your brokerage account. ## What Is a Brokerage Account? As noted, a brokerage account is a taxable account that enables you to buy and sell stocks and other securities. You can buy and sell securities freely, with no caps on the amount you invest—and you can sell your investments anytime without penalty. As far as tax treatment goes, you’ll pay taxes on interest, dividends, and capital gains in the tax year you earn them.  There are dozens of brokerage firms, and choosing the [best broker](https://www.investopedia.com/best-online-brokers-4587872) depends on your investing style, preferred investments, and the features you want in a trading platform. Once you decide on a brokerage firm, you can open and fund an account online in minutes. ## What Is an IRA? An IRA is a tax-advantaged investment account designed for retirement savers. The investment choices are limited compared to brokerage accounts (for example, you can’t hold [naked options](https://www.investopedia.com/terms/n/nakedoption.asp)), but contributions and earnings grow tax-free or tax-deferred, depending on whether you have a [Roth or traditional IRA](https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/). Unlike brokerage accounts, IRAs have strict contribution limits. You can contribute up to $6,500 ($6,000 for 2022) to your IRA accounts or $7,500 ($7,000 for 2022) if you’re 50 or older.  ### The limits on IRA contributions change annually to account for cost of living fluctutations. [Roth IRAs](https://www.investopedia.com/articles/personal-finance/081615/basics-roth-ira-contribution-rules.asp) (but not traditional IRAs) also have income limits: For 2023, you can only contribute the full amount if your income is less than $138,000 ($129,000 for 2022) for single filers or $218,000 ($204,000 for 2022) if you’re married filing jointly. For 2023, these limits phaseout at incomes between: * $138,000 and $153,000 for single filers ($129,000 and $144,000 for 2022) * $218,000 and $228,000 for married couples filing jointly ($204,000 and $214,000 for 2022). ### In general, [withdrawals made before age 59½](https://www.investopedia.com/ask/answers/102714/how-are-ira-withdrawals-taxed.asp) can trigger a 10% penalty with either type of IRA, although there are some exceptions to this rule. However, you can withdraw your Roth IRA contributions at any time—for any reason—tax-free and penalty-free.  You can open an IRA with a bank or brokerage firm. Keep in mind that an IRA is not an investment itself—it’s an account that holds the investments you choose. You can pick from various investments, including stocks, bonds, mutual funds, ETFs, REITs, and even real estate (in a self-directed IRA). ## How Are Brokerage Accounts and IRAs Taxed? It's clear that picking profitable investments is vital to investing and growing wealth. However, [investing for tax efficiency](https://www.investopedia.com/articles/stocks/11/intro-tax-efficient-investing.asp) is equally important since it lets you keep as much of your gains as possible. Depending on your account type, earnings from dividends, interest, and capital gains may or may not be taxable—which brings us to a key difference between brokerage accounts and IRAs. ### Brokerage Account Taxes Brokerage accounts are taxable investment accounts. If you make money because your investments pay interest or dividends or increase in value, you’ll owe tax on that income. The tax liability depends on the source of income: * **Interest**: You might [earn interest](https://www.investopedia.com/articles/tax/10/interest-income.asp) from investments like bonds, certificates of deposit (CDs), or any uninvested cash you hold in the account. In general, interest income is taxed as ordinary income, with two exceptions: U.S. Treasuries are not subject to state or local income tax, and municipal bonds are usually exempt from federal taxes (and sometimes state and local taxes, too). * **Dividends**: Dividends are your share of a company’s earnings. There are two types of dividends, each with a specific tax treatment. [Qualified dividends](https://www.investopedia.com/ask/answers/090116/are-qualified-dividends-included-ordinary-dividends.asp)—which represent most dividends paid to shareholders by public companies—are taxed at the lower, long-term capital gains rate. Unqualified dividends—which usually apply to [REITs](https://www.investopedia.com/articles/etfs/top-real-estate-etfs/), master limited partnerships (MLPs), and business development companies (BDCs)—are taxed at the higher ordinary income tax rate. * **Capital gains**: If you sell an investment for a profit, you will owe tax on that gain—but how much tax depends on [how long you held the investment](https://www.investopedia.com/articles/personal-finance/101515/comparing-longterm-vs-shortterm-capital-gain-tax-rates.asp). Gains on investments you held for less than a year are considered short-term capital gains and taxed as ordinary income. On the other hand, gains on investments you held for more than a year are taxed at the more favorable, long-term capital gains rate. ### IRA Account Taxes Contributions to a traditional IRA are made with pre-tax dollars and may be tax-deductible, depending on your income and if a retirement plan at work covers you or your spouse. [Roth IRA contributions](https://www.investopedia.com/how-roth-ira-taxes-work-4769988) are made with after-tax dollars, so there's no tax break the year you make the contribution. Instead, the tax benefit comes in retirement, when your withdrawals are tax-free. Earnings in IRAs [grow tax-free or tax-deferred](https://www.investopedia.com/taxes/avoid-overpaying-taxes-ira-distributions/), depending on the type of IRA you have: * **Roth IRA**: There’s no upfront tax break, so contributions don’t lower your taxable income. But qualified withdrawals in retirement are tax-free, and you can withdraw your contributions at any time—for any reason—without penalty. And, unlike traditional IRAs, there are no [required minimum distributions (RMDs)](https://www.investopedia.com/terms/r/requiredminimumdistribution.asp). * **Traditional IRA**:You may be able to deduct traditional IRA contributions the year you make them, which can lower your taxable income (and your tax liability). But [withdrawals are subject to income taxes](https://www.investopedia.com/ask/answers/102714/how-are-ira-withdrawals-taxed.asp), and early withdrawals usually trigger a 10% penalty. You can avoid the penalty (but not the tax) in certain circumstances—like using the money to pay for qualified first-time homebuyer expenses. ## Frequently Asked Questions ## Should I Open an IRA at a Bank or Brokerage Firm? Whichever you're comfortable with, but you'll have more investment options—and higher potential earnings—at a brokerage firm. Banks tend to offer minimal, low-yield investment options, such as savings accounts and certificates of deposit (CDs). These low-risk investments may appeal to some retirement savers, but they won’t allow your nest egg to grow substantially—even over the long haul. ## Is There a Minimum to Open a Brokerage Account? That depends on the brokerage firm. Many brokers today offer very low minimum deposits (e.g., even zero) to start. Of course, you will need to deposit at least $2,000 if you want to enable margin trading and $25,000 if you want to day trade. ## Is a Roth or Traditional IRA Better? It depends on your expected income before and after you retire. In general, you’re better off with a traditional IRA if you expect to be in a lower tax bracket when you retire than you are now. If you think you will be in the same tax bracket or higher when you retire, a Roth may be the better choice because you’ll get your tax bill out of the way at your current, lower tax rate.  ## The Bottom Line Financial planners recommend having both accounts, if possible. You can use a brokerage account for day trading, long-term investing, and saving for short-term financial goals. In addition, brokerage accounts offer more flexibility than an IRA, and there are no limits on contributions, withdrawals, or income to fund one. IRAs are intended for retirement savings and have lower annual contribution limits. Withdrawals may trigger a penalty, and if your income is too high, you might not be able to contribute. But the IRA limits and penalties exist to encourage you to keep your money in the account to help you save for retirement. Brokerages—while necessary for trading and certain investing activities—are businesses that exist to make money while helping you access the investments you want.

If you’re new to investing, you might want to compare brokerage accounts and individual retirement accounts (IRA) to decide where to invest. After all, you can invest in stocks and other securities in either account—so what’s the difference?  Broadly speaking, brokerage accounts are taxable accounts that allow you to buy and sell various investments whenever you want—with no contribution limits and no penalties for withdrawals. On the other hand, IRAs are tax-deferred or tax-free accounts (depending on the type of IRA you choose), but there are strict contribution limits, and withdrawals may trigger a penalty. Here’s a closer look at brokerage accounts and IRAs, with tips to help you decide where to put your hard-earned money. Key Takeaways Brokerage accounts are taxable investment accounts through which you can buy and sell stocks and other securities.IRAs are designed for retirement savers and allow tax-free or tax-deferred growth on the investments you hold in the account. Unlike brokerage accounts, IRAs have strict contribution limits, and withdrawals may trigger a penalty.Brokerage accounts and IRAs are taxed differently, which can be a deciding factor when choosing an account. Brokerage Account vs. IRA: An Overview Brokerage accounts and IRAs are investment accounts that allow you to buy and sell stocks, ETFs, bonds, mutual funds, real estate investment trusts (REITs), and other securities.  Investors generally use brokerage accounts for day trading, long-term investing, and saving for short-term financial goals like buying a house or car. Meanwhile, IRAs offer investors a tax-advantaged way to save for retirement.  It can be a smart financial move to have both types of accounts. That way, you can take advantage of the brokerage account’s flexibility and the IRA’s tax benefits simultaneously. Financial planners often recommend investing in this order: If you have a 401(k) plan, contribute enough to get the company match first—it’s like getting free money. Max out your IRAs to take advantage of the tax benefits and the power of compounding.  Invest through your brokerage account. What Is a Brokerage Account? As noted, a brokerage account is a taxable account that enables you to buy and sell stocks and other securities. You can buy and sell securities freely, with no caps on the amount you invest—and you can sell your investments anytime without penalty. As far as tax treatment goes, you’ll pay taxes on interest, dividends, and capital gains in the tax year you earn them.  There are dozens of brokerage firms, and choosing the best broker depends on your investing style, preferred investments, and the features you want in a trading platform. Once you decide on a brokerage firm, you can open and fund an account online in minutes. What Is an IRA? An IRA is a tax-advantaged investment account designed for retirement savers. The investment choices are limited compared to brokerage accounts (for example, you can’t hold naked options), but contributions and earnings grow tax-free or tax-deferred, depending on whether you have a Roth or traditional IRA. Unlike brokerage accounts, IRAs have strict contribution limits. You can contribute up to $6,500 ($6,000 for 2022) to your IRA accounts or $7,500 ($7,000 for 2022) if you’re 50 or older.  The limits on IRA contributions change annually to account for cost of living fluctutations. Roth IRAs (but not traditional IRAs) also have income limits: For 2023, you can only contribute the full amount if your income is less than $138,000 ($129,000 for 2022) for single filers or $218,000 ($204,000 for 2022) if you’re married filing jointly. For 2023, these limits phaseout at incomes between: $138,000 and $153,000 for single filers ($129,000 and $144,000 for 2022)$218,000 and $228,000 for married couples filing jointly ($204,000 and $214,000 for 2022). In general, withdrawals made before age 59½ can trigger a 10% penalty with either type of IRA, although there are some exceptions to this rule. However, you can withdraw your Roth IRA contributions at any time—for any reason—tax-free and penalty-free.  You can open an IRA with a bank or brokerage firm. Keep in mind that an IRA is not an investment itself—it’s an account that holds the investments you choose. You can pick from various investments, including stocks, bonds, mutual funds, ETFs, REITs, and even real estate (in a self-directed IRA). How Are Brokerage Accounts and IRAs Taxed? It's clear that picking profitable investments is vital to investing and growing wealth. However, investing for tax efficiency is equally important since it lets you keep as much of your gains as possible. Depending on your account type, earnings from dividends, interest, and capital gains may or may not be taxable—which brings us to a key difference between brokerage accounts and IRAs. Brokerage Account Taxes Brokerage accounts are taxable investment accounts. If you make money because your investments pay interest or dividends or increase in value, you’ll owe tax on that income. The tax liability depends on the source of income: Interest: You might earn interest from investments like bonds, certificates of deposit (CDs), or any uninvested cash you hold in the account. In general, interest income is taxed as ordinary income, with two exceptions: U.S. Treasuries are not subject to state or local income tax, and municipal bonds are usually exempt from federal taxes (and sometimes state and local taxes, too).  Dividends: Dividends are your share of a company’s earnings. There are two types of dividends, each with a specific tax treatment. Qualified dividends—which represent most dividends paid to shareholders by public companies—are taxed at the lower, long-term capital gains rate. Unqualified dividends—which usually apply to REITs, master limited partnerships (MLPs), and business development companies (BDCs)—are taxed at the higher ordinary income tax rate.  Capital gains: If you sell an investment for a profit, you will owe tax on that gain—but how much tax depends on how long you held the investment. Gains on investments you held for less than a year are considered short-term capital gains and taxed as ordinary income. On the other hand, gains on investments you held for more than a year are taxed at the more favorable, long-term capital gains rate.  IRA Account Taxes Contributions to a traditional IRA are made with pre-tax dollars and may be tax-deductible, depending on your income and if a retirement plan at work covers you or your spouse. Roth IRA contributions are made with after-tax dollars, so there's no tax break the year you make the contribution. Instead, the tax benefit comes in retirement, when your withdrawals are tax-free. Earnings in IRAs grow tax-free or tax-deferred, depending on the type of IRA you have: Roth IRA: There’s no upfront tax break, so contributions don’t lower your taxable income. But qualified withdrawals in retirement are tax-free, and you can withdraw your contributions at any time—for any reason—without penalty. And, unlike traditional IRAs, there are no required minimum distributions (RMDs).  Traditional IRA: You may be able to deduct traditional IRA contributions the year you make them, which can lower your taxable income (and your tax liability). But withdrawals are subject to income taxes, and early withdrawals usually trigger a 10% penalty. You can avoid the penalty (but not the tax) in certain circumstances—like using the money to pay for qualified first-time homebuyer expenses. Frequently Asked Questions Should I Open an IRA at a Bank or Brokerage Firm? Whichever you're comfortable with, but you'll have more investment options—and higher potential earnings—at a brokerage firm. Banks tend to offer minimal, low-yield investment options, such as savings accounts and certificates of deposit (CDs). These low-risk investments may appeal to some retirement savers, but they won’t allow your nest egg to grow substantially—even over the long haul. Is There a Minimum to Open a Brokerage Account? That depends on the brokerage firm. Many brokers today offer very low minimum deposits (e.g., even zero) to start. Of course, you will need to deposit at least $2,000 if you want to enable margin trading and $25,000 if you want to day trade. Is a Roth or Traditional IRA Better? It depends on your expected income before and after you retire. In general, you’re better off with a traditional IRA if you expect to be in a lower tax bracket when you retire than you are now. If you think you will be in the same tax bracket or higher when you retire, a Roth may be the better choice because you’ll get your tax bill out of the way at your current, lower tax rate.  The Bottom Line Financial planners recommend having both accounts, if possible. You can use a brokerage account for day trading, long-term investing, and saving for short-term financial goals. In addition, brokerage accounts offer more flexibility than an IRA, and there are no limits on contributions, withdrawals, or income to fund one. IRAs are intended for retirement savings and have lower annual contribution limits. Withdrawals may trigger a penalty, and if your income is too high, you might not be able to contribute. But the IRA limits and penalties exist to encourage you to keep your money in the account to help you save for retirement. Brokerages—while necessary for trading and certain investing activities—are businesses that exist to make money while helping you access the investments you want.

https://www.investopedia.com/the-express-podcast-episode-182-8628403

Putting Stock Market Pullbacks Into Perspective

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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=MERE1032627179" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Putting Stock Market Pullbacks Into Perspective"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <strong>Subscribe Now</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197" rel="nofollow">Apple Podcasts</a> / <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9" rel="nofollow">Spotify</a> / <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver">Google Podcasts</a> / <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://player.fm/series/2836180">PlayerFM</a> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Sam Stovall, chief investment strategist at CFRA, rejoins The Express to put stock market pullbacks in perspective, and why the recent declines are to be expected and relatively minor given historical averages. Plus, there is a growing chorus of Fed presidents who don't think interest rate cuts are warranted at all this year given the hot labor market and persistent inflation. Do investors and savers need to get used to, "higher until whenever", for interest rates, which might explain the heaviest inflows into money market funds that we've witnessed all year? Also, glam-metal legends KISS sells its catalogue and its NIL for $300 million as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/name-image-likeness-8558991">Name, Image and Likeness</a> moves from the field to the recording industry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> <strong>Link for Show Notes: </strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bespokepremium.com/">https://www.bespokepremium.com/</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html">https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_040524A.pdf" rel="nofollow">https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_040524A.pdf</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8624383">https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8624383</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="externalLink" href="https://www.sifma.org/people/sam-stovall/">https://www.sifma.org/people/sam-stovall/</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="externalLink" href="https://pophouse.se/news/pophouse-acquires-the-music-catalogue-brand-name-and-ip-of-legendary-rock-band-kiss/" rel="nofollow">https://pophouse.se/news/pophouse-acquires-the-music-catalogue-brand-name-and-ip-of-legendary-rock-band-kiss/</a></li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="externalLink" href="https://www.cfraresearch.com/about/">https://www.cfraresearch.com/about/</a></li> <li><a data-component="amazon" data-ordinal="8" data-source="affiliate" data-type="externalLink" href="https://www.amazon.com/Books-Sam-Stovall/s?rh=n%3A283155%2Cp_27%3ASam+Stovall" rel="nofollow">https://www.amazon.com/Books-Sam-Stovall/s?rh=n%3A283155%2Cp_27%3ASam+Stovall</a></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <strong>Do you have a news tip for Investopedia reporters?</strong> Please email us at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="mailto:[email protected]">[email protected]</a> </p></div>

**Subscribe Now**: [Apple Podcasts](https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197) / [Spotify](https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9) / [Google Podcasts](https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver) / [PlayerFM](https://player.fm/series/2836180) Sam Stovall, chief investment strategist at CFRA, rejoins The Express to put stock market pullbacks in perspective, and why the recent declines are to be expected and relatively minor given historical averages. Plus, there is a growing chorus of Fed presidents who don't think interest rate cuts are warranted at all this year given the hot labor market and persistent inflation. Do investors and savers need to get used to, "higher until whenever", for interest rates, which might explain the heaviest inflows into money market funds that we've witnessed all year? Also, glam-metal legends KISS sells its catalogue and its NIL for $300 million as [Name, Image and Likeness](https://www.investopedia.com/name-image-likeness-8558991) moves from the field to the recording industry. **Link for Show Notes:** * <https://www.bespokepremium.com/> * <https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html> * <https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_040524A.pdf> * <https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8624383> * <https://www.sifma.org/people/sam-stovall/> * <https://pophouse.se/news/pophouse-acquires-the-music-catalogue-brand-name-and-ip-of-legendary-rock-band-kiss/> * <https://www.cfraresearch.com/about/> * <https://www.amazon.com/Books-Sam-Stovall/s?rh=n%3A283155%2Cp_27%3ASam+Stovall> **Do you have a news tip for Investopedia reporters?** Please email us at [[email protected]](mailto:[email protected])

Subscribe Now: Apple Podcasts / Spotify / Google Podcasts / PlayerFM Sam Stovall, chief investment strategist at CFRA, rejoins The Express to put stock market pullbacks in perspective, and why the recent declines are to be expected and relatively minor given historical averages. Plus, there is a growing chorus of Fed presidents who don't think interest rate cuts are warranted at all this year given the hot labor market and persistent inflation. Do investors and savers need to get used to, "higher until whenever", for interest rates, which might explain the heaviest inflows into money market funds that we've witnessed all year? Also, glam-metal legends KISS sells its catalogue and its NIL for $300 million as Name, Image and Likeness moves from the field to the recording industry. Link for Show Notes: https://www.bespokepremium.com/ https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_040524A.pdf https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8624383 https://www.sifma.org/people/sam-stovall/ https://pophouse.se/news/pophouse-acquires-the-music-catalogue-brand-name-and-ip-of-legendary-rock-band-kiss/ https://www.cfraresearch.com/about/ https://www.amazon.com/Books-Sam-Stovall/s?rh=n%3A283155%2Cp_27%3ASam+Stovall Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/terms/f/form-4684.asp

Form 4684: Casualties and Theft: 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-form-4684-casualties-and-thefts"></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 Form 4684: Casualties and Thefts? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Form 4684 is an Internal Revenue Service (IRS) form for reporting gains or losses from casualties and thefts which may be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deductible.asp" rel="noopener noreferrer">deductible</a> for taxpayers who itemize deductions. Casualty losses can be the result of fires, floods, and other disasters. In most cases, taxpayers can deduct losses in the tax year in which they happened. In the case of theft, the tax year is the year of loss discovery. </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>Form 4684 is a U.S. Internal Revenue Service (IRS) form for reporting gains or losses from casualties and thefts that occurred because of a federally declared disaster and which may be deductible for taxpayers who itemize deductions.</li><li>Taxpayers who live in federally declared disaster areas do not need to itemize deductions in order to file Form 4684.</li><li>A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption.</li></ul></div></div></div> <span class="heading-toc" id="toc-who-can-file-form-4684-casualties-and-thefts"></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"> Who Can File Form 4684: Casualties and Thefts? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Taxpayers reporting gains or losses from a casualty or theft should file Form 4684. Homeowners who received notification of the need to tear down or move a structure after a federally declared disaster may use Form 4684 to claim a loss. These individuals may claim the difference in the home's value, pre- and post-event. However, the owner must receive notification from the building authority within 120 days of the declaration of the disaster area.<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"> Casualties and thefts of personal property are only deductible if they can be attributed to a federally declared disaster. The IRS allows an exception to this rule for individuals who have personal casualty gains. In that case, the taxpayer can use casualty and theft losses not attributable to a federally-declared disaster to offset the gains. Taxpayers who live in federally declared disaster areas do not need to itemize deductions to file Form 4684. Taxpayers cannot use Form 4684 to deduct expenses related to personal injuries. </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-portrait figure-high-res" id="mntl-sc-block_11-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:122.1%;"> <img alt="Form 4684 Page 1. " class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/hs29em6Vcy4JBP4ZP5F95XgKEpM=/1064x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-02-11at1.24.09PM-64add8b245424205b25702f46c0040c1.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/koGUy9SvbJ4bnIJUrd_S4068RxE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-02-11at1.24.09PM-64add8b245424205b25702f46c0040c1.png" data-srcset="https://www.investopedia.com/thmb/TcKyf_51qxt-h5i2uZwyDTKdvc0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-02-11at1.24.09PM-64add8b245424205b25702f46c0040c1.png 750w" data-tracking-container="true" height="1300" id="mntl-sc-block-image_1-0" width="1064"/> <noscript> <img alt="Form 4684 Page 1. " class="img--noscript universal-image__image" height="1300" sizes="750px" src="https://www.investopedia.com/thmb/koGUy9SvbJ4bnIJUrd_S4068RxE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-02-11at1.24.09PM-64add8b245424205b25702f46c0040c1.png" srcset="https://www.investopedia.com/thmb/TcKyf_51qxt-h5i2uZwyDTKdvc0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-02-11at1.24.09PM-64add8b245424205b25702f46c0040c1.png 750w" width="1064"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Form 4684 is available on the IRS website.<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_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>In most cases, this form only applies to personal losses, not for casualties and thefts related to the business property.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Once you have determined that your casualties or thefts <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/tax/09/deducting-property-damage.asp">qualify for a deduction</a>, complete Form 4684 and either attach it to your return or to an amended return for a past claim. To deduct federally declared disaster losses for the preceding tax year, complete Section D of Form 4684. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-special-considerations-when-filing-form-4684"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Special Considerations When Filing Form 4684 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Form 4684 allows the deduction of non-reimbursed losses from specific events. Deductible casualty losses generally must result from an incident that is sudden, unexpected, or unusual and took place during a federally declared disaster. Casualties include natural disasters such as earthquakes, fires, floods, or storms. Other types of catastrophes include vandalism, car accidents, and shipwrecks. Provisions are also in place to assist those suffering loss from corrosive drywall and specific caustic pyrrhotite concrete.<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_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Even the loss of deposits in some financial institutions which become bankrupt or insolvent can sometimes qualify as a casualty. There are specific circumstances for the deduction of loss from events such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/ponzischeme.asp">Ponzi schemes</a>. Section C of Form 4684 contains information to complete deductions for such financial losses. </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"> However, damage alone may not qualify as a deductible casualty loss. For example, damage to a home from termite infestation or invasion of molds and fungi is not considered a casualty loss because such destruction is the result of an ongoing process, not a sudden event. Also, a car accident may result in damages, but those losses are not deductible if the taxpayer was willfully negligent in causing it.<span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Theft losses may include incidents of embezzlement and larceny. These losses qualify if the theft is a crime in the state the event occurred and if someone acted with criminal intent. Fraud may be considered theft in certain circumstances. However, if losses are the result of a decline in the price of a company’s stock because of illegal misconduct on the part of company executives, damages may not be deductible. However, these losses can result in 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>, which can offset a taxpayer’s <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 reduce taxable income.<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_26-0"></div> <span class="heading-toc" id="toc-form-4684-and-federal-disaster-areas"></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"> Form 4684 and Federal Disaster Areas </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Section D of IRS Form 4684 applies to federally declared <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disasterloss.asp">disaster losses</a>. Although casualty losses are usually deductible only in the tax year in which those losses happen, special provisions exist for qualified disaster losses. Losses from federally declared disaster areas have allowances to be deductible in the previous tax year and provide additional tax advantages. For an event to qualify, the loss must fall into specific geographically-declared disaster areas.<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_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> According to the IRS, for the tax year 2021, "a qualified disaster loss also includes an individual’s casualty or theft of personal-use property that is attributable to a major disaster that was declared by Presidential Declaration that is dated between January 1, 2020, and February 25, 2021 (inclusive). However, in order to qualify, the major disaster must have an incident period beginning between December 28, 2019, and December 27, 2020 (inclusive). Further, the major disaster must have an incident period ending no later than January 26, 2021. However, this change does not include those losses attributable to a major disaster that has been declared only by reason of COVID-19."<span class="ql-inline-citation" data-cite="14"></span> </p></div>

## What Is Form 4684: Casualties and Thefts? Form 4684 is an Internal Revenue Service (IRS) form for reporting gains or losses from casualties and thefts which may be [deductible](https://www.investopedia.com/terms/d/deductible.asp) for taxpayers who itemize deductions. Casualty losses can be the result of fires, floods, and other disasters. In most cases, taxpayers can deduct losses in the tax year in which they happened. In the case of theft, the tax year is the year of loss discovery. ### Key Takeaways * Form 4684 is a U.S. Internal Revenue Service (IRS) form for reporting gains or losses from casualties and thefts that occurred because of a federally declared disaster and which may be deductible for taxpayers who itemize deductions. * Taxpayers who live in federally declared disaster areas do not need to itemize deductions in order to file Form 4684. * A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. ## Who Can File Form 4684: Casualties and Thefts? Taxpayers reporting gains or losses from a casualty or theft should file Form 4684. Homeowners who received notification of the need to tear down or move a structure after a federally declared disaster may use Form 4684 to claim a loss. These individuals may claim the difference in the home's value, pre- and post-event. However, the owner must receive notification from the building authority within 120 days of the declaration of the disaster area.  Casualties and thefts of personal property are only deductible if they can be attributed to a federally declared disaster. The IRS allows an exception to this rule for individuals who have personal casualty gains. In that case, the taxpayer can use casualty and theft losses not attributable to a federally-declared disaster to offset the gains. Taxpayers who live in federally declared disaster areas do not need to itemize deductions to file Form 4684. Taxpayers cannot use Form 4684 to deduct expenses related to personal injuries. ![Form 4684 Page 1. ]() :max_bytes(150000):strip_icc()/ScreenShot2021-02-11at1.24.09PM-64add8b245424205b25702f46c0040c1.png) Form 4684 is available on the IRS website. ### In most cases, this form only applies to personal losses, not for casualties and thefts related to the business property. Once you have determined that your casualties or thefts [qualify for a deduction](https://www.investopedia.com/articles/tax/09/deducting-property-damage.asp), complete Form 4684 and either attach it to your return or to an amended return for a past claim. To deduct federally declared disaster losses for the preceding tax year, complete Section D of Form 4684. ## Special Considerations When Filing Form 4684 Form 4684 allows the deduction of non-reimbursed losses from specific events. Deductible casualty losses generally must result from an incident that is sudden, unexpected, or unusual and took place during a federally declared disaster. Casualties include natural disasters such as earthquakes, fires, floods, or storms. Other types of catastrophes include vandalism, car accidents, and shipwrecks. Provisions are also in place to assist those suffering loss from corrosive drywall and specific caustic pyrrhotite concrete. Even the loss of deposits in some financial institutions which become bankrupt or insolvent can sometimes qualify as a casualty. There are specific circumstances for the deduction of loss from events such as [Ponzi schemes](https://www.investopedia.com/terms/p/ponzischeme.asp). Section C of Form 4684 contains information to complete deductions for such financial losses. However, damage alone may not qualify as a deductible casualty loss. For example, damage to a home from termite infestation or invasion of molds and fungi is not considered a casualty loss because such destruction is the result of an ongoing process, not a sudden event. Also, a car accident may result in damages, but those losses are not deductible if the taxpayer was willfully negligent in causing it. Theft losses may include incidents of embezzlement and larceny. These losses qualify if the theft is a crime in the state the event occurred and if someone acted with criminal intent. Fraud may be considered theft in certain circumstances. However, if losses are the result of a decline in the price of a company’s stock because of illegal misconduct on the part of company executives, damages may not be deductible. However, these losses can result in a [capital loss](https://www.investopedia.com/terms/c/capitalloss.asp), which can offset a taxpayer’s [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) or reduce taxable income. ## Form 4684 and Federal Disaster Areas Section D of IRS Form 4684 applies to federally declared [disaster losses](https://www.investopedia.com/terms/d/disasterloss.asp). Although casualty losses are usually deductible only in the tax year in which those losses happen, special provisions exist for qualified disaster losses. Losses from federally declared disaster areas have allowances to be deductible in the previous tax year and provide additional tax advantages. For an event to qualify, the loss must fall into specific geographically-declared disaster areas. According to the IRS, for the tax year 2021, "a qualified disaster loss also includes an individual’s casualty or theft of personal-use property that is attributable to a major disaster that was declared by Presidential Declaration that is dated between January 1, 2020, and February 25, 2021 (inclusive). However, in order to qualify, the major disaster must have an incident period beginning between December 28, 2019, and December 27, 2020 (inclusive). Further, the major disaster must have an incident period ending no later than January 26, 2021. However, this change does not include those losses attributable to a major disaster that has been declared only by reason of COVID-19."

What Is Form 4684: Casualties and Thefts? Form 4684 is an Internal Revenue Service (IRS) form for reporting gains or losses from casualties and thefts which may be deductible for taxpayers who itemize deductions. Casualty losses can be the result of fires, floods, and other disasters. In most cases, taxpayers can deduct losses in the tax year in which they happened. In the case of theft, the tax year is the year of loss discovery. Key Takeaways Form 4684 is a U.S. Internal Revenue Service (IRS) form for reporting gains or losses from casualties and thefts that occurred because of a federally declared disaster and which may be deductible for taxpayers who itemize deductions.Taxpayers who live in federally declared disaster areas do not need to itemize deductions in order to file Form 4684.A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. Who Can File Form 4684: Casualties and Thefts? Taxpayers reporting gains or losses from a casualty or theft should file Form 4684. Homeowners who received notification of the need to tear down or move a structure after a federally declared disaster may use Form 4684 to claim a loss. These individuals may claim the difference in the home's value, pre- and post-event. However, the owner must receive notification from the building authority within 120 days of the declaration of the disaster area.  Casualties and thefts of personal property are only deductible if they can be attributed to a federally declared disaster. The IRS allows an exception to this rule for individuals who have personal casualty gains. In that case, the taxpayer can use casualty and theft losses not attributable to a federally-declared disaster to offset the gains. Taxpayers who live in federally declared disaster areas do not need to itemize deductions to file Form 4684. Taxpayers cannot use Form 4684 to deduct expenses related to personal injuries. Form 4684 is available on the IRS website. In most cases, this form only applies to personal losses, not for casualties and thefts related to the business property. Once you have determined that your casualties or thefts qualify for a deduction, complete Form 4684 and either attach it to your return or to an amended return for a past claim. To deduct federally declared disaster losses for the preceding tax year, complete Section D of Form 4684. Special Considerations When Filing Form 4684 Form 4684 allows the deduction of non-reimbursed losses from specific events. Deductible casualty losses generally must result from an incident that is sudden, unexpected, or unusual and took place during a federally declared disaster. Casualties include natural disasters such as earthquakes, fires, floods, or storms. Other types of catastrophes include vandalism, car accidents, and shipwrecks. Provisions are also in place to assist those suffering loss from corrosive drywall and specific caustic pyrrhotite concrete. Even the loss of deposits in some financial institutions which become bankrupt or insolvent can sometimes qualify as a casualty. There are specific circumstances for the deduction of loss from events such as Ponzi schemes. Section C of Form 4684 contains information to complete deductions for such financial losses. However, damage alone may not qualify as a deductible casualty loss. For example, damage to a home from termite infestation or invasion of molds and fungi is not considered a casualty loss because such destruction is the result of an ongoing process, not a sudden event. Also, a car accident may result in damages, but those losses are not deductible if the taxpayer was willfully negligent in causing it. Theft losses may include incidents of embezzlement and larceny. These losses qualify if the theft is a crime in the state the event occurred and if someone acted with criminal intent. Fraud may be considered theft in certain circumstances. However, if losses are the result of a decline in the price of a company’s stock because of illegal misconduct on the part of company executives, damages may not be deductible. However, these losses can result in a capital loss, which can offset a taxpayer’s capital gains or reduce taxable income. Form 4684 and Federal Disaster Areas Section D of IRS Form 4684 applies to federally declared disaster losses. Although casualty losses are usually deductible only in the tax year in which those losses happen, special provisions exist for qualified disaster losses. Losses from federally declared disaster areas have allowances to be deductible in the previous tax year and provide additional tax advantages. For an event to qualify, the loss must fall into specific geographically-declared disaster areas. According to the IRS, for the tax year 2021, "a qualified disaster loss also includes an individual’s casualty or theft of personal-use property that is attributable to a major disaster that was declared by Presidential Declaration that is dated between January 1, 2020, and February 25, 2021 (inclusive). However, in order to qualify, the major disaster must have an incident period beginning between December 28, 2019, and December 27, 2020 (inclusive). Further, the major disaster must have an incident period ending no later than January 26, 2021. However, this change does not include those losses attributable to a major disaster that has been declared only by reason of COVID-19."

https://www.investopedia.com/best-savings-bonds-5196440

Best Savings Bonds

<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content list-sc" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <svg class="mntl-svg-resource is-hidden"> <defs> <symbol id="featured-partners__info-svg"><svg fill="none" height="13" width="12" xmlns="http://www.w3.org/2000/svg"><path d="M5.5 9h1V6h-1v3zM6 1.5c-2.76 0-5 2.24-5 5s2.24 5 5 5 5-2.24 5-5-2.24-5-5-5zm0 9c-2.205 0-4-1.795-4-4s1.795-4 4-4 4 1.795 4 4-1.795 4-4 4zM5.5 5h1V4h-1v1z" fill="#000" fill-opacity=".95" fill-rule="evenodd"></path></svg></symbol> <symbol id="light-box-arrow"><svg viewbox="2575 18840 48 48" xmlns="http://www.w3.org/2000/svg"><g transform="translate(1355 18464)"><circle cx="24" cy="24" fill="#fff" r="24" transform="translate(1220 376)"></circle><path d="M1248.675 390l9.38 9.38M1258.055 399.38l-9.38 9.553M1232 399.38h25.186" fill="none" stroke="#000" stroke-linecap="round" stroke-miterlimit="10" stroke-width="3"></path></g></svg></symbol> </defs> </svg> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="u-font-carbon--dd112"> <div class="comp product-roundup-content--finance product-roundup--base product-roundup--base" data-tracking-container="true" data-tracking-id="PRM Roundup | PRM Template" id="product-roundup-content--finance_1-0"> <div class="article-content"> <div class="article-intro article-content__description article-container expert-content structured-content text-passage"> <div class="comp mntl-sc-page--commerce intro-content prm-sc-page mntl-sc-page mntl-block" id="intro-content_1-0"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> With U.S. Savings Bonds, consumers and businesses can receive a guaranteed interest rate on their savings. These bonds help fund federal spending with terms of up to 30 years. The U.S. government currently issues two types of savings bonds–Series EE and Series I–that can be bought online through its Treasury Direct 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_1-0-1"> Although there are only two types of U.S. Savings Bonds, their uses can be quite flexible and each one can be an ideal investment in certain situations. To determine the best U.S. Savings Bonds for a variety of situations, we analyzed the benefits of each type of savings bond, their interest rates, maturities, and other relevant factors. The best savings bonds are easy to purchase, offer attractive interest rates, and include tax benefits on the interest they earn. </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 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-body__inner article-body__inner head-to-head"> <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--education-planning-series-i-savings-bonds"></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 &amp; Education Planning</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Series I Savings Bonds</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-2x1 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0" style="--imgWidth: 515px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Treasury Direct" 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/MdpUOX10aWqGV55txGsQKxM5oBY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/treasurydirect-c61f772c69dc4d6c9772280ebb9ef113.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Treasury Direct" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/MdpUOX10aWqGV55txGsQKxM5oBY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/treasurydirect-c61f772c69dc4d6c9772280ebb9ef113.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>Treasury Direct</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-1"> <li><strong>Series I Savings Bond</strong></li><li><strong>Interest rate:</strong> Currently 9.62%, compounds and updates every six months<span class="ql-inline-citation" data-cite="1"></span></li><li><strong>No. of Years:</strong> Up to 30 years</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-2"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-click-action="OffPageClick - External" data-retailer-caption="at TreasuryDirect" data-retailer-type="other" data-tracking-container="true" href="https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Learn More</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-4"> Series I Savings Bonds are the best overall because their earnings adjust with inflation, come in both paper and electronic forms, and may avoid Federal taxation when used to pay for education. </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>Interest rate adjusts every six months based on inflation</p></li> <li><p>Can purchase electronic or paper bonds</p></li> <li><p>Earnings exempt from state income tax</p></li> <li><p>May avoid Federal taxes when used for education</p></li> <li><p>Can purchase for as low as $25</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 own for one year before selling</p></li> <li><p>Lose three months' of interest if sold before five years</p></li> <li><p>Interest rates are not guaranteed</p></li> <li><p>Maximum purchase of $10,000 per year of electronic bonds and $5,000 of paper bonds</p></li> <li><p>May only buy paper bonds with a Federal tax refund</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"> Series I Savings Bonds are our choice for the best U.S. savings bonds because they offer a higher return that adjusts with inflation, can be delivered electronically or in paper form, and may avoid Federal taxation when used to pay for higher education. Series I Savings Bonds are also the best choice for education savings because of the tax break when paying for college and inflation adjustment. </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"> Bondholders will continue to earn interest for up to 30 years or until the bond is cashed in, whichever comes first. The current rate is 6.89% for bonds issued between November 2022 and April 2023.<span class="ql-inline-citation" data-cite="2"></span> Interest rates are a combination of a fixed rate plus a semi-annual inflation rate that adjusts every six months. </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"> These bonds can be purchased for as little as $25, with a maximum of up to $10,000 per calendar year per Social Security Number. Electronic bonds have a minimum purchase of $25 and a maximum of $10,000 with denominations of any amount in between in penny increments. Paper bonds start at $50 each, come in denominations of $50, $100, $200, $500, and $1,000, and have a maximum purchase amount of $5,000 per year. Electronic savings bonds can be purchased at any time through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.treasurydirect.gov/" rel="sponsored nofollow">Treasury Direct</a>, while paper bonds are only available with your IRS tax refund. </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"> Series I Savings Bonds must be held for at least one year before they can be redeemed. These bonds are known as zero-coupon bonds, which means that they do not receive regular interest payments. The interest accrues and is paid out when the bond is cashed. If you redeem them during the first five years, you'll forfeit the interest earned from the previous three months. After five years, there is no 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_3-0-12"> Interest earned is taxable at the Federal level, however, it may be excluded when used to pay for education. Savings bonds are exempt from state and local income taxes but you may owe estate or inheritance taxes, depending on your personal circumstances. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-1"> <span class="heading-toc" id="toc-best-gift--retirement-planning-series-ee-savings-bonds"></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 Gift &amp; Retirement Planning</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Series EE Savings Bonds</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 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_3-0-13" style="--imgWidth: 515px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Treasury Direct" 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/MdpUOX10aWqGV55txGsQKxM5oBY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/treasurydirect-c61f772c69dc4d6c9772280ebb9ef113.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-1" width="1500"/> <noscript> <img alt="Treasury Direct" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/MdpUOX10aWqGV55txGsQKxM5oBY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/treasurydirect-c61f772c69dc4d6c9772280ebb9ef113.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>Treasury Direct</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-14"> <li><strong>Series EE Savings Bond</strong></li><li><strong>Interest rate:</strong> Currently 0.10%, fixed for the term of the bond<span class="ql-inline-citation" data-cite="3"></span></li><li><strong>No. of Years:</strong> Up to 30 years</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-15"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-1"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-click-action="OffPageClick - External" data-retailer-caption="at TreasuryDirect" data-retailer-type="other" data-tracking-container="true" href="https://www.treasurydirect.gov/indiv/products/prod_eebonds_glance.htm" id="button_1-0-1" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Learn More</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-17"> Series EE Savings Bonds are the best gift, retirement planning, and for diversifying a portfolio because they provide a guaranteed rate of return and, even if interest rates are lower, the savings bond will be worth double its face value after 20 years. </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>Fixed-rate of interest</p></li> <li><p>Worth double face value after 20 years</p></li> <li><p>Earnings exempt from state income tax</p></li> <li><p>May avoid Federal taxes when used for education</p></li> <li><p>Can purchase for as low as $25</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 own for one year before cashing in</p></li> <li><p>Lose three months of interest if cashed in before five years</p></li> <li><p>Interest rates are lower than alternatives</p></li> <li><p>Maximum purchase of $10,000 per year</p></li> <li><p>Cannot buy paper savings bonds</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_3-0-21"> Series EE Savings Bonds are the best savings bonds for gifts, retirement planning, and diversifying a portfolio. These bonds are available in any amount to the penny ranging from $25 to $10,000 with a maximum purchase of $10,000 per year for each Social Security Number. Investors can purchase them directly through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.treasurydirect.gov/" rel="sponsored nofollow">Treasury Direct</a> on a one-off purchase or through regular recurring payroll deductions. Series EE Bonds are only available in electronic form. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-22"> The interest rate on Series EE Savings Bonds varies depending on when they are purchased. The current interest rate is 2.10% (as of January 2023). The U.S.<span class="ql-inline-citation" data-cite="3"></span> Treasury Department updates the rates on new bonds each May 1 and November 1. When you buy a saving bond, the rate is fixed until it reaches maturity 30 years later. </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"> Series EE Savings Bonds are a good choice for gifts, retirement planning, and diversification because they are guaranteed to double in value if held for at least 20 years. Even if the interest rate is low, the U.S. government will make a one-time adjustment to fulfill this guarantee. This guarantee provides assurances for investors who are planning for retirement or diversifying their portfolios with less risky assets. </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"> You cannot sell a Series EE Savings Bond until you have held it for at least one year. After that, it is completely liquid and can be cashed at any time. If you redeem the savings bond during the first five years, there is a penalty of three months' interest. After five years, there are no more penalties. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-25"> Interest earned on these savings bonds can be reported yearly or all at once when the bonded is cashed in and the money is received. Investors pay federal income taxes on the earnings, but they are exempt from state and local taxes. The earnings may avoid federal taxes when used to pay for higher education expenses. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> </div> <div class="article-outro article-container"> <div class="loc article-left-nav--in-outro 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_2-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_2-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_2-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_2-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_3-0"> Best Savings Bonds</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_2-0"> <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_2-0"> 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 Savings Bonds" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_2-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_4-0"> Best Savings Bonds</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_2-0"> <li class="comp nested-toc-item mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Series I Savings Bonds" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_4-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Series I Savings Bonds" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-overall--education-planning-series-i-savings-bonds" rel="nocaes"> <span class="link__wrapper">Series I Savings Bonds</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-Series EE Savings Bonds" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_4-0-1"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Series EE Savings Bonds" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-gift--retirement-planning-series-ee-savings-bonds" rel="nocaes"> <span class="link__wrapper">Series EE Savings Bonds</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_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_2-0"> <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_2-0" 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_3-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_2-0-1"> <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-savings-bonds" id="mntl-toc__list-item-link_2-0-1" 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_3-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_2-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Choose" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-choose-the-best-savings-bonds" id="mntl-toc__list-item-link_2-0-2" rel="nocaes"><span class="link__wrapper">How to Choose</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_2-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Savings Bonds vs. CD" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-savings-bonds-vs-certificates-of-deposits-cds" id="mntl-toc__list-item-link_2-0-3" rel="nocaes"><span class="link__wrapper">Savings Bonds vs. CD</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_2-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-The Best Time to Cash Savings Bonds" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-when-is-the-best-time-to-cash-savings-bonds" id="mntl-toc__list-item-link_2-0-4" rel="nocaes"><span class="link__wrapper">The Best Time to Cash Savings Bonds</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_2-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Are Savings Bonds a Good Investment?" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-are-savings-bonds-a-good-investment-for-retirement" id="mntl-toc__list-item-link_2-0-5" rel="nocaes"><span class="link__wrapper">Are Savings Bonds a Good Investment?</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_2-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How Much Do Savings Bonds Cost?" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-much-do-savings-bonds-cost" id="mntl-toc__list-item-link_2-0-6" rel="nocaes"><span class="link__wrapper">How Much Do Savings Bonds Cost?</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-7"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_2-0-7"> <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-how-we-chose-the-best-savings-bonds" id="mntl-toc__list-item-link_2-0-7" 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--finance product-roundup__toc sticky-toc--finance-roundup sticky-toc--roundup sticky-toc--base mntl-sticky-toc mntl-block --> </div> <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"> Our choice for the best savings bond is the Series I Savings Bond. It offers a more competitive rate of interest that adjusts with inflation and you can purchase both digital or paper versions of the bond. The interest rate adjusts every six months, which allows investors to benefit from rising inflation rates and avoid locking in a low, fixed rate when interest rates are below historical averages. You can buy digital Series I Savings Bonds in any denomination above $25 with a maximum of $10,000 per year for electronic bonds, so they are a good fit for anyone's budget. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-compare-the-best-savings-bonds"></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 Savings Bonds </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> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th>Company</th> <th>Type of Savings Bond </th> <th>Interest Rate </th> <th>No. of Years </th> <th>Minimum Purchase </th> <th>Maximum Purchase per year </th> </tr> </thead> <tbody data-check="0"> <tr> <td>U.S. Treasury</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.treasurydirect.gov/savings-bonds/ee-bonds/" rel="sponsored nofollow">Series EE</a></td> <td>2.10% (January 2023) fixed Updated every 6 months Guaranteed to double in value after 20 years</td> <td>Up to 30 years</td> <td>$25</td> <td>$10,000</td> </tr> <tr> <td>U.S. Treasury </td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.treasurydirect.gov/savings-bonds/i-bonds/" rel="sponsored nofollow">Series I</a> </td> <td>6.89% (January 2023) variable Updated every 6 months</td> <td>Up to 30 years </td> <td>$25 electronic; $50 paper </td> <td>$10,000 electronic; $5,000 paper </td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <span class="heading-toc" id="toc-how-to-choose-the-best-savings-bonds"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-4"> <span class="mntl-sc-block-heading__text"> How to Choose the Best Savings Bonds </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_4-0-5"> When choosing the best savings bonds for your situation, it helps to know what features are most important to you. Series I and Series EE Savings Bonds have many similarities, but there are a few key differences that can impact your decision. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-6"> <li><strong>Minimum Investment Amount:</strong> You can buy either savings bond with as little as $25. The bonds are sold at face value and accrue interest each year until they are cashed out.</li><li><strong>Time horizon: </strong>You cannot sell either bond until after one year has passed. There is a penalty of three months' interest if you sell during the first five years. Both bonds will earn interest for up to 30 years which makes them ideal investments as long-term savings bonds.</li><li><strong>Fixed vs. Variable Rate of Interest:</strong> Series EE Savings Bonds earned a fixed rate of interest until maturity. The interest rate of Series I Savings Bonds adjusts every six months depending on the inflation rate.</li><li><strong>Guaranteed rate of return: </strong>Only Series EE Savings Bonds offer a guaranteed rate of return until it matures. Additionally, if interest rates are low, these bonds are guaranteed to be worth twice what you pay for it after 20 years.</li><li><strong>Electronic or Paper Savings Bonds:</strong> Both savings bonds can be purchased electronically, but if you want a paper savings bond, then your only choice is a Series I Savings Bond.</li><li><strong>Tax Benefits:</strong> People who own either type of bond are exempt from state and local taxes. Interest earned is subject to Federal income taxes. However, if you redeem the bonds to pay for higher education expenses, you may be able to avoid paying federal income taxes on the interest.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-savings-bonds-vs-certificates-of-deposits-cds"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-7"> <span class="mntl-sc-block-heading__text"> Savings Bonds vs. Certificates of Deposits (CDs) </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_4-0-8"> Savings Bonds and CDs are both popular choices for risk-averse investors. They have a lot of similarities in that they are easy to purchase and offer interest rates that are fixed for periods of time. For short-term investors of less than one year, CDs are the better choice. You cannot cash out a savings bond until you've owned it for one year. Most banks offer CDs with a variety of terms that typically range from one month to five years. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-9"> There are many advantages to savings bonds though. You can purchase a savings bond today and allow it to grow for the next 30 years without worrying about what the interest rates are when your CD matures. Additionally, savings bonds offer tax advantages that CDs do not. Your interest earnings are not subject to state or local income taxes and may be exempt from Federal income taxes when used to pay for education expenses. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-10"> Currently, Series I Savings Bonds also offer rates that are substantially higher than most short-term CDs. Investors can take advantage of these higher rates and have full liquidity after just one year. While there is a three-month interest penalty if you redeem a savings bond in the first five years, many longer-term CDs have interest penalties that have higher penalties. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_4-0-11"> <span class="heading-toc" id="toc-when-is-the-best-time-to-cash-savings-bonds"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Is the Best Time to Cash Savings Bonds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The best time to cash savings bonds is after holding them for at least five years. You cannot sell them until after you've held them for one year, and if you sell before five years, you'll owe three month's interest as a penalty. Ideally, Series EE Savings Bonds should be held for at least 20 years in order to benefit from the guarantee that they'll be worth double their face value.</p></div> </div><!-- end: comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer --> <div class="comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_4-0-12"> <span class="heading-toc" id="toc-are-savings-bonds-a-good-investment-for-retirement"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Savings Bonds a Good Investment for Retirement?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It depends, savings bonds can be a good addition to your portfolio for retirement. However, the interest rates tend to be low because of their government guarantees. Other investments, such as stocks, tend to outperform savings bonds over time. Investors who are looking to balance out their portfolio, reduce risk, and add guaranteed rates of return can consider adding savings bonds to their portfolios.</p></div> </div><!-- end: comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer --> <div class="comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_4-0-13"> <span class="heading-toc" id="toc-how-much-do-savings-bonds-cost"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Do Savings Bonds Cost?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Savings bonds are sold at face value with minimum values starting at just $25. They can be purchased in any amount to the penny above $25, including specific dollar and cents amounts, such as $25.63. The maximum savings bond face value is $10,000.</p></div> </div><!-- end: comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer --> <span class="heading-toc" id="toc-how-we-chose-the-best-savings-bonds"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-14"> <span class="mntl-sc-block-heading__text"> How We Chose the Best Savings Bonds </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-15"> To pick the best savings bonds, we analyzed the savings bonds currently offered by the U.S. Treasury Department. At this time, only two savings bonds are available for purchase, so we compared the bonds against each other. We gathered data about purchase methods, minimum purchase amounts, interest rates, penalties, maturities, taxation, and other features to determine which savings bond is best for a variety of uses. </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:66.5%;"> <img alt="Best Savings Bonds" class="primary-image__image mntl-primary-image--blurry" height="998" onload="(function(e){e.classList.add('loaded')})(this)" sizes="750px" src="https://www.investopedia.com/thmb/JhsLEcY0-PSy_hzW5OdMVRFvQmc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-172239565-21b0d4c3443245dbad6c42c38159c6ac.jpg" srcset="https://www.investopedia.com/thmb/ca8lWLZSyvdKW5Rbgx8XfqfVtQg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-172239565-21b0d4c3443245dbad6c42c38159c6ac.jpg 750w" style="--blurry: url('data:image/gif;charset=utf-8;base64,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')" width="1500"/> <noscript> <img alt="Best Savings Bonds" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="998" sizes="750px" src="https://www.investopedia.com/thmb/JhsLEcY0-PSy_hzW5OdMVRFvQmc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-172239565-21b0d4c3443245dbad6c42c38159c6ac.jpg" srcset="https://www.investopedia.com/thmb/ca8lWLZSyvdKW5Rbgx8XfqfVtQg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-172239565-21b0d4c3443245dbad6c42c38159c6ac.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>DNY59 / Getty Images</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image --> </div> </div> </div><!-- end: comp product-roundup-content--finance product-roundup--base product-roundup--base --> </div> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-1"><p>Treasury Direct. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.treasurydirect.gov/savings-bonds/i-bonds/" rel="nofollow sponsored">I Bonds</a>."</p></li> <li class="mntl-sources__source" id="citation-2"><p>Treasury Direct. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.treasurydirect.gov/savings-bonds/i-bonds/" rel="nofollow sponsored">I Bonds</a>."</p></li> <li class="mntl-sources__source" id="citation-3"><p>Treasury Direct. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.treasurydirect.gov/savings-bonds/ee-bonds/" rel="nofollow sponsored">EE Bonds</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="4232092" data-ordinal="1" data-tax-levels="" href="https://www.investopedia.com/articles/personal-finance/060614/time-cash-your-us-savings-bonds.asp" id="mntl-card-list-items_1-0"> <div class="card__media" data-tag="Fixed Income"> <img alt="close up of various U.S. bills" class="lazyload card__img" data-dim-ratio="1.5" data-src="https://www.investopedia.com/thmb/YTLvOeZvEZ2D-AF_J6W2DfT6FHo=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-637141824-8aa32cebbf5847c1948f9fcda236ad9d.jpg" height="300" width="400"/> <noscript> <img alt="close up of various U.S. bills" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/YTLvOeZvEZ2D-AF_J6W2DfT6FHo=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-637141824-8aa32cebbf5847c1948f9fcda236ad9d.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Fixed Income"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">Time to Cash in Your U.S. Savings Bonds?</span></span> <div class="card__byline mntl-card__byline" data-byline="By Greg Daugherty"></div> </div> </a> <a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" data-doc-id="4189218" data-ordinal="2" data-tax-levels="" href="https://www.investopedia.com/terms/s/seriesibond.asp" id="mntl-card-list-items_2-0"> <div class="card__media" data-tag="Bonds"> <img alt="Series I Bond" class="lazyload card__img" data-dim-ratio="1.5" data-src="https://www.investopedia.com/thmb/gL8f990ky02VjD4zJ9LiFsXI9Co=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Terms-series-I-bond-4189218-83494f27ee7b4078b73dd958b616ff1e.jpg" height="300" width="400"/> <noscript> <img alt="Series I Bond" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/gL8f990ky02VjD4zJ9LiFsXI9Co=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Terms-series-I-bond-4189218-83494f27ee7b4078b73dd958b616ff1e.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Bonds"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">What Are Series I Bonds? 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With U.S. Savings Bonds, consumers and businesses can receive a guaranteed interest rate on their savings. These bonds help fund federal spending with terms of up to 30 years. The U.S. government currently issues two types of savings bonds–Series EE and Series I–that can be bought online through its Treasury Direct website. Although there are only two types of U.S. Savings Bonds, their uses can be quite flexible and each one can be an ideal investment in certain situations. To determine the best U.S. Savings Bonds for a variety of situations, we analyzed the benefits of each type of savings bond, their interest rates, maturities, and other relevant factors. The best savings bonds are easy to purchase, offer attractive interest rates, and include tax benefits on the interest they earn. ### Best Overall & Education Planning : Series I Savings Bonds --- ![Treasury Direct]() :fill(white):max_bytes(150000):strip_icc()/treasurydirect-c61f772c69dc4d6c9772280ebb9ef113.jpg) Treasury Direct * **Series I Savings Bond** * **Interest rate:** Currently 9.62%, compounds and updates every six months * **No. of Years:** Up to 30 years [Learn More](https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm) Why We Chose It Series I Savings Bonds are the best overall because their earnings adjust with inflation, come in both paper and electronic forms, and may avoid Federal taxation when used to pay for education. Pros & Cons Pros * Interest rate adjusts every six months based on inflation * Can purchase electronic or paper bonds * Earnings exempt from state income tax * May avoid Federal taxes when used for education * Can purchase for as low as $25 Cons * Must own for one year before selling * Lose three months' of interest if sold before five years * Interest rates are not guaranteed * Maximum purchase of $10,000 per year of electronic bonds and $5,000 of paper bonds * May only buy paper bonds with a Federal tax refund Overview Series I Savings Bonds are our choice for the best U.S. savings bonds because they offer a higher return that adjusts with inflation, can be delivered electronically or in paper form, and may avoid Federal taxation when used to pay for higher education. Series I Savings Bonds are also the best choice for education savings because of the tax break when paying for college and inflation adjustment. Bondholders will continue to earn interest for up to 30 years or until the bond is cashed in, whichever comes first. The current rate is 6.89% for bonds issued between November 2022 and April 2023. Interest rates are a combination of a fixed rate plus a semi-annual inflation rate that adjusts every six months. These bonds can be purchased for as little as $25, with a maximum of up to $10,000 per calendar year per Social Security Number. Electronic bonds have a minimum purchase of $25 and a maximum of $10,000 with denominations of any amount in between in penny increments. Paper bonds start at $50 each, come in denominations of $50, $100, $200, $500, and $1,000, and have a maximum purchase amount of $5,000 per year. Electronic savings bonds can be purchased at any time through [Treasury Direct](https://www.treasurydirect.gov/), while paper bonds are only available with your IRS tax refund. Series I Savings Bonds must be held for at least one year before they can be redeemed. These bonds are known as zero-coupon bonds, which means that they do not receive regular interest payments. The interest accrues and is paid out when the bond is cashed. If you redeem them during the first five years, you'll forfeit the interest earned from the previous three months. After five years, there is no penalty. Interest earned is taxable at the Federal level, however, it may be excluded when used to pay for education. Savings bonds are exempt from state and local income taxes but you may owe estate or inheritance taxes, depending on your personal circumstances. ### Best Gift & Retirement Planning : Series EE Savings Bonds --- ![Treasury Direct]() :fill(white):max_bytes(150000):strip_icc()/treasurydirect-c61f772c69dc4d6c9772280ebb9ef113.jpg) Treasury Direct * **Series EE Savings Bond** * **Interest rate:** Currently 0.10%, fixed for the term of the bond * **No. of Years:** Up to 30 years [Learn More](https://www.treasurydirect.gov/indiv/products/prod_eebonds_glance.htm) Why We Chose It Series EE Savings Bonds are the best gift, retirement planning, and for diversifying a portfolio because they provide a guaranteed rate of return and, even if interest rates are lower, the savings bond will be worth double its face value after 20 years. Pros & Cons Pros * Fixed-rate of interest * Worth double face value after 20 years * Earnings exempt from state income tax * May avoid Federal taxes when used for education * Can purchase for as low as $25 Cons * Must own for one year before cashing in * Lose three months of interest if cashed in before five years * Interest rates are lower than alternatives * Maximum purchase of $10,000 per year * Cannot buy paper savings bonds Overview Series EE Savings Bonds are the best savings bonds for gifts, retirement planning, and diversifying a portfolio. These bonds are available in any amount to the penny ranging from $25 to $10,000 with a maximum purchase of $10,000 per year for each Social Security Number. Investors can purchase them directly through [Treasury Direct](https://www.treasurydirect.gov/) on a one-off purchase or through regular recurring payroll deductions. Series EE Bonds are only available in electronic form. The interest rate on Series EE Savings Bonds varies depending on when they are purchased. The current interest rate is 2.10% (as of January 2023). The U.S. Treasury Department updates the rates on new bonds each May 1 and November 1. When you buy a saving bond, the rate is fixed until it reaches maturity 30 years later. Series EE Savings Bonds are a good choice for gifts, retirement planning, and diversification because they are guaranteed to double in value if held for at least 20 years. Even if the interest rate is low, the U.S. government will make a one-time adjustment to fulfill this guarantee. This guarantee provides assurances for investors who are planning for retirement or diversifying their portfolios with less risky assets. You cannot sell a Series EE Savings Bond until you have held it for at least one year. After that, it is completely liquid and can be cashed at any time. If you redeem the savings bond during the first five years, there is a penalty of three months' interest. After five years, there are no more penalties. Interest earned on these savings bonds can be reported yearly or all at once when the bonded is cashed in and the money is received. Investors pay federal income taxes on the earnings, but they are exempt from state and local taxes. The earnings may avoid federal taxes when used to pay for higher education expenses. Best Savings Bonds Expand Best Savings Bonds * [Series I Savings Bonds](#toc-best-overall--education-planning-series-i-savings-bonds) * [Series EE Savings Bonds](#toc-best-gift--retirement-planning-series-ee-savings-bonds) * [Final Verdict](#toc-final-verdict) * [Compare Providers](#toc-compare-the-best-savings-bonds) * [How to Choose](#toc-how-to-choose-the-best-savings-bonds) * [Savings Bonds vs. CD](#toc-savings-bonds-vs-certificates-of-deposits-cds) * [The Best Time to Cash Savings Bonds](#toc-when-is-the-best-time-to-cash-savings-bonds) * [Are Savings Bonds a Good Investment?](#toc-are-savings-bonds-a-good-investment-for-retirement) * [How Much Do Savings Bonds Cost?](#toc-how-much-do-savings-bonds-cost) * [Methodology](#toc-how-we-chose-the-best-savings-bonds) ## Final Verdict Our choice for the best savings bond is the Series I Savings Bond. It offers a more competitive rate of interest that adjusts with inflation and you can purchase both digital or paper versions of the bond. The interest rate adjusts every six months, which allows investors to benefit from rising inflation rates and avoid locking in a low, fixed rate when interest rates are below historical averages. You can buy digital Series I Savings Bonds in any denomination above $25 with a maximum of $10,000 per year for electronic bonds, so they are a good fit for anyone's budget. ## Compare the Best Savings Bonds | Company | Type of Savings Bond | Interest Rate | No. of Years | Minimum Purchase | Maximum Purchase per year | | --- | --- | --- | --- | --- | --- | | U.S. Treasury | [Series EE](https://www.treasurydirect.gov/savings-bonds/ee-bonds/) | 2.10% (January 2023) fixed Updated every 6 months Guaranteed to double in value after 20 years | Up to 30 years | $25 | $10,000 | | U.S. Treasury | [Series I](https://www.treasurydirect.gov/savings-bonds/i-bonds/) | 6.89% (January 2023) variable Updated every 6 months | Up to 30 years | $25 electronic; $50 paper | $10,000 electronic; $5,000 paper | ## How to Choose the Best Savings Bonds When choosing the best savings bonds for your situation, it helps to know what features are most important to you. Series I and Series EE Savings Bonds have many similarities, but there are a few key differences that can impact your decision. * **Minimum Investment Amount:** You can buy either savings bond with as little as $25. The bonds are sold at face value and accrue interest each year until they are cashed out. * **Time horizon:** You cannot sell either bond until after one year has passed. There is a penalty of three months' interest if you sell during the first five years. Both bonds will earn interest for up to 30 years which makes them ideal investments as long-term savings bonds. * **Fixed vs. Variable Rate of Interest:** Series EE Savings Bonds earned a fixed rate of interest until maturity. The interest rate of Series I Savings Bonds adjusts every six months depending on the inflation rate. * **Guaranteed rate of return:** Only Series EE Savings Bonds offer a guaranteed rate of return until it matures. Additionally, if interest rates are low, these bonds are guaranteed to be worth twice what you pay for it after 20 years. * **Electronic or Paper Savings Bonds:** Both savings bonds can be purchased electronically, but if you want a paper savings bond, then your only choice is a Series I Savings Bond. * **Tax Benefits:** People who own either type of bond are exempt from state and local taxes. Interest earned is subject to Federal income taxes. However, if you redeem the bonds to pay for higher education expenses, you may be able to avoid paying federal income taxes on the interest. ## Savings Bonds vs. Certificates of Deposits (CDs) Savings Bonds and CDs are both popular choices for risk-averse investors. They have a lot of similarities in that they are easy to purchase and offer interest rates that are fixed for periods of time. For short-term investors of less than one year, CDs are the better choice. You cannot cash out a savings bond until you've owned it for one year. Most banks offer CDs with a variety of terms that typically range from one month to five years. There are many advantages to savings bonds though. You can purchase a savings bond today and allow it to grow for the next 30 years without worrying about what the interest rates are when your CD matures. Additionally, savings bonds offer tax advantages that CDs do not. Your interest earnings are not subject to state or local income taxes and may be exempt from Federal income taxes when used to pay for education expenses. Currently, Series I Savings Bonds also offer rates that are substantially higher than most short-term CDs. Investors can take advantage of these higher rates and have full liquidity after just one year. While there is a three-month interest penalty if you redeem a savings bond in the first five years, many longer-term CDs have interest penalties that have higher penalties. ## When Is the Best Time to Cash Savings Bonds? The best time to cash savings bonds is after holding them for at least five years. You cannot sell them until after you've held them for one year, and if you sell before five years, you'll owe three month's interest as a penalty. Ideally, Series EE Savings Bonds should be held for at least 20 years in order to benefit from the guarantee that they'll be worth double their face value. ## Are Savings Bonds a Good Investment for Retirement? It depends, savings bonds can be a good addition to your portfolio for retirement. However, the interest rates tend to be low because of their government guarantees. Other investments, such as stocks, tend to outperform savings bonds over time. Investors who are looking to balance out their portfolio, reduce risk, and add guaranteed rates of return can consider adding savings bonds to their portfolios. ## How Much Do Savings Bonds Cost? Savings bonds are sold at face value with minimum values starting at just $25. They can be purchased in any amount to the penny above $25, including specific dollar and cents amounts, such as $25.63. The maximum savings bond face value is $10,000. ## How We Chose the Best Savings Bonds To pick the best savings bonds, we analyzed the savings bonds currently offered by the U.S. Treasury Department. At this time, only two savings bonds are available for purchase, so we compared the bonds against each other. We gathered data about purchase methods, minimum purchase amounts, interest rates, penalties, maturities, taxation, and other features to determine which savings bond is best for a variety of uses. :max_bytes(150000):strip_icc()/GettyImages-172239565-21b0d4c3443245dbad6c42c38159c6ac.jpg) :max_bytes(150000):strip_icc()/GettyImages-172239565-21b0d4c3443245dbad6c42c38159c6ac.jpg) DNY59 / 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. Treasury Direct. "[I Bonds](https://www.treasurydirect.gov/savings-bonds/i-bonds/)." 2. Treasury Direct. "[I Bonds](https://www.treasurydirect.gov/savings-bonds/i-bonds/)." 3. Treasury Direct. "[EE Bonds](https://www.treasurydirect.gov/savings-bonds/ee-bonds/)." 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[more](https://www.investopedia.com/terms/1/10-yeartreasury.asp)

With U.S. Savings Bonds, consumers and businesses can receive a guaranteed interest rate on their savings. These bonds help fund federal spending with terms of up to 30 years. The U.S. government currently issues two types of savings bonds–Series EE and Series I–that can be bought online through its Treasury Direct website. Although there are only two types of U.S. Savings Bonds, their uses can be quite flexible and each one can be an ideal investment in certain situations. To determine the best U.S. Savings Bonds for a variety of situations, we analyzed the benefits of each type of savings bond, their interest rates, maturities, and other relevant factors. The best savings bonds are easy to purchase, offer attractive interest rates, and include tax benefits on the interest they earn. Best Overall & Education Planning : Series I Savings Bonds Treasury Direct Series I Savings BondInterest rate: Currently 9.62%, compounds and updates every six monthsNo. of Years: Up to 30 years Learn More Why We Chose It Series I Savings Bonds are the best overall because their earnings adjust with inflation, come in both paper and electronic forms, and may avoid Federal taxation when used to pay for education. Pros & Cons Pros Interest rate adjusts every six months based on inflation Can purchase electronic or paper bonds Earnings exempt from state income tax May avoid Federal taxes when used for education Can purchase for as low as $25 Cons Must own for one year before selling Lose three months' of interest if sold before five years Interest rates are not guaranteed Maximum purchase of $10,000 per year of electronic bonds and $5,000 of paper bonds May only buy paper bonds with a Federal tax refund Overview Series I Savings Bonds are our choice for the best U.S. savings bonds because they offer a higher return that adjusts with inflation, can be delivered electronically or in paper form, and may avoid Federal taxation when used to pay for higher education. Series I Savings Bonds are also the best choice for education savings because of the tax break when paying for college and inflation adjustment. Bondholders will continue to earn interest for up to 30 years or until the bond is cashed in, whichever comes first. The current rate is 6.89% for bonds issued between November 2022 and April 2023. Interest rates are a combination of a fixed rate plus a semi-annual inflation rate that adjusts every six months. These bonds can be purchased for as little as $25, with a maximum of up to $10,000 per calendar year per Social Security Number. Electronic bonds have a minimum purchase of $25 and a maximum of $10,000 with denominations of any amount in between in penny increments. Paper bonds start at $50 each, come in denominations of $50, $100, $200, $500, and $1,000, and have a maximum purchase amount of $5,000 per year. Electronic savings bonds can be purchased at any time through Treasury Direct, while paper bonds are only available with your IRS tax refund. Series I Savings Bonds must be held for at least one year before they can be redeemed. These bonds are known as zero-coupon bonds, which means that they do not receive regular interest payments. The interest accrues and is paid out when the bond is cashed. If you redeem them during the first five years, you'll forfeit the interest earned from the previous three months. After five years, there is no penalty. Interest earned is taxable at the Federal level, however, it may be excluded when used to pay for education. Savings bonds are exempt from state and local income taxes but you may owe estate or inheritance taxes, depending on your personal circumstances. Best Gift & Retirement Planning : Series EE Savings Bonds Treasury Direct Series EE Savings BondInterest rate: Currently 0.10%, fixed for the term of the bondNo. of Years: Up to 30 years Learn More Why We Chose It Series EE Savings Bonds are the best gift, retirement planning, and for diversifying a portfolio because they provide a guaranteed rate of return and, even if interest rates are lower, the savings bond will be worth double its face value after 20 years. Pros & Cons Pros Fixed-rate of interest Worth double face value after 20 years Earnings exempt from state income tax May avoid Federal taxes when used for education Can purchase for as low as $25 Cons Must own for one year before cashing in Lose three months of interest if cashed in before five years Interest rates are lower than alternatives Maximum purchase of $10,000 per year Cannot buy paper savings bonds Overview Series EE Savings Bonds are the best savings bonds for gifts, retirement planning, and diversifying a portfolio. These bonds are available in any amount to the penny ranging from $25 to $10,000 with a maximum purchase of $10,000 per year for each Social Security Number. Investors can purchase them directly through Treasury Direct on a one-off purchase or through regular recurring payroll deductions. Series EE Bonds are only available in electronic form. The interest rate on Series EE Savings Bonds varies depending on when they are purchased. The current interest rate is 2.10% (as of January 2023). The U.S. Treasury Department updates the rates on new bonds each May 1 and November 1. When you buy a saving bond, the rate is fixed until it reaches maturity 30 years later. Series EE Savings Bonds are a good choice for gifts, retirement planning, and diversification because they are guaranteed to double in value if held for at least 20 years. Even if the interest rate is low, the U.S. government will make a one-time adjustment to fulfill this guarantee. This guarantee provides assurances for investors who are planning for retirement or diversifying their portfolios with less risky assets. You cannot sell a Series EE Savings Bond until you have held it for at least one year. After that, it is completely liquid and can be cashed at any time. If you redeem the savings bond during the first five years, there is a penalty of three months' interest. After five years, there are no more penalties. Interest earned on these savings bonds can be reported yearly or all at once when the bonded is cashed in and the money is received. Investors pay federal income taxes on the earnings, but they are exempt from state and local taxes. The earnings may avoid federal taxes when used to pay for higher education expenses. Best Savings Bonds Expand Best Savings Bonds Series I Savings Bonds Series EE Savings Bonds Final Verdict Compare Providers How to Choose Savings Bonds vs. CD The Best Time to Cash Savings Bonds Are Savings Bonds a Good Investment? How Much Do Savings Bonds Cost? Methodology Final Verdict Our choice for the best savings bond is the Series I Savings Bond. It offers a more competitive rate of interest that adjusts with inflation and you can purchase both digital or paper versions of the bond. The interest rate adjusts every six months, which allows investors to benefit from rising inflation rates and avoid locking in a low, fixed rate when interest rates are below historical averages. You can buy digital Series I Savings Bonds in any denomination above $25 with a maximum of $10,000 per year for electronic bonds, so they are a good fit for anyone's budget. Compare the Best Savings Bonds Company Type of Savings Bond  Interest Rate  No. of Years  Minimum Purchase  Maximum Purchase per year  U.S. Treasury Series EE 2.10% (January 2023) fixed Updated every 6 months Guaranteed to double in value after 20 years Up to 30 years $25 $10,000 U.S. Treasury  Series I  6.89% (January 2023) variable Updated every 6 months Up to 30 years  $25 electronic; $50 paper  $10,000 electronic; $5,000 paper  How to Choose the Best Savings Bonds When choosing the best savings bonds for your situation, it helps to know what features are most important to you. Series I and Series EE Savings Bonds have many similarities, but there are a few key differences that can impact your decision. Minimum Investment Amount: You can buy either savings bond with as little as $25. The bonds are sold at face value and accrue interest each year until they are cashed out.Time horizon: You cannot sell either bond until after one year has passed. There is a penalty of three months' interest if you sell during the first five years. Both bonds will earn interest for up to 30 years which makes them ideal investments as long-term savings bonds.Fixed vs. Variable Rate of Interest: Series EE Savings Bonds earned a fixed rate of interest until maturity. The interest rate of Series I Savings Bonds adjusts every six months depending on the inflation rate.Guaranteed rate of return: Only Series EE Savings Bonds offer a guaranteed rate of return until it matures. Additionally, if interest rates are low, these bonds are guaranteed to be worth twice what you pay for it after 20 years.Electronic or Paper Savings Bonds: Both savings bonds can be purchased electronically, but if you want a paper savings bond, then your only choice is a Series I Savings Bond.Tax Benefits: People who own either type of bond are exempt from state and local taxes. Interest earned is subject to Federal income taxes. However, if you redeem the bonds to pay for higher education expenses, you may be able to avoid paying federal income taxes on the interest. Savings Bonds vs. Certificates of Deposits (CDs) Savings Bonds and CDs are both popular choices for risk-averse investors. They have a lot of similarities in that they are easy to purchase and offer interest rates that are fixed for periods of time. For short-term investors of less than one year, CDs are the better choice. You cannot cash out a savings bond until you've owned it for one year. Most banks offer CDs with a variety of terms that typically range from one month to five years. There are many advantages to savings bonds though. You can purchase a savings bond today and allow it to grow for the next 30 years without worrying about what the interest rates are when your CD matures. Additionally, savings bonds offer tax advantages that CDs do not. Your interest earnings are not subject to state or local income taxes and may be exempt from Federal income taxes when used to pay for education expenses. Currently, Series I Savings Bonds also offer rates that are substantially higher than most short-term CDs. Investors can take advantage of these higher rates and have full liquidity after just one year. While there is a three-month interest penalty if you redeem a savings bond in the first five years, many longer-term CDs have interest penalties that have higher penalties. When Is the Best Time to Cash Savings Bonds? The best time to cash savings bonds is after holding them for at least five years. You cannot sell them until after you've held them for one year, and if you sell before five years, you'll owe three month's interest as a penalty. Ideally, Series EE Savings Bonds should be held for at least 20 years in order to benefit from the guarantee that they'll be worth double their face value. Are Savings Bonds a Good Investment for Retirement? It depends, savings bonds can be a good addition to your portfolio for retirement. However, the interest rates tend to be low because of their government guarantees. Other investments, such as stocks, tend to outperform savings bonds over time. Investors who are looking to balance out their portfolio, reduce risk, and add guaranteed rates of return can consider adding savings bonds to their portfolios. How Much Do Savings Bonds Cost? Savings bonds are sold at face value with minimum values starting at just $25. They can be purchased in any amount to the penny above $25, including specific dollar and cents amounts, such as $25.63. The maximum savings bond face value is $10,000. How We Chose the Best Savings Bonds To pick the best savings bonds, we analyzed the savings bonds currently offered by the U.S. Treasury Department. At this time, only two savings bonds are available for purchase, so we compared the bonds against each other. We gathered data about purchase methods, minimum purchase amounts, interest rates, penalties, maturities, taxation, and other features to determine which savings bond is best for a variety of uses. DNY59 / 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. Treasury Direct. "I Bonds." Treasury Direct. "I Bonds." Treasury Direct. "EE Bonds." Related Articles Time to Cash in Your U.S. Savings Bonds? What Are Series I Bonds? Rates, Risks, Taxes Explained U.S. Savings Bonds vs. CDs: What’s the Difference? Treasury Unveils New I Bond Rate of 4.28%—But Your Bond May Pay Much Less How to Give Bonds as a Gift U.S. Savings Bonds Series EE vs. Series I: Knowing the Difference Related Terms What Are Series I Bonds? Rates, Risks, Taxes Explained Series I bond is an interest-bearing U.S. government savings bond that earns a combined fixed interest and variable inflation rate (adjusted semiannually). more U.S. Savings Bonds: Definition, How They Work, Types, and Taxes A U.S. savings bond is a government bond that offers a fixed rate of interest over a fixed period of time. more Savings Bond Plan: What It Is, How It Works A savings bond plan allows employees to purchase U.S. savings bonds directly through automatic payroll deductions. more Series EE Bond: Definition, How It Works, Maturity The Series EE Bond is a non-marketable, interest-bearing savings bond issued by the U.S. government and is guaranteed to at least double in value. more Fixed-Income Security Definition, Types, and Examples A fixed-income security is an investment that provides a steady interest income stream for a certain period. more 10-Year US Treasury Note: What It Is and Investment Advantages A 10-year Treasury note is a debt obligation issued by the US government that matures in 10 years. It pays interest twice a year and face value at maturity. more

https://www.investopedia.com/can-you-use-a-personal-loan-to-pay-for-a-wedding-7852845

Can You Use a Personal Loan to Pay for a Wedding?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 can use a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-5076027">personal loan</a> to pay for a wedding or any wedding-related cost, before or after your wedding. You can use a personal loan for <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/111715/when-are-personal-loans-good-idea.asp">almost any purpose</a>, including covering the cost of your wedding. </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 average cost of a wedding in the United States was $30,000 in 2022, according to a study by The Knot.<span class="ql-inline-citation" data-cite="7"></span> Some couples cover those costs by taking out a personal loan, which is a lump sum of financing that you repay over time. However, this strategy for funding a wedding has upsides and downsides. </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>You can use a personal loan for nearly any purpose, including to pay for wedding costs.</li><li>Personal loans generally have lower interest rates than credit cards. </li><li>You can typically borrow $1,000 to $50,000 for a personal loan.</li><li>The exact amount you can borrow will depend on the lender’s limits, your credit score, and your income, among other factors.</li><li>Other financing choices for a wedding may include home equity loans or credit cards.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-can-a-wedding-loan-be-used-for"></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 Can a Wedding Loan Be Used for? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A wedding loan is 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> that you use for wedding costs. You can get a personal loan from a bank, credit union, or online lender. </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"> Personal loans are flexible and can be used for almost any purpose, so they can be a good option to finance your wedding. Many couples don’t cover the entire <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wedding-average-cost-8558593">cost of their wedding</a> themselves, according to wedding website Zola. Instead, they rely on credit cards, gift registries, or personal loans in addition to their own savings.<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"> You can use a personal loan to cover <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-build-your-wedding-budget-5195776">any cost associated with a wedding</a>. These include (with average 2022 costs, according to The Knot): </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>Wedding dress ($1,900)</li> <li>Wedding reception/venue ($11,200)</li> <li>Engagement rings and wedding rings ($5,800)</li> <li>Live band ($3,900)</li> <li>Photographer ($2,600)</li> <li>Florist ($2,400)</li> <li>Catering ($75 per person)</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/do-you-need-a-wedding-planner-5196748">Wedding planner</a> ($1,900)<span class="ql-inline-citation" data-cite="1"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-how-much-can-you-borrow-with-a-wedding-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> How Much Can You Borrow with a Wedding Loan?  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The maximum amount you can borrow for a personal loan depends on a variety of factors, including the lender’s limits and what you can qualify for with 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> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a>. The smallest loans that most <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lenders</a> will consider are for around $1,000, and many won’t lend more than $50,000 in normal circumstances. A few lenders may lend up to $100,000.<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"> In general, you should get the smallest loan that meets your needs, because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/average-personal-loan-amount-7555307">personal loans in any amount</a> have interest costs and are included in your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp">debt</a>. You will pay <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> on the loan as you pay it back, so a larger loan will be more expensive in the long run.<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_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 use our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-calculator-5082130">personal loan calculator</a> to compare total costs and payment amounts using different interest rates and terms.</p></div></div></div> <span class="heading-toc" id="toc-how-to-qualify-for-a-wedding-loan"></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 Qualify for a Wedding Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> To qualify for any kind of personal loan, including one for a wedding, you’ll have to meet certain requirements: </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>Credit score</strong>: Lenders have different criteria for qualifying borrowers for a personal loan. A better credit score typically results in lower interest rates. In many cases, you can be approved for the best interest rates with a score of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-score-needed-personal-loan-7553033">640 or above</a>.</li> <li><strong>Income</strong>: Some lenders will ask you to prove you are employed and provide proof of your income to make sure you can repay the loan.<span class="ql-inline-citation" data-cite="9"></span></li> <li><strong>Age</strong>: You’ll need to be 18 or older to qualify for a personal loan.</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-pros-and-cons-of-wedding-loans"></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"> Pros and Cons of Wedding Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Taking out a personal loan to cover your wedding expenses has both advantages and disadvantages to keep in mind. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_31-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_32-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Convenience</p></li> <li><p>Flexibility</p></li> <li><p>Low interest rates and fees</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>Interest</p></li> <li><p>Debt</p></li> <li><p>Temptation to spend</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-subheading__text"> Pros Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <li><strong>Convenience</strong>: With a personal loan, you receive the funds in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lump-sum-payment.asp">lump sum</a> so you will have money upfront to pay the vendors you need. Personal loans can often be funded within a few business days. In some cases, you can receive your money the same day that you apply.</li> <li><strong>Flexibility</strong>: You can use the loan for almost any expense for a wedding. There are no restrictions on whether you use the money for a venue, flowers, or any other cost.</li> <li><strong>Low interest rates and fees</strong>: Especially compared to credit cards, personal loans tend to offer much lower interest rates, which will save you money in the long term.<span class="ql-inline-citation" data-cite="10"></span> They generally do not charge for early <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayment</a>.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-subheading__text"> Cons Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <li><strong>Interest</strong>: Although they can save you more than using a credit card, personal loans cost more than paying in cash because they have interest. Even with low interest, they can add a substantial amount to your total cost. For example, if you take out a five-year loan for $15,000 at a 10% interest rate, you’ll pay more than $4,000 in total interest. </li> <li><strong>Debt</strong>: A personal loan will add to your total debt, which can affect your credit score. It can also affect your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dti.asp">debt-to-income (DTI) ratio</a>, which may reduce your chances for being approved for other loans like a mortgage or a car loan.<span class="ql-inline-citation" data-cite="11"></span></li> <li><strong>Temptation to spend</strong>: When you have a lump sum of money, you may be tempted to spend it all when you don’t need to. Remember that the money is a loan and not cash.<br/></li> </ul> <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-alternatives-to-cover-wedding-costs"></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"> Alternatives to Cover Wedding Costs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Many couples receive financial help from their families to cover the cost of their wedding. This is a great way to finance your wedding, of course, because family members tend to offer low <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a> and generous <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/loan-terms-5075341">loan terms</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> If you have not saved enough to pay for your wedding and you don’t want to rely on family members, you have a few options in addition to a personal loan. First, if you own a home and have equity, you can take out <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/heloc/home-equity-vs-heloc/">a home equity loan or a home equity line of credit (HELOC)</a>. These are secured loans that use your <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/home_equity.asp">home equity</a> as <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a>. These loans tend to have lower interest rates than <a class="pseudoStyle" data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredloan.asp">unsecured</a> personal loans. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit card</a> is another option to pay for wedding expenses, but in general, it is not ideal. You could get into financial trouble if you cannot pay off the balances. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-cards-4801582">Credit cards</a> have high interest rates that can add to the costs quickly. </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-callout mntl-block" id="mntl-sc-block_47-0"><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_48-0"><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>One strategy may be to apply for a new credit card with a 0% introductory rate. If you can pay the balance before the introductory term ends, you will not be charged interest. However, if you carry a balance after that, interest can compound quickly.<span class="ql-inline-citation" data-cite="12"></span><br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Delaying your wedding to save more is another option to help you cover your wedding costs with no interest costs. You may also want to review your wedding budget and see where you can reduce expenses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-what-are-the-3-largest-expenses-in-a-wedding"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the 3 Largest Expenses in a Wedding?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The venue, the engagement ring, and the live band are often the largest wedding expenses, according to a 2022 study by The Knot. The rehearsal dinner, the wedding planner, and the photographer are also among the top expenses.<span class="ql-inline-citation" data-cite="1"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <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-who-pays-for-the-wedding-the-groom-or-the-bride"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Pays for the Wedding: the Groom or the Bride?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Traditionally, the bride’s family pays for the wedding, but that custom is rapidly changing. Couples are increasingly choosing to handle at least half of the wedding expenses on their own.</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-who-pays-for-the-honeymoon"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Pays for the Honeymoon?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Traditionally, the groom’s family <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/weddings-who-pays-for-what-4687129">pays for the honeymoon</a>. Nowadays, who pays for the honeymoon often depends on family relationships, traditions, and, of course, the couple’s personal preference. Couples often fund their honeymoon on their own.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-how-do-people-use-personal-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> How Do People Use Personal Loans? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Investopedia commissioned <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574">a national survey</a> of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574">most common reason people borrowed money</a>, followed by home improvement and other large expenditures.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_60-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/T6dEU/9/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="How People Use Personal Loans"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> If you need to finance a wedding, a personal loan can be a good option. For most borrowers, a personal loan will have a lower interest rate than a credit card, and you can pay it back in regular monthly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/installmentdebt.asp">installments</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Of course, a better option is to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0212/how-to-save-for-a-wedding.aspx">save up for your wedding</a> and pay in cash if possible, because then you’ll pay no interest at all. </p></div>

You can use a [personal loan](https://www.investopedia.com/personal-loan-5076027) to pay for a wedding or any wedding-related cost, before or after your wedding. You can use a personal loan for [almost any purpose](https://www.investopedia.com/articles/personal-finance/111715/when-are-personal-loans-good-idea.asp), including covering the cost of your wedding. The average cost of a wedding in the United States was $30,000 in 2022, according to a study by The Knot. Some couples cover those costs by taking out a personal loan, which is a lump sum of financing that you repay over time. However, this strategy for funding a wedding has upsides and downsides. ### Key Takeaways * You can use a personal loan for nearly any purpose, including to pay for wedding costs. * Personal loans generally have lower interest rates than credit cards. * You can typically borrow $1,000 to $50,000 for a personal loan. * The exact amount you can borrow will depend on the lender’s limits, your credit score, and your income, among other factors. * Other financing choices for a wedding may include home equity loans or credit cards. ## What Can a Wedding Loan Be Used for? A wedding loan is a [personal loan](https://www.investopedia.com/best-personal-loans-4773300) that you use for wedding costs. You can get a personal loan from a bank, credit union, or online lender. Personal loans are flexible and can be used for almost any purpose, so they can be a good option to finance your wedding. Many couples don’t cover the entire [cost of their wedding](https://www.investopedia.com/wedding-average-cost-8558593) themselves, according to wedding website Zola. Instead, they rely on credit cards, gift registries, or personal loans in addition to their own savings. You can use a personal loan to cover [any cost associated with a wedding](https://www.investopedia.com/how-to-build-your-wedding-budget-5195776). These include (with average 2022 costs, according to The Knot): * Wedding dress ($1,900) * Wedding reception/venue ($11,200) * Engagement rings and wedding rings ($5,800) * Live band ($3,900) * Photographer ($2,600) * Florist ($2,400) * Catering ($75 per person) * [Wedding planner](https://www.investopedia.com/do-you-need-a-wedding-planner-5196748) ($1,900) ## How Much Can You Borrow with a Wedding Loan? The maximum amount you can borrow for a personal loan depends on a variety of factors, including the lender’s limits and what you can qualify for with your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) and [income](https://www.investopedia.com/terms/i/income.asp). The smallest loans that most [lenders](https://www.investopedia.com/terms/l/lender.asp) will consider are for around $1,000, and many won’t lend more than $50,000 in normal circumstances. A few lenders may lend up to $100,000. In general, you should get the smallest loan that meets your needs, because [personal loans in any amount](https://www.investopedia.com/average-personal-loan-amount-7555307) have interest costs and are included in your [debt](https://www.investopedia.com/terms/d/debt.asp). You will pay [interest](https://www.investopedia.com/terms/i/interest.asp) on the loan as you pay it back, so a larger loan will be more expensive in the long run. ### You can use our [personal loan calculator](https://www.investopedia.com/personal-loan-calculator-5082130) to compare total costs and payment amounts using different interest rates and terms. ## How to Qualify for a Wedding Loan To qualify for any kind of personal loan, including one for a wedding, you’ll have to meet certain requirements: * **Credit score**: Lenders have different criteria for qualifying borrowers for a personal loan. A better credit score typically results in lower interest rates. In many cases, you can be approved for the best interest rates with a score of [640 or above](https://www.investopedia.com/credit-score-needed-personal-loan-7553033). * **Income**: Some lenders will ask you to prove you are employed and provide proof of your income to make sure you can repay the loan. * **Age**: You’ll need to be 18 or older to qualify for a personal loan. ## Pros and Cons of Wedding Loans Taking out a personal loan to cover your wedding expenses has both advantages and disadvantages to keep in mind. Pros * Convenience * Flexibility * Low interest rates and fees Cons * Interest * Debt * Temptation to spend ### Pros Explained * **Convenience**: With a personal loan, you receive the funds in a [lump sum](https://www.investopedia.com/terms/l/lump-sum-payment.asp) so you will have money upfront to pay the vendors you need. Personal loans can often be funded within a few business days. In some cases, you can receive your money the same day that you apply. * **Flexibility**: You can use the loan for almost any expense for a wedding. There are no restrictions on whether you use the money for a venue, flowers, or any other cost. * **Low interest rates and fees**: Especially compared to credit cards, personal loans tend to offer much lower interest rates, which will save you money in the long term. They generally do not charge for early [repayment](https://www.investopedia.com/terms/r/repayment.asp). ### Cons Explained * **Interest**: Although they can save you more than using a credit card, personal loans cost more than paying in cash because they have interest. Even with low interest, they can add a substantial amount to your total cost. For example, if you take out a five-year loan for $15,000 at a 10% interest rate, you’ll pay more than $4,000 in total interest. * **Debt**: A personal loan will add to your total debt, which can affect your credit score. It can also affect your [debt-to-income (DTI) ratio](https://www.investopedia.com/terms/d/dti.asp), which may reduce your chances for being approved for other loans like a mortgage or a car loan. * **Temptation to spend**: When you have a lump sum of money, you may be tempted to spend it all when you don’t need to. Remember that the money is a loan and not cash. ## Alternatives to Cover Wedding Costs Many couples receive financial help from their families to cover the cost of their wedding. This is a great way to finance your wedding, of course, because family members tend to offer low [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) and generous [loan terms](https://www.investopedia.com/loan-terms-5075341). If you have not saved enough to pay for your wedding and you don’t want to rely on family members, you have a few options in addition to a personal loan. First, if you own a home and have equity, you can take out [a home equity loan or a home equity line of credit (HELOC)](https://www.investopedia.com/mortgage/heloc/home-equity-vs-heloc/). These are secured loans that use your [home equity](https://www.investopedia.com/terms/h/home_equity.asp) as [collateral](https://www.investopedia.com/terms/c/collateral.asp). These loans tend to have lower interest rates than [unsecured](https://www.investopedia.com/terms/u/unsecuredloan.asp) personal loans. A [credit card](https://www.investopedia.com/terms/c/creditcard.asp) is another option to pay for wedding expenses, but in general, it is not ideal. You could get into financial trouble if you cannot pay off the balances. [Credit cards](https://www.investopedia.com/best-credit-cards-4801582) have high interest rates that can add to the costs quickly. ### One strategy may be to apply for a new credit card with a 0% introductory rate. If you can pay the balance before the introductory term ends, you will not be charged interest. However, if you carry a balance after that, interest can compound quickly. Delaying your wedding to save more is another option to help you cover your wedding costs with no interest costs. You may also want to review your wedding budget and see where you can reduce expenses. ## What Are the 3 Largest Expenses in a Wedding? The venue, the engagement ring, and the live band are often the largest wedding expenses, according to a 2022 study by The Knot. The rehearsal dinner, the wedding planner, and the photographer are also among the top expenses. ## Who Pays for the Wedding: the Groom or the Bride? Traditionally, the bride’s family pays for the wedding, but that custom is rapidly changing. Couples are increasingly choosing to handle at least half of the wedding expenses on their own. ## Who Pays for the Honeymoon? Traditionally, the groom’s family [pays for the honeymoon](https://www.investopedia.com/weddings-who-pays-for-what-4687129). Nowadays, who pays for the honeymoon often depends on family relationships, traditions, and, of course, the couple’s personal preference. Couples often fund their honeymoon on their own. ## How Do People Use Personal Loans? Investopedia commissioned [a national survey](https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574) of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the [most common reason people borrowed money](https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574), followed by home improvement and other large expenditures. ## The Bottom Line If you need to finance a wedding, a personal loan can be a good option. For most borrowers, a personal loan will have a lower interest rate than a credit card, and you can pay it back in regular monthly [installments](https://www.investopedia.com/terms/i/installmentdebt.asp). Of course, a better option is to [save up for your wedding](https://www.investopedia.com/financial-edge/0212/how-to-save-for-a-wedding.aspx) and pay in cash if possible, because then you’ll pay no interest at all.

You can use a personal loan to pay for a wedding or any wedding-related cost, before or after your wedding. You can use a personal loan for almost any purpose, including covering the cost of your wedding. The average cost of a wedding in the United States was $30,000 in 2022, according to a study by The Knot. Some couples cover those costs by taking out a personal loan, which is a lump sum of financing that you repay over time. However, this strategy for funding a wedding has upsides and downsides. Key Takeaways You can use a personal loan for nearly any purpose, including to pay for wedding costs.Personal loans generally have lower interest rates than credit cards. You can typically borrow $1,000 to $50,000 for a personal loan.The exact amount you can borrow will depend on the lender’s limits, your credit score, and your income, among other factors.Other financing choices for a wedding may include home equity loans or credit cards. What Can a Wedding Loan Be Used for? A wedding loan is a personal loan that you use for wedding costs. You can get a personal loan from a bank, credit union, or online lender. Personal loans are flexible and can be used for almost any purpose, so they can be a good option to finance your wedding. Many couples don’t cover the entire cost of their wedding themselves, according to wedding website Zola. Instead, they rely on credit cards, gift registries, or personal loans in addition to their own savings. You can use a personal loan to cover any cost associated with a wedding. These include (with average 2022 costs, according to The Knot): Wedding dress ($1,900) Wedding reception/venue ($11,200) Engagement rings and wedding rings ($5,800) Live band ($3,900) Photographer ($2,600) Florist ($2,400) Catering ($75 per person) Wedding planner ($1,900) How Much Can You Borrow with a Wedding Loan?  The maximum amount you can borrow for a personal loan depends on a variety of factors, including the lender’s limits and what you can qualify for with your credit score and income. The smallest loans that most lenders will consider are for around $1,000, and many won’t lend more than $50,000 in normal circumstances. A few lenders may lend up to $100,000. In general, you should get the smallest loan that meets your needs, because personal loans in any amount have interest costs and are included in your debt. You will pay interest on the loan as you pay it back, so a larger loan will be more expensive in the long run. You can use our personal loan calculator to compare total costs and payment amounts using different interest rates and terms. How to Qualify for a Wedding Loan To qualify for any kind of personal loan, including one for a wedding, you’ll have to meet certain requirements: Credit score: Lenders have different criteria for qualifying borrowers for a personal loan. A better credit score typically results in lower interest rates. In many cases, you can be approved for the best interest rates with a score of 640 or above. Income: Some lenders will ask you to prove you are employed and provide proof of your income to make sure you can repay the loan. Age: You’ll need to be 18 or older to qualify for a personal loan. Pros and Cons of Wedding Loans Taking out a personal loan to cover your wedding expenses has both advantages and disadvantages to keep in mind. Pros Convenience Flexibility Low interest rates and fees Cons Interest Debt Temptation to spend Pros Explained Convenience: With a personal loan, you receive the funds in a lump sum so you will have money upfront to pay the vendors you need. Personal loans can often be funded within a few business days. In some cases, you can receive your money the same day that you apply. Flexibility: You can use the loan for almost any expense for a wedding. There are no restrictions on whether you use the money for a venue, flowers, or any other cost. Low interest rates and fees: Especially compared to credit cards, personal loans tend to offer much lower interest rates, which will save you money in the long term. They generally do not charge for early repayment. Cons Explained Interest: Although they can save you more than using a credit card, personal loans cost more than paying in cash because they have interest. Even with low interest, they can add a substantial amount to your total cost. For example, if you take out a five-year loan for $15,000 at a 10% interest rate, you’ll pay more than $4,000 in total interest.  Debt: A personal loan will add to your total debt, which can affect your credit score. It can also affect your debt-to-income (DTI) ratio, which may reduce your chances for being approved for other loans like a mortgage or a car loan. Temptation to spend: When you have a lump sum of money, you may be tempted to spend it all when you don’t need to. Remember that the money is a loan and not cash. Alternatives to Cover Wedding Costs Many couples receive financial help from their families to cover the cost of their wedding. This is a great way to finance your wedding, of course, because family members tend to offer low interest rates and generous loan terms. If you have not saved enough to pay for your wedding and you don’t want to rely on family members, you have a few options in addition to a personal loan. First, if you own a home and have equity, you can take out a home equity loan or a home equity line of credit (HELOC). These are secured loans that use your home equity as collateral. These loans tend to have lower interest rates than unsecured personal loans. A credit card is another option to pay for wedding expenses, but in general, it is not ideal. You could get into financial trouble if you cannot pay off the balances. Credit cards have high interest rates that can add to the costs quickly. One strategy may be to apply for a new credit card with a 0% introductory rate. If you can pay the balance before the introductory term ends, you will not be charged interest. However, if you carry a balance after that, interest can compound quickly. Delaying your wedding to save more is another option to help you cover your wedding costs with no interest costs. You may also want to review your wedding budget and see where you can reduce expenses. What Are the 3 Largest Expenses in a Wedding? The venue, the engagement ring, and the live band are often the largest wedding expenses, according to a 2022 study by The Knot. The rehearsal dinner, the wedding planner, and the photographer are also among the top expenses. Who Pays for the Wedding: the Groom or the Bride? Traditionally, the bride’s family pays for the wedding, but that custom is rapidly changing. Couples are increasingly choosing to handle at least half of the wedding expenses on their own. Who Pays for the Honeymoon? Traditionally, the groom’s family pays for the honeymoon. Nowadays, who pays for the honeymoon often depends on family relationships, traditions, and, of course, the couple’s personal preference. Couples often fund their honeymoon on their own. How Do People Use Personal Loans? Investopedia commissioned a national survey of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the most common reason people borrowed money, followed by home improvement and other large expenditures. The Bottom Line If you need to finance a wedding, a personal loan can be a good option. For most borrowers, a personal loan will have a lower interest rate than a credit card, and you can pay it back in regular monthly installments. Of course, a better option is to save up for your wedding and pay in cash if possible, because then you’ll pay no interest at all.

https://www.investopedia.com/drivers-overcharged-during-pandemic-california-says-5116719

Drivers Overcharged During Pandemic, State Insurance Regulator Says

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Millions of drivers could pocket additional auto insurance refunds as a result of a recent order by California’s insurance commissioner that requires insurers to pay back a greater portion of their pandemic-related windfall profits. The move is expected to put pressure on other states to act, as well—heeding a call that consumer groups have pushed for since the pandemic began. </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>California’s largest auto insurers owe customers more premium relief, according to the state’s insurance commissioner.</li><li>Consumer groups have asked for such relief nationwide since the pandemic began, as reduced driving led to fewer claims.</li><li>A major national trade association for auto insurers says they will continue to work with policyholders to adjust policy costs this year.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-california-regulators-found"></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 California Regulators Found </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Auto insurers skimped on the refunds to California drivers that the state’s insurance department ordered last year as miles driven and accident claims plunged during the pandemic shutdown, according to Ricardo Lara, California’s insurance commissioner.<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"> A review of data submitted by the state’s top 10 auto insurers found they returned on average 9% of auto premiums from March to September 2020. But the commissioner’s analysis, released last week, indicates that they should have refunded nearly double that amount, or 17%. And by December, only four insurers were still offering any partial refunds, despite the continuing pandemic.  </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"> Lara ordered each insurance company to report by April 30 how it will return the funds he says are owed to policyholders. Among the first industry actions taken: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/state-farm-car-insurance-review-5076242">State Farm</a> announced it will return $400 million to its 3.5 million California auto policyholders in May, representing 18% of the premiums they paid for the second half of last year. Customers will receive about $100 per policy, on average, State Farm says.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-consumer-groups-press-for-more-action"></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"> Consumer Groups Press for More Action </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Since March 2020, the Consumer Federation of America (CFA) and Center for Economic Justice have petitioned state insurance regulators for this scope of action. In December, the groups repeated the push—urging them "to require all auto insurers to issue a second round of premium refunds for consumers."<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"> The groups calculated that since the pandemic began, auto insurers nationwide experienced about $25 billion less in claims. But premium relief from insurers amounted to half of that, or less. Meanwhile, policyholders paid excessive premiums based on outdated estimates of miles driven, the CFA says. </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 fact that Californians are getting the refunds they deserve highlights the inadequacy of other regulators’ responses to the pandemic to date," CFA insurance expert Douglas Heller told Investopedia. </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-the-nationwide-picture"></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 Nationwide Picture </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Overall, insurance discounts, rebates, and policyholder dividends amounted to more than $14 billion nationally in 2020, according to the Insurance Information Institute (III), an industry-sponsored group.<span class="ql-inline-citation" data-cite="4"></span> At the same time, 2020 auto insurance premium rates fell nationally for the first time in a decade, and III chief actuary James Lynch says many insurers have built these discounts into this year’s premium rates.<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.iii.org/article/the-real-story-on-auto-insurance-during-the-pandemic"> </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"> Last spring, insurance relief typically trimmed 15% to 25% off customers’ premium payments for one or more months, according to a 2020 report by the National Association of Insurance Commissioners that tracked COVID-19 response.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> A state-by-state analysis of insurers’ rebates, credits, and rate changes released in December by the U.S. Public Interest Research Group (PIRG) Education Fund found most insurers returned no more than half of one month’s premium.<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"> While some companies automatically issued credits, two-month rebates, or rate cuts, in some cases, customers didn’t get a refund or rate cut unless they called and asked for one, PIRG added. </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-what-policyholders-can-do"></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"> What Policyholders Can Do </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> In response to California’s directive, the American Property Casualty Insurance Association (APCIA) issued a statement saying that insurers are continuing to work with customers to adjust their auto policy costs in 2021.<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_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> "Insurers understood the urgency of helping businesses and individuals recover from the unprecedented crisis caused by the COVID-19 pandemic and took immediate action to adapt premiums when driving was reduced in 2020," Mark Sektnan, APCIA’s vice president, said in a press release. "Policyholders are encouraged to communicate any reduction in their driving habits to their insurer to discuss adjustments in premiums if those changes haven’t already happened automatically." </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>

Millions of drivers could pocket additional auto insurance refunds as a result of a recent order by California’s insurance commissioner that requires insurers to pay back a greater portion of their pandemic-related windfall profits. The move is expected to put pressure on other states to act, as well—heeding a call that consumer groups have pushed for since the pandemic began. ### Key Takeaways * California’s largest auto insurers owe customers more premium relief, according to the state’s insurance commissioner. * Consumer groups have asked for such relief nationwide since the pandemic began, as reduced driving led to fewer claims. * A major national trade association for auto insurers says they will continue to work with policyholders to adjust policy costs this year. ## What California Regulators Found Auto insurers skimped on the refunds to California drivers that the state’s insurance department ordered last year as miles driven and accident claims plunged during the pandemic shutdown, according to Ricardo Lara, California’s insurance commissioner. A review of data submitted by the state’s top 10 auto insurers found they returned on average 9% of auto premiums from March to September 2020. But the commissioner’s analysis, released last week, indicates that they should have refunded nearly double that amount, or 17%. And by December, only four insurers were still offering any partial refunds, despite the continuing pandemic.  Lara ordered each insurance company to report by April 30 how it will return the funds he says are owed to policyholders. Among the first industry actions taken: [State Farm](https://www.investopedia.com/state-farm-car-insurance-review-5076242) announced it will return $400 million to its 3.5 million California auto policyholders in May, representing 18% of the premiums they paid for the second half of last year. Customers will receive about $100 per policy, on average, State Farm says. ## Consumer Groups Press for More Action Since March 2020, the Consumer Federation of America (CFA) and Center for Economic Justice have petitioned state insurance regulators for this scope of action. In December, the groups repeated the push—urging them "to require all auto insurers to issue a second round of premium refunds for consumers." The groups calculated that since the pandemic began, auto insurers nationwide experienced about $25 billion less in claims. But premium relief from insurers amounted to half of that, or less. Meanwhile, policyholders paid excessive premiums based on outdated estimates of miles driven, the CFA says. "The fact that Californians are getting the refunds they deserve highlights the inadequacy of other regulators’ responses to the pandemic to date," CFA insurance expert Douglas Heller told Investopedia. ## The Nationwide Picture Overall, insurance discounts, rebates, and policyholder dividends amounted to more than $14 billion nationally in 2020, according to the Insurance Information Institute (III), an industry-sponsored group. At the same time, 2020 auto insurance premium rates fell nationally for the first time in a decade, and III chief actuary James Lynch says many insurers have built these discounts into this year’s premium rates. Last spring, insurance relief typically trimmed 15% to 25% off customers’ premium payments for one or more months, according to a 2020 report by the National Association of Insurance Commissioners that tracked COVID-19 response. A state-by-state analysis of insurers’ rebates, credits, and rate changes released in December by the U.S. Public Interest Research Group (PIRG) Education Fund found most insurers returned no more than half of one month’s premium. While some companies automatically issued credits, two-month rebates, or rate cuts, in some cases, customers didn’t get a refund or rate cut unless they called and asked for one, PIRG added. ## What Policyholders Can Do In response to California’s directive, the American Property Casualty Insurance Association (APCIA) issued a statement saying that insurers are continuing to work with customers to adjust their auto policy costs in 2021. "Insurers understood the urgency of helping businesses and individuals recover from the unprecedented crisis caused by the COVID-19 pandemic and took immediate action to adapt premiums when driving was reduced in 2020," Mark Sektnan, APCIA’s vice president, said in a press release. "Policyholders are encouraged to communicate any reduction in their driving habits to their insurer to discuss adjustments in premiums if those changes haven’t already happened automatically." Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Millions of drivers could pocket additional auto insurance refunds as a result of a recent order by California’s insurance commissioner that requires insurers to pay back a greater portion of their pandemic-related windfall profits. The move is expected to put pressure on other states to act, as well—heeding a call that consumer groups have pushed for since the pandemic began. Key Takeaways California’s largest auto insurers owe customers more premium relief, according to the state’s insurance commissioner.Consumer groups have asked for such relief nationwide since the pandemic began, as reduced driving led to fewer claims.A major national trade association for auto insurers says they will continue to work with policyholders to adjust policy costs this year. What California Regulators Found Auto insurers skimped on the refunds to California drivers that the state’s insurance department ordered last year as miles driven and accident claims plunged during the pandemic shutdown, according to Ricardo Lara, California’s insurance commissioner. A review of data submitted by the state’s top 10 auto insurers found they returned on average 9% of auto premiums from March to September 2020. But the commissioner’s analysis, released last week, indicates that they should have refunded nearly double that amount, or 17%. And by December, only four insurers were still offering any partial refunds, despite the continuing pandemic.  Lara ordered each insurance company to report by April 30 how it will return the funds he says are owed to policyholders. Among the first industry actions taken: State Farm announced it will return $400 million to its 3.5 million California auto policyholders in May, representing 18% of the premiums they paid for the second half of last year. Customers will receive about $100 per policy, on average, State Farm says. Consumer Groups Press for More Action Since March 2020, the Consumer Federation of America (CFA) and Center for Economic Justice have petitioned state insurance regulators for this scope of action. In December, the groups repeated the push—urging them "to require all auto insurers to issue a second round of premium refunds for consumers." The groups calculated that since the pandemic began, auto insurers nationwide experienced about $25 billion less in claims. But premium relief from insurers amounted to half of that, or less. Meanwhile, policyholders paid excessive premiums based on outdated estimates of miles driven, the CFA says. "The fact that Californians are getting the refunds they deserve highlights the inadequacy of other regulators’ responses to the pandemic to date," CFA insurance expert Douglas Heller told Investopedia. The Nationwide Picture Overall, insurance discounts, rebates, and policyholder dividends amounted to more than $14 billion nationally in 2020, according to the Insurance Information Institute (III), an industry-sponsored group. At the same time, 2020 auto insurance premium rates fell nationally for the first time in a decade, and III chief actuary James Lynch says many insurers have built these discounts into this year’s premium rates.  Last spring, insurance relief typically trimmed 15% to 25% off customers’ premium payments for one or more months, according to a 2020 report by the National Association of Insurance Commissioners that tracked COVID-19 response. A state-by-state analysis of insurers’ rebates, credits, and rate changes released in December by the U.S. Public Interest Research Group (PIRG) Education Fund found most insurers returned no more than half of one month’s premium. While some companies automatically issued credits, two-month rebates, or rate cuts, in some cases, customers didn’t get a refund or rate cut unless they called and asked for one, PIRG added. What Policyholders Can Do In response to California’s directive, the American Property Casualty Insurance Association (APCIA) issued a statement saying that insurers are continuing to work with customers to adjust their auto policy costs in 2021. "Insurers understood the urgency of helping businesses and individuals recover from the unprecedented crisis caused by the COVID-19 pandemic and took immediate action to adapt premiums when driving was reduced in 2020," Mark Sektnan, APCIA’s vice president, said in a press release. "Policyholders are encouraged to communicate any reduction in their driving habits to their insurer to discuss adjustments in premiums if those changes haven’t already happened automatically." Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/wages-and-benefits-growth-deals-yet-another-blow-to-fed-in-inflation-fight-8641038

Wages and Benefits Growth Deals Yet Another Blow to Fed's Inflation Fight

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>An index measuring employee compensation grew 1.2% in the first quarter, more than economists expected. </li><li>The Federal Reserve keeps a close eye on wage growth, as it can fuel inflation.</li><li>This is the latest economic data showing inflation and its contributing factors are running hotter than economists and investors expected. </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"> Employee compensation growth was good for employees in the first quarter, but it was a bad sign for the Federal Reserve's fight against inflation. </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"> Total wages and benefits for employees rose 1.2% in the 2024 first quarter, a jump in the Employment Cost Index (ECI) from the 2023 last quarter.<span class="ql-inline-citation" data-cite="1"></span> The data from the Bureau of Labor Statistics came in higher than the 1.0% economists surveyed by the <em>Wall Street Journal </em>and Dow Jones Newswire expected.<span class="ql-inline-citation" data-cite="2"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> "On balance, today's ECI reading is not the end of the world for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fomc.asp">FOMC</a>, but it is yet another data point that suggests the inflation slowdown that began this time last year stalled out in the first quarter of 2024," wrote Wells Fargo economists Sarah House and Michael Pugliese. The Federal Open Market Committee, or FOMC, is the Fed's monetary policy committee. </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-inflation-on-a-bumpy-path"></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"> Inflation On A Bumpy Path </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Economists said the report on compensation showed inflation continues to be a challenge for Federal Reserve officials trying to get it down from its <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">current levels of around 2.7%</a>. Higher wages can <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-officials-are-worried-you-re-getting-paid-too-much-7644467">have an impact on inflation</a>, as business owners raise prices on goods and services in order to meet the higher employment costs.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> “We do expect wage growth and inflation to slow as the year progresses, but the Fed will need several months of good news on wage growth and inflation before it regains some confidence that inflation is back on a sustainable path to 2%,” wrote Oxford Economics' Nancy Vanden Houten. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-may-2024-meeting-preview-8639782">The FOMC is meeting this week</a> and is expected to keep interest rates unchanged. Investors have already <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/will-the-fed-cut-its-interest-rate-this-year-doubts-are-creeping-in-8603666">pushed back expectations of an interest rate cut</a> to later this year as Fed officials have said they are closely watching data on wages, inflation and economic growth.  </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 acceleration in the ECI supports the narrative that the last leg down in inflation is going to be slow and uneven and reinforces our call for the Fed to remain on hold until September,” wrote Jay Hawkins, senior economist at BMO Economics.  </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 * An index measuring employee compensation grew 1.2% in the first quarter, more than economists expected. * The Federal Reserve keeps a close eye on wage growth, as it can fuel inflation. * This is the latest economic data showing inflation and its contributing factors are running hotter than economists and investors expected. Employee compensation growth was good for employees in the first quarter, but it was a bad sign for the Federal Reserve's fight against inflation. Total wages and benefits for employees rose 1.2% in the 2024 first quarter, a jump in the Employment Cost Index (ECI) from the 2023 last quarter. The data from the Bureau of Labor Statistics came in higher than the 1.0% economists surveyed by the *Wall Street Journal* and Dow Jones Newswire expected.  "On balance, today's ECI reading is not the end of the world for the [FOMC](https://www.investopedia.com/terms/f/fomc.asp), but it is yet another data point that suggests the inflation slowdown that began this time last year stalled out in the first quarter of 2024," wrote Wells Fargo economists Sarah House and Michael Pugliese. The Federal Open Market Committee, or FOMC, is the Fed's monetary policy committee. ## Inflation On A Bumpy Path Economists said the report on compensation showed inflation continues to be a challenge for Federal Reserve officials trying to get it down from its [current levels of around 2.7%](https://www.investopedia.com/federal-reserve-preferred-inflation-measure-heated-up-march-8639440). Higher wages can [have an impact on inflation](https://www.investopedia.com/federal-reserve-officials-are-worried-you-re-getting-paid-too-much-7644467), as business owners raise prices on goods and services in order to meet the higher employment costs.  “We do expect wage growth and inflation to slow as the year progresses, but the Fed will need several months of good news on wage growth and inflation before it regains some confidence that inflation is back on a sustainable path to 2%,” wrote Oxford Economics' Nancy Vanden Houten. [The FOMC is meeting this week](https://www.investopedia.com/fed-may-2024-meeting-preview-8639782) and is expected to keep interest rates unchanged. Investors have already [pushed back expectations of an interest rate cut](https://www.investopedia.com/will-the-fed-cut-its-interest-rate-this-year-doubts-are-creeping-in-8603666) to later this year as Fed officials have said they are closely watching data on wages, inflation and economic growth.  “The acceleration in the ECI supports the narrative that the last leg down in inflation is going to be slow and uneven and reinforces our call for the Fed to remain on hold until September,” wrote Jay Hawkins, senior economist at BMO Economics.  Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways An index measuring employee compensation grew 1.2% in the first quarter, more than economists expected. The Federal Reserve keeps a close eye on wage growth, as it can fuel inflation.This is the latest economic data showing inflation and its contributing factors are running hotter than economists and investors expected. Employee compensation growth was good for employees in the first quarter, but it was a bad sign for the Federal Reserve's fight against inflation. Total wages and benefits for employees rose 1.2% in the 2024 first quarter, a jump in the Employment Cost Index (ECI) from the 2023 last quarter. The data from the Bureau of Labor Statistics came in higher than the 1.0% economists surveyed by the Wall Street Journal and Dow Jones Newswire expected.  "On balance, today's ECI reading is not the end of the world for the FOMC, but it is yet another data point that suggests the inflation slowdown that began this time last year stalled out in the first quarter of 2024," wrote Wells Fargo economists Sarah House and Michael Pugliese. The Federal Open Market Committee, or FOMC, is the Fed's monetary policy committee. Inflation On A Bumpy Path Economists said the report on compensation showed inflation continues to be a challenge for Federal Reserve officials trying to get it down from its current levels of around 2.7%. Higher wages can have an impact on inflation, as business owners raise prices on goods and services in order to meet the higher employment costs.  “We do expect wage growth and inflation to slow as the year progresses, but the Fed will need several months of good news on wage growth and inflation before it regains some confidence that inflation is back on a sustainable path to 2%,” wrote Oxford Economics' Nancy Vanden Houten. The FOMC is meeting this week and is expected to keep interest rates unchanged. Investors have already pushed back expectations of an interest rate cut to later this year as Fed officials have said they are closely watching data on wages, inflation and economic growth.  “The acceleration in the ECI supports the narrative that the last leg down in inflation is going to be slow and uneven and reinforces our call for the Fed to remain on hold until September,” wrote Jay Hawkins, senior economist at BMO Economics.  Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/selecting-a-qualified-crypto-custodian-8400929

What to Know When Selecting a Qualified Crypto Custodian

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> In the volatile world of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrencies</a>, safeguarding your digital assets is all-important. Crypto custodians are crucial in this ecosystem, providing secure storage and managing digital assets. </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 do self-custody, which gives you control but brings significant risks, such as potentially losing your private keys and passwords or managing security breaches yourself. Custodians can mitigate these risks by using sophisticated security protocols and policies. </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"> Choosing the right custodian is critical for protecting your digital holdings. If cryptocurrencies are to gain much wider adoption, then robust custody products will be essential for individual and institutional <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a> alike. </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>Qualified crypto custodians are trusted third parties you use to secure your digital assets.</li><li>They offer services to prevent the loss or mismanagement of private keys, hacking, or theft.</li><li>Different custody services cater to varying needs and potential risks.</li><li>Checking a custodian’s reputation and track record is essential.</li><li>Fees should align with the services and level of security offered.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-crypto-custody"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> Understanding Crypto Custody </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> A qualified crypto custodian is a financial institution expert in guarding and managing your digital assets like cryptocurrencies and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/non-fungible-tokens-nft-5115211">non-fungible tokens (NFTs)</a>. Custodians securely store the assets and support digital transactions with advanced cryptography and hardware security measures. </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"> By contrast, self-custody is when you secure your own private keys. While this gives you complete control, you’re on your own in case of forgotten keys and passwords, hacked devices, or simple mistakes. Crypto custodians should prevent these risks through robust protocols like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/multi-signature-wallets-definition-5271193">multi-signature wallets</a> and offline <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cold-storage.asp">cold storage</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Custody services usually include insurance coverage, regulated storage, account monitoring, reporting, and transaction processing. For cryptocurrencies, custody services are essential to protect holdings from theft, loss, or misuse. </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 download-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://files.investopedia.com/Financial+Advisor+Discussion+Guides/Financial+Advisor+Discussion+Guide_+Should+I+Invest+in+Crypto.pdf" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Interested in crypto? Use this guide to discuss with an advisor.</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-crypto-custodian-regulatory-compliance-and-security-standards"></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"> Crypto Custodian Regulatory Compliance and Security Standards </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A qualified custodian not only guards assets but also complies with the relevant laws, regulations, and best practices. These standards, set by organizations like the U.S. <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> and the U.S. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cftc.asp">Commodity Futures Trading Commission (CFTC)</a>, should ensure your custodian has robust security protocols in place to protect digital assets. </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"> It’s vital for you to select a custodian that meets these regulatory requirements and has up-to-date security measures, like encryption and multifactor authentication, to prevent unauthorized access and other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cybersecurity.asp">cybersecurity</a> threats. Here are key elements you should spot if a custodian is worth your business: </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><strong>Regulatory compliance</strong>:<strong> </strong>Custodians should follow the relevant laws and regulations, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/k/knowyourclient.asp">Know Your Customer (KYC)</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aml.asp">anti-money laundering (AML)</a> rules. Proper licensing and oversight should help you breathe easier, knowing that your custodian meets reporting, auditing, and fraud detection standards. This provides accountability and gives you some recourse if anything goes wrong.</li> <li><strong>Security standards</strong>: A qualified custodian should have up-to-date cybersecurity measures such as cold (offline) storage, multi-signature wallets, multiparty computation, biometrics, and hardware security modules. Robust protocols like proof of reserves should be audited regularly. Insurance coverage would add another layer of protection. Advanced cybersecurity standards include penetration testing, data encryption, protection against distributed <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/denial-service-attack-dos.asp">denial of service</a> (DDoS), and 24/7 monitoring to prevent breaches and data loss.</li> <li><strong>Asset segregation</strong>: Custodians should segregate your assets from their own holdings. Proper protocols prevent the mingling of funds and help protect your assets in cases like <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankruptcy</a>.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Transparency</strong>: Custodians should be fully transparent about how holdings are secured and managed, which requires frequent <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/audit.asp">auditing</a> and reporting. Real-time account overview and transaction tracking should be available so that your holdings are also visible to you. There should be no fudging in this area—legitimate and expert custodians won’t give you the runaround on any of this.</li> </ul> <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-crypto-custodian-services-and-offerings"></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"> Crypto Custodian Services and Offerings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Crypto custodians offer various services, including hot wallets for quick access, cold storage for long-term security, and multi-signature wallets for enhanced security and accountability. Each has its benefits and risks. For example, hot wallets provide convenience but are more vulnerable to online attacks, while cold storage offers more security at the expense of accessibility. </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">Reputation and Track Record</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A custodian’s reputation is a testament to their reliability. Evaluating a custodian involves reviewing their management, client feedback, and past security events. Due diligence should show that the custodian has a proven track record of reliability and trustworthiness.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Here are the key parts of crypto custody services: </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>Hot wallets</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hot-wallet.asp">Hot wallets</a> are internet-connected wallets for active assets you use for frequent trading or transactions. Benefits include convenience and quick access, but the major drawback is the greater risk of hacking or loss.</li> <li><strong>Cold storage</strong>:<strong> </strong><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/hot-wallet-vs-cold-wallet-7098461#toc-cold-wallets-explained">Cold wallets</a> are offline, with private keys stored on hardware not connected to the internet. The benefit is that this is extremely secure against online threats. The drawback is that it’s offline for making trades or transfers. Another drawback: You don’t want to join the too-long list of people who have lost their crypto thumb drive or other cold storage device or made it inaccessible for other reasons.</li> <li><strong>Multi-signature wallets</strong>: “Multisig” wallets require several keys to make transactions (e.g., three out of five authorized keys). Benefits include greater security, loss prevention, and oversight. Drawbacks include slower transfer speeds and the need to coordinate key holders.</li> <li><strong>Hybrid models</strong>: This is a combination of hot wallets and cold storage for both security and convenience. Hybrid models allow quick transfers from hot wallets while the bulk of your assets are offline.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Institutional grade vaults</strong>: Physical high-security vaults and bunkers for storing crypto assets offline have the highest level of asset security.</li> <li><strong>Insurance coverage</strong>:<strong> </strong>A qualified custodian should have comprehensive insurance coverage, including internal and external policies, to offer complete asset protection. Custodians should also give you flexibility to customize your coverage based on your needs.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-crypto-custodian-trading-capabilities-and-integration"></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"> Crypto Custodian Trading Capabilities and Integration </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The ideal crypto custodian offers seamless integration with <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 robust trading capabilities. Thus, they are responding to the need for seamless exchange integration while keeping assets secure. </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"> Look for custodians with a comprehensive trading platform alongside asset storage, enabling easy access to liquidity across exchanges like Coinbase, Kraken, and Binance for rapid trading, lower slippage, and application programming interface capabilities from your secure client account. </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"> Streamlined trading integration improves liquidity and lets you capitalize on market opportunities faster while protecting assets. A custodian platform with trading functionality, research tools, and real-time market data would enable savvy crypto investing, all from your custody account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_42-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_43-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The SEC has warned that crypto exchanges do not automatically count as qualified custodians.<span class="ql-inline-citation" data-cite="12"></span></p></div></div></div> <span class="heading-toc" id="toc-crypto-custodian-fees-and-pricing"></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"> Crypto Custodian Fees and Pricing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> The costs for a crypto custodian depend on the platform and the type of services offered. Generally, there are three types of fees you’ll encounter: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> <li><strong>Custody fee</strong>: This is charged annually as a percentage of the value of the assets under custody. It’s usually less than 1%, but it can depend on the provider and the amount of assets you store with them. For example, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gemini-exchange.asp">Gemini</a> Custody charges 0.4% or $30 per month per asset, whichever is higher.<span class="ql-inline-citation" data-cite="13"></span></li> <li><strong>Setup fee</strong>: A flat fee is charged for opening a custodial account with the provider. Some firms waive this fee and let you open an account for free, while others charge a one-time fee ranging from a few hundred to a few thousand dollars. For example, Casa charges $252 per year for its standard plan, which includes a multisig wallet and a hardware device.<span class="ql-inline-citation" data-cite="14"></span></li> <li><strong>Withdrawal fee</strong>: This is charged every time you withdraw crypto from your custodial account. The fee depends on the provider and the amount of crypto you withdraw. Some providers charge a flat fee, while others charge a percentage-based fee. Etana, for example, charges $35 for each outgoing <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wiretransfer.asp">wire transfer</a>.<span class="ql-inline-citation" data-cite="15"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Along with these fees, you should consider the provider’s security, reliability, reputation, assets and currencies supported, insurance coverage, and customer service. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <span class="heading-toc" id="toc-choosing-a-qualified-crypto-custodian"></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"> Choosing a Qualified Crypto Custodian </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> First, do your research and compile background information on potential custodians, including how long they’ve been in business, who’s on the management team, the number of clients, the amount of assets under custody, and their reputation. Search for media coverage and independent reviews to help you make a more objective evaluation. </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"> When you’ve narrowed your list of possible custodians, find online or request documents like audit reports, insurance policy coverage, security protocols, regulatory compliance certificates, and service level agreements. </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"> Don’t be afraid to ask detailed questions on infrastructure, encryption methods, cold storage procedures, insurance claim processes, and incident response plans. </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"> Here is a checklist of factors to pay attention to when deciding: </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>Regulatory licenses and compliance</li><li>Independent third-party audits</li><li>Multi-signature wallets</li><li>Cold storage amount and procedures</li><li>Insurance coverage and limits</li><li>Security protocols and encryption</li><li>Transparent proof-of-reserves reporting</li><li>Experience and tenure in the industry</li><li>Client asset segregation methods</li><li>Reputation and client satisfaction</li><li>Exchange trading integration</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"> Conducting thorough due diligence is essential to find a custodian that meets your security needs and <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>. Prioritize regulatory compliance, auditing, infrastructure, and insurance when making this critical choice. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <span class="heading-toc" id="toc-examples-of-crypto-custodians"></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"> Examples of Crypto Custodians </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Many crypto custodians are in the market, and many more financial firms are developing the ability to offer these services. Here are the most reputable and popular: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> <li><strong>Anchorage Digital</strong>: Anchorage Digital is a regulated and compliant crypto management and custody platform. It offers staking, governance, trading, lending, and borrowing.<span class="ql-inline-citation" data-cite="16"></span></li> <li><strong>Coinbase Custody</strong>: The exchange giant <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/coinbase-what-it-and-how-do-you-use-it/">Coinbase</a> offers institutional custody products as part of its Coinbase Prime platform. It supports over 400 assets and provides cold storage, insurance, and audit trails. Clients can access other Coinbase products for trading, lending, and borrowing.<span class="ql-inline-citation" data-cite="17"></span></li> <li><strong>Fireblocks</strong>: Fireblocks is a crypto custody provider that uses a secure transfer network to move funds among wallets, exchanges, and other platforms. It also offers multiparty computation technology, which eliminates the need for private keys and should reduce the risk of theft. Fireblocks supports over 50 blockchains and is integrated with over 1,800 partners and global network participants.<span class="ql-inline-citation" data-cite="18"></span></li> <li><strong>Fidelity</strong>: Fidelity offers crypto custody services through its subsidiary, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/why-fidelity-got-bitcoin/">Fidelity Digital Assets</a>. It provides secure storage, trade execution, and client support for institutional investors. It also offers research on the crypto market and industry trends. Fidelity Digital Assets also provides services for Fidelity Crypto, enabling individual investors to buy and sell digital assets in its Fidelity Investments app.<span class="ql-inline-citation" data-cite="19"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>BitGo</strong>: BitGo is a popular crypto custody provider that provides institutional-grade security, multi-signature authentication, and insurance coverage. It safeguards over 600 tokens and offers trading, lending, and borrowing services. It also provides compliance and reporting tools.<span class="ql-inline-citation" data-cite="20"></span></li> <li><strong>Casa</strong>: Casa is a crypto custody company that offers a self-custody solution using multi-signature technology, hardware devices, and a recovery key to secure crypto. Casa also offers an inheritance product for designating a third-party executor who can access your bitcoins in case of death or incapacitation.<span class="ql-inline-citation" data-cite="21"></span></li> <li><strong>Gemini</strong>: Gemini is a regulated and compliant crypto exchange and custodian that offers trading, lending, borrowing, and staking. Gemini Custody uses multi-signature technology, role-based governance protocols, physical security, and biometric access controls to guard customer assets. Gemini also provides insurance coverage for up to $75 million of digital assets in cold storage. Gemini Custody supports over 100 crypto assets, including bitcoin, <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>, and various stablecoins and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/what-erc20-and-what-does-it-mean-ethereum/">ERC-20 tokens</a>.<span class="ql-inline-citation" data-cite="22"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Etana:</strong> Etana is a licensed and secure digital asset custody provider that operates globally. Etana’s custody platform uses hot, cold, or multiparty computation wallets for cryptocurrencies, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stablecoin.asp">stablecoins</a>, NFTs, and other digital assets. Etana also provides fiat currency custody, trade support, and securitization services. Etana works with financial institutions and crypto exchanges to provide secure and scalable digital asset products.<span class="ql-inline-citation" data-cite="23"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-why-would-i-need-a-crypto-custodian"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Would I Need a Crypto Custodian?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Custodians provide greater security against threats like hacks, fraud, and lost private keys. They can mitigate the risks associated with self-custody through robust protocols and insurance protections. For large crypto holders, regulated custodians add oversight and financial controls.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_71-0"><span class="heading-toc" id="toc-what-is-self-custody-in-crypto"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Self-Custody in Crypto?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Self-custody is when the owner of digital assets holds and controls their own private keys, which are essentially the passwords that grant access to these tokens and funds. Self-custody can be done using hardware devices, software wallets, or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paper-wallet.asp">paper wallets</a>.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_73-0"><span class="heading-toc" id="toc-do-custodians-provide-staking-rewards-for-proof-of-stake-pos-tokens"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Custodians Provide Staking Rewards for Proof-of-Stake (PoS) Tokens?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some custody services of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/proof-stake-pos.asp">proof-of-stake (PoS)</a> coins give <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-crypto-staking-platforms-7486033">staking rewards</a> to users. Staking is <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/total-value-locked-7486821">locking or delegating crypto holdings</a> to secure the blockchain network and earn rewards. However, not all custody services offer staking options, and the rewards depend on the type and amount of coins, the level of service, and the fees involved.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> Selecting a qualified crypto custodian is crucial for the security and protection of your digital assets. It requires careful consideration of regulatory compliance, security standards, service offerings, reputation, insurance coverage, and fees. Making an informed decision in this selection process helps safeguard your digital assets for a more secure crypto investment experience. </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"> <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_79-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> <em>Correction</em>—<em>Dec. 4, 2023: </em>This article has been corrected to remove incorrect information about Anchorage Digital.<br/> </p></div>

In the volatile world of [cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp), safeguarding your digital assets is all-important. Crypto custodians are crucial in this ecosystem, providing secure storage and managing digital assets. You can do self-custody, which gives you control but brings significant risks, such as potentially losing your private keys and passwords or managing security breaches yourself. Custodians can mitigate these risks by using sophisticated security protocols and policies. Choosing the right custodian is critical for protecting your digital holdings. If cryptocurrencies are to gain much wider adoption, then robust custody products will be essential for individual and institutional [investors](https://www.investopedia.com/terms/i/investor.asp) alike. ### Key Takeaways * Qualified crypto custodians are trusted third parties you use to secure your digital assets. * They offer services to prevent the loss or mismanagement of private keys, hacking, or theft. * Different custody services cater to varying needs and potential risks. * Checking a custodian’s reputation and track record is essential. * Fees should align with the services and level of security offered. ## Understanding Crypto Custody A qualified crypto custodian is a financial institution expert in guarding and managing your digital assets like cryptocurrencies and [non-fungible tokens (NFTs)](https://www.investopedia.com/non-fungible-tokens-nft-5115211). Custodians securely store the assets and support digital transactions with advanced cryptography and hardware security measures. By contrast, self-custody is when you secure your own private keys. While this gives you complete control, you’re on your own in case of forgotten keys and passwords, hacked devices, or simple mistakes. Crypto custodians should prevent these risks through robust protocols like [multi-signature wallets](https://www.investopedia.com/multi-signature-wallets-definition-5271193) and offline [cold storage](https://www.investopedia.com/terms/c/cold-storage.asp). Custody services usually include insurance coverage, regulated storage, account monitoring, reporting, and transaction processing. For cryptocurrencies, custody services are essential to protect holdings from theft, loss, or misuse. [Interested in crypto? Use this guide to discuss with an advisor.](https://files.investopedia.com/Financial+Advisor+Discussion+Guides/Financial+Advisor+Discussion+Guide_+Should+I+Invest+in+Crypto.pdf) ## Crypto Custodian Regulatory Compliance and Security Standards A qualified custodian not only guards assets but also complies with the relevant laws, regulations, and best practices. These standards, set by organizations like the U.S. [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) and the U.S. [Commodity Futures Trading Commission (CFTC)](https://www.investopedia.com/terms/c/cftc.asp), should ensure your custodian has robust security protocols in place to protect digital assets. It’s vital for you to select a custodian that meets these regulatory requirements and has up-to-date security measures, like encryption and multifactor authentication, to prevent unauthorized access and other [cybersecurity](https://www.investopedia.com/terms/c/cybersecurity.asp) threats. Here are key elements you should spot if a custodian is worth your business: * **Regulatory compliance**:Custodians should follow the relevant laws and regulations, including [Know Your Customer (KYC)](https://www.investopedia.com/terms/k/knowyourclient.asp) and [anti-money laundering (AML)](https://www.investopedia.com/terms/a/aml.asp) rules. Proper licensing and oversight should help you breathe easier, knowing that your custodian meets reporting, auditing, and fraud detection standards. This provides accountability and gives you some recourse if anything goes wrong. * **Security standards**: A qualified custodian should have up-to-date cybersecurity measures such as cold (offline) storage, multi-signature wallets, multiparty computation, biometrics, and hardware security modules. Robust protocols like proof of reserves should be audited regularly. Insurance coverage would add another layer of protection. Advanced cybersecurity standards include penetration testing, data encryption, protection against distributed [denial of service](https://www.investopedia.com/terms/d/denial-service-attack-dos.asp) (DDoS), and 24/7 monitoring to prevent breaches and data loss. * **Asset segregation**: Custodians should segregate your assets from their own holdings. Proper protocols prevent the mingling of funds and help protect your assets in cases like [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp). * **Transparency**: Custodians should be fully transparent about how holdings are secured and managed, which requires frequent [auditing](https://www.investopedia.com/terms/a/audit.asp) and reporting. Real-time account overview and transaction tracking should be available so that your holdings are also visible to you. There should be no fudging in this area—legitimate and expert custodians won’t give you the runaround on any of this. ## Crypto Custodian Services and Offerings Crypto custodians offer various services, including hot wallets for quick access, cold storage for long-term security, and multi-signature wallets for enhanced security and accountability. Each has its benefits and risks. For example, hot wallets provide convenience but are more vulnerable to online attacks, while cold storage offers more security at the expense of accessibility. ### Reputation and Track Record A custodian’s reputation is a testament to their reliability. Evaluating a custodian involves reviewing their management, client feedback, and past security events. Due diligence should show that the custodian has a proven track record of reliability and trustworthiness. Here are the key parts of crypto custody services: * **Hot wallets**: [Hot wallets](https://www.investopedia.com/terms/h/hot-wallet.asp) are internet-connected wallets for active assets you use for frequent trading or transactions. Benefits include convenience and quick access, but the major drawback is the greater risk of hacking or loss. * **Cold storage**:[Cold wallets](https://www.investopedia.com/hot-wallet-vs-cold-wallet-7098461#toc-cold-wallets-explained) are offline, with private keys stored on hardware not connected to the internet. The benefit is that this is extremely secure against online threats. The drawback is that it’s offline for making trades or transfers. Another drawback: You don’t want to join the too-long list of people who have lost their crypto thumb drive or other cold storage device or made it inaccessible for other reasons. * **Multi-signature wallets**: “Multisig” wallets require several keys to make transactions (e.g., three out of five authorized keys). Benefits include greater security, loss prevention, and oversight. Drawbacks include slower transfer speeds and the need to coordinate key holders. * **Hybrid models**: This is a combination of hot wallets and cold storage for both security and convenience. Hybrid models allow quick transfers from hot wallets while the bulk of your assets are offline. * **Institutional grade vaults**: Physical high-security vaults and bunkers for storing crypto assets offline have the highest level of asset security. * **Insurance coverage**:A qualified custodian should have comprehensive insurance coverage, including internal and external policies, to offer complete asset protection. Custodians should also give you flexibility to customize your coverage based on your needs. ## Crypto Custodian Trading Capabilities and Integration The ideal crypto custodian offers seamless integration with [cryptocurrency exchanges](https://www.investopedia.com/best-crypto-exchanges-5071855) and robust trading capabilities. Thus, they are responding to the need for seamless exchange integration while keeping assets secure. Look for custodians with a comprehensive trading platform alongside asset storage, enabling easy access to liquidity across exchanges like Coinbase, Kraken, and Binance for rapid trading, lower slippage, and application programming interface capabilities from your secure client account. Streamlined trading integration improves liquidity and lets you capitalize on market opportunities faster while protecting assets. A custodian platform with trading functionality, research tools, and real-time market data would enable savvy crypto investing, all from your custody account. ### The SEC has warned that crypto exchanges do not automatically count as qualified custodians. ## Crypto Custodian Fees and Pricing The costs for a crypto custodian depend on the platform and the type of services offered. Generally, there are three types of fees you’ll encounter: * **Custody fee**: This is charged annually as a percentage of the value of the assets under custody. It’s usually less than 1%, but it can depend on the provider and the amount of assets you store with them. For example, [Gemini](https://www.investopedia.com/terms/g/gemini-exchange.asp) Custody charges 0.4% or $30 per month per asset, whichever is higher. * **Setup fee**: A flat fee is charged for opening a custodial account with the provider. Some firms waive this fee and let you open an account for free, while others charge a one-time fee ranging from a few hundred to a few thousand dollars. For example, Casa charges $252 per year for its standard plan, which includes a multisig wallet and a hardware device. * **Withdrawal fee**: This is charged every time you withdraw crypto from your custodial account. The fee depends on the provider and the amount of crypto you withdraw. Some providers charge a flat fee, while others charge a percentage-based fee. Etana, for example, charges $35 for each outgoing [wire transfer](https://www.investopedia.com/terms/w/wiretransfer.asp). Along with these fees, you should consider the provider’s security, reliability, reputation, assets and currencies supported, insurance coverage, and customer service. ## Choosing a Qualified Crypto Custodian First, do your research and compile background information on potential custodians, including how long they’ve been in business, who’s on the management team, the number of clients, the amount of assets under custody, and their reputation. Search for media coverage and independent reviews to help you make a more objective evaluation. When you’ve narrowed your list of possible custodians, find online or request documents like audit reports, insurance policy coverage, security protocols, regulatory compliance certificates, and service level agreements. Don’t be afraid to ask detailed questions on infrastructure, encryption methods, cold storage procedures, insurance claim processes, and incident response plans. Here is a checklist of factors to pay attention to when deciding: * Regulatory licenses and compliance * Independent third-party audits * Multi-signature wallets * Cold storage amount and procedures * Insurance coverage and limits * Security protocols and encryption * Transparent proof-of-reserves reporting * Experience and tenure in the industry * Client asset segregation methods * Reputation and client satisfaction * Exchange trading integration Conducting thorough due diligence is essential to find a custodian that meets your security needs and [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp). Prioritize regulatory compliance, auditing, infrastructure, and insurance when making this critical choice. ## Examples of Crypto Custodians Many crypto custodians are in the market, and many more financial firms are developing the ability to offer these services. Here are the most reputable and popular: * **Anchorage Digital**: Anchorage Digital is a regulated and compliant crypto management and custody platform. It offers staking, governance, trading, lending, and borrowing. * **Coinbase Custody**: The exchange giant [Coinbase](https://www.investopedia.com/tech/coinbase-what-it-and-how-do-you-use-it/) offers institutional custody products as part of its Coinbase Prime platform. It supports over 400 assets and provides cold storage, insurance, and audit trails. Clients can access other Coinbase products for trading, lending, and borrowing. * **Fireblocks**: Fireblocks is a crypto custody provider that uses a secure transfer network to move funds among wallets, exchanges, and other platforms. It also offers multiparty computation technology, which eliminates the need for private keys and should reduce the risk of theft. Fireblocks supports over 50 blockchains and is integrated with over 1,800 partners and global network participants. * **Fidelity**: Fidelity offers crypto custody services through its subsidiary, [Fidelity Digital Assets](https://www.investopedia.com/investing/why-fidelity-got-bitcoin/). It provides secure storage, trade execution, and client support for institutional investors. It also offers research on the crypto market and industry trends. Fidelity Digital Assets also provides services for Fidelity Crypto, enabling individual investors to buy and sell digital assets in its Fidelity Investments app. * **BitGo**: BitGo is a popular crypto custody provider that provides institutional-grade security, multi-signature authentication, and insurance coverage. It safeguards over 600 tokens and offers trading, lending, and borrowing services. It also provides compliance and reporting tools. * **Casa**: Casa is a crypto custody company that offers a self-custody solution using multi-signature technology, hardware devices, and a recovery key to secure crypto. Casa also offers an inheritance product for designating a third-party executor who can access your bitcoins in case of death or incapacitation. * **Gemini**: Gemini is a regulated and compliant crypto exchange and custodian that offers trading, lending, borrowing, and staking. Gemini Custody uses multi-signature technology, role-based governance protocols, physical security, and biometric access controls to guard customer assets. Gemini also provides insurance coverage for up to $75 million of digital assets in cold storage. Gemini Custody supports over 100 crypto assets, including bitcoin, [ether](https://www.investopedia.com/terms/e/ether-cryptocurrency.asp), and various stablecoins and [ERC-20 tokens](https://www.investopedia.com/news/what-erc20-and-what-does-it-mean-ethereum/). * **Etana:** Etana is a licensed and secure digital asset custody provider that operates globally. Etana’s custody platform uses hot, cold, or multiparty computation wallets for cryptocurrencies, [stablecoins](https://www.investopedia.com/terms/s/stablecoin.asp), NFTs, and other digital assets. Etana also provides fiat currency custody, trade support, and securitization services. Etana works with financial institutions and crypto exchanges to provide secure and scalable digital asset products. ## Why Would I Need a Crypto Custodian? Custodians provide greater security against threats like hacks, fraud, and lost private keys. They can mitigate the risks associated with self-custody through robust protocols and insurance protections. For large crypto holders, regulated custodians add oversight and financial controls. ## What Is Self-Custody in Crypto? Self-custody is when the owner of digital assets holds and controls their own private keys, which are essentially the passwords that grant access to these tokens and funds. Self-custody can be done using hardware devices, software wallets, or [paper wallets](https://www.investopedia.com/terms/p/paper-wallet.asp). ## Do Custodians Provide Staking Rewards for Proof-of-Stake (PoS) Tokens? Some custody services of [proof-of-stake (PoS)](https://www.investopedia.com/terms/p/proof-stake-pos.asp) coins give [staking rewards](https://www.investopedia.com/best-crypto-staking-platforms-7486033) to users. Staking is [locking or delegating crypto holdings](https://www.investopedia.com/total-value-locked-7486821) to secure the blockchain network and earn rewards. However, not all custody services offer staking options, and the rewards depend on the type and amount of coins, the level of service, and the fees involved. ## The Bottom Line Selecting a qualified crypto custodian is crucial for the security and protection of your digital assets. It requires careful consideration of regulatory compliance, security standards, service offerings, reputation, insurance coverage, and fees. Making an informed decision in this selection process helps safeguard your digital assets for a more secure crypto investment experience. *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.* *Correction*—*Dec. 4, 2023:* This article has been corrected to remove incorrect information about Anchorage Digital.

In the volatile world of cryptocurrencies, safeguarding your digital assets is all-important. Crypto custodians are crucial in this ecosystem, providing secure storage and managing digital assets. You can do self-custody, which gives you control but brings significant risks, such as potentially losing your private keys and passwords or managing security breaches yourself. Custodians can mitigate these risks by using sophisticated security protocols and policies. Choosing the right custodian is critical for protecting your digital holdings. If cryptocurrencies are to gain much wider adoption, then robust custody products will be essential for individual and institutional investors alike. Key Takeaways Qualified crypto custodians are trusted third parties you use to secure your digital assets.They offer services to prevent the loss or mismanagement of private keys, hacking, or theft.Different custody services cater to varying needs and potential risks.Checking a custodian’s reputation and track record is essential.Fees should align with the services and level of security offered. Understanding Crypto Custody A qualified crypto custodian is a financial institution expert in guarding and managing your digital assets like cryptocurrencies and non-fungible tokens (NFTs). Custodians securely store the assets and support digital transactions with advanced cryptography and hardware security measures. By contrast, self-custody is when you secure your own private keys. While this gives you complete control, you’re on your own in case of forgotten keys and passwords, hacked devices, or simple mistakes. Crypto custodians should prevent these risks through robust protocols like multi-signature wallets and offline cold storage. Custody services usually include insurance coverage, regulated storage, account monitoring, reporting, and transaction processing. For cryptocurrencies, custody services are essential to protect holdings from theft, loss, or misuse. Interested in crypto? Use this guide to discuss with an advisor. Crypto Custodian Regulatory Compliance and Security Standards A qualified custodian not only guards assets but also complies with the relevant laws, regulations, and best practices. These standards, set by organizations like the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC), should ensure your custodian has robust security protocols in place to protect digital assets. It’s vital for you to select a custodian that meets these regulatory requirements and has up-to-date security measures, like encryption and multifactor authentication, to prevent unauthorized access and other cybersecurity threats. Here are key elements you should spot if a custodian is worth your business: Regulatory compliance: Custodians should follow the relevant laws and regulations, including Know Your Customer (KYC) and anti-money laundering (AML) rules. Proper licensing and oversight should help you breathe easier, knowing that your custodian meets reporting, auditing, and fraud detection standards. This provides accountability and gives you some recourse if anything goes wrong. Security standards: A qualified custodian should have up-to-date cybersecurity measures such as cold (offline) storage, multi-signature wallets, multiparty computation, biometrics, and hardware security modules. Robust protocols like proof of reserves should be audited regularly. Insurance coverage would add another layer of protection. Advanced cybersecurity standards include penetration testing, data encryption, protection against distributed denial of service (DDoS), and 24/7 monitoring to prevent breaches and data loss. Asset segregation: Custodians should segregate your assets from their own holdings. Proper protocols prevent the mingling of funds and help protect your assets in cases like bankruptcy. Transparency: Custodians should be fully transparent about how holdings are secured and managed, which requires frequent auditing and reporting. Real-time account overview and transaction tracking should be available so that your holdings are also visible to you. There should be no fudging in this area—legitimate and expert custodians won’t give you the runaround on any of this. Crypto Custodian Services and Offerings Crypto custodians offer various services, including hot wallets for quick access, cold storage for long-term security, and multi-signature wallets for enhanced security and accountability. Each has its benefits and risks. For example, hot wallets provide convenience but are more vulnerable to online attacks, while cold storage offers more security at the expense of accessibility. Reputation and Track Record A custodian’s reputation is a testament to their reliability. Evaluating a custodian involves reviewing their management, client feedback, and past security events. Due diligence should show that the custodian has a proven track record of reliability and trustworthiness. Here are the key parts of crypto custody services: Hot wallets: Hot wallets are internet-connected wallets for active assets you use for frequent trading or transactions. Benefits include convenience and quick access, but the major drawback is the greater risk of hacking or loss. Cold storage: Cold wallets are offline, with private keys stored on hardware not connected to the internet. The benefit is that this is extremely secure against online threats. The drawback is that it’s offline for making trades or transfers. Another drawback: You don’t want to join the too-long list of people who have lost their crypto thumb drive or other cold storage device or made it inaccessible for other reasons. Multi-signature wallets: “Multisig” wallets require several keys to make transactions (e.g., three out of five authorized keys). Benefits include greater security, loss prevention, and oversight. Drawbacks include slower transfer speeds and the need to coordinate key holders. Hybrid models: This is a combination of hot wallets and cold storage for both security and convenience. Hybrid models allow quick transfers from hot wallets while the bulk of your assets are offline. Institutional grade vaults: Physical high-security vaults and bunkers for storing crypto assets offline have the highest level of asset security. Insurance coverage: A qualified custodian should have comprehensive insurance coverage, including internal and external policies, to offer complete asset protection. Custodians should also give you flexibility to customize your coverage based on your needs. Crypto Custodian Trading Capabilities and Integration The ideal crypto custodian offers seamless integration with cryptocurrency exchanges and robust trading capabilities. Thus, they are responding to the need for seamless exchange integration while keeping assets secure. Look for custodians with a comprehensive trading platform alongside asset storage, enabling easy access to liquidity across exchanges like Coinbase, Kraken, and Binance for rapid trading, lower slippage, and application programming interface capabilities from your secure client account. Streamlined trading integration improves liquidity and lets you capitalize on market opportunities faster while protecting assets. A custodian platform with trading functionality, research tools, and real-time market data would enable savvy crypto investing, all from your custody account. The SEC has warned that crypto exchanges do not automatically count as qualified custodians. Crypto Custodian Fees and Pricing The costs for a crypto custodian depend on the platform and the type of services offered. Generally, there are three types of fees you’ll encounter: Custody fee: This is charged annually as a percentage of the value of the assets under custody. It’s usually less than 1%, but it can depend on the provider and the amount of assets you store with them. For example, Gemini Custody charges 0.4% or $30 per month per asset, whichever is higher. Setup fee: A flat fee is charged for opening a custodial account with the provider. Some firms waive this fee and let you open an account for free, while others charge a one-time fee ranging from a few hundred to a few thousand dollars. For example, Casa charges $252 per year for its standard plan, which includes a multisig wallet and a hardware device. Withdrawal fee: This is charged every time you withdraw crypto from your custodial account. The fee depends on the provider and the amount of crypto you withdraw. Some providers charge a flat fee, while others charge a percentage-based fee. Etana, for example, charges $35 for each outgoing wire transfer. Along with these fees, you should consider the provider’s security, reliability, reputation, assets and currencies supported, insurance coverage, and customer service. Choosing a Qualified Crypto Custodian First, do your research and compile background information on potential custodians, including how long they’ve been in business, who’s on the management team, the number of clients, the amount of assets under custody, and their reputation. Search for media coverage and independent reviews to help you make a more objective evaluation. When you’ve narrowed your list of possible custodians, find online or request documents like audit reports, insurance policy coverage, security protocols, regulatory compliance certificates, and service level agreements. Don’t be afraid to ask detailed questions on infrastructure, encryption methods, cold storage procedures, insurance claim processes, and incident response plans. Here is a checklist of factors to pay attention to when deciding: Regulatory licenses and complianceIndependent third-party auditsMulti-signature walletsCold storage amount and proceduresInsurance coverage and limitsSecurity protocols and encryptionTransparent proof-of-reserves reportingExperience and tenure in the industryClient asset segregation methodsReputation and client satisfactionExchange trading integration Conducting thorough due diligence is essential to find a custodian that meets your security needs and risk tolerance. Prioritize regulatory compliance, auditing, infrastructure, and insurance when making this critical choice. Examples of Crypto Custodians Many crypto custodians are in the market, and many more financial firms are developing the ability to offer these services. Here are the most reputable and popular: Anchorage Digital: Anchorage Digital is a regulated and compliant crypto management and custody platform. It offers staking, governance, trading, lending, and borrowing. Coinbase Custody: The exchange giant Coinbase offers institutional custody products as part of its Coinbase Prime platform. It supports over 400 assets and provides cold storage, insurance, and audit trails. Clients can access other Coinbase products for trading, lending, and borrowing. Fireblocks: Fireblocks is a crypto custody provider that uses a secure transfer network to move funds among wallets, exchanges, and other platforms. It also offers multiparty computation technology, which eliminates the need for private keys and should reduce the risk of theft. Fireblocks supports over 50 blockchains and is integrated with over 1,800 partners and global network participants. Fidelity: Fidelity offers crypto custody services through its subsidiary, Fidelity Digital Assets. It provides secure storage, trade execution, and client support for institutional investors. It also offers research on the crypto market and industry trends. Fidelity Digital Assets also provides services for Fidelity Crypto, enabling individual investors to buy and sell digital assets in its Fidelity Investments app. BitGo: BitGo is a popular crypto custody provider that provides institutional-grade security, multi-signature authentication, and insurance coverage. It safeguards over 600 tokens and offers trading, lending, and borrowing services. It also provides compliance and reporting tools. Casa: Casa is a crypto custody company that offers a self-custody solution using multi-signature technology, hardware devices, and a recovery key to secure crypto. Casa also offers an inheritance product for designating a third-party executor who can access your bitcoins in case of death or incapacitation. Gemini: Gemini is a regulated and compliant crypto exchange and custodian that offers trading, lending, borrowing, and staking. Gemini Custody uses multi-signature technology, role-based governance protocols, physical security, and biometric access controls to guard customer assets. Gemini also provides insurance coverage for up to $75 million of digital assets in cold storage. Gemini Custody supports over 100 crypto assets, including bitcoin, ether, and various stablecoins and ERC-20 tokens. Etana: Etana is a licensed and secure digital asset custody provider that operates globally. Etana’s custody platform uses hot, cold, or multiparty computation wallets for cryptocurrencies, stablecoins, NFTs, and other digital assets. Etana also provides fiat currency custody, trade support, and securitization services. Etana works with financial institutions and crypto exchanges to provide secure and scalable digital asset products. Why Would I Need a Crypto Custodian? Custodians provide greater security against threats like hacks, fraud, and lost private keys. They can mitigate the risks associated with self-custody through robust protocols and insurance protections. For large crypto holders, regulated custodians add oversight and financial controls. What Is Self-Custody in Crypto? Self-custody is when the owner of digital assets holds and controls their own private keys, which are essentially the passwords that grant access to these tokens and funds. Self-custody can be done using hardware devices, software wallets, or paper wallets. Do Custodians Provide Staking Rewards for Proof-of-Stake (PoS) Tokens? Some custody services of proof-of-stake (PoS) coins give staking rewards to users. Staking is locking or delegating crypto holdings to secure the blockchain network and earn rewards. However, not all custody services offer staking options, and the rewards depend on the type and amount of coins, the level of service, and the fees involved. The Bottom Line Selecting a qualified crypto custodian is crucial for the security and protection of your digital assets. It requires careful consideration of regulatory compliance, security standards, service offerings, reputation, insurance coverage, and fees. Making an informed decision in this selection process helps safeguard your digital assets for a more secure crypto investment experience. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. Correction—Dec. 4, 2023: This article has been corrected to remove incorrect information about Anchorage Digital.

https://www.investopedia.com/ric-edelman-teach-kids-financial-literacy-4684227

The Most Important Lesson You Are Not Teaching Your Kids

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Are your kids smart with money? Probably not! Nearly every survey on the subject shows that most adults—let alone kids—can’t answer the most basic questions about credit and debt, or saving and investing. Let’s not even try to discuss amortization and depreciation! </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Financial literacy is a key set of skills for navigating personal finances and investments.</li> <li>Nonetheless, most Americans score poorly on financial literacy, with potentially bad outcomes as a result.</li> <li>While they don't usually teach it in school, parents can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/everyday-activities-that-can-teach-financial-literacy-to-kids-5091909">promote financial literacy for their children</a>.</li> <li>Here, we go over a few key tenets of financial literacy that you can teach your kids.</li> </ul></div></div></div> <span class="heading-toc" id="toc-pitfalls-of-financial-illiteracy"></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"> Pitfalls of Financial Illiteracy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Yet, we all know the ruinous impact of financial illiteracy. In Q2 of 2021, the average 401(k) balance is $129,300, according to Fidelity.<span class="ql-inline-citation" data-cite="1"></span> And, as of 2018, almost 60% of working-age Americans have no retirement savings at all, according to the National Institute on Retirement Savings.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> That’s not the worst of it. The Federal Reserve says in 2020, 30% of Americans didn't have the cash to pay an unexpected bill of $400, and the 2019 government shutdown revealed that 78% of employees are living paycheck-to-paycheck.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> There can be no doubt that Americans are unprepared for retirement, and with 10,000 workers reaching age 65 every day, our nation is facing a retirement security crisis of unprecedented magnitude.<span class="ql-inline-citation" data-cite="5"></span> If you want your kids to avoid this fate, you must make sure they become financially literate. That means, quite simply, that we must teach them about money while they’re young. </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"> As obvious as this idea is, few children are getting the education they need. In 2020, only 21 states require high-school students to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-literacy.asp">study financial literacy</a> before they receive a diploma, according to the Council for Economic Education, and most employers provide little to no financial education in the workplace.<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_13-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_14-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:79.1%;"> <img alt="Financial Education Map" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/RrDVb-AEu7Qa8m6yXd7O4l4UkJg=/1339x0/filters:no_upscale():max_bytes(150000):strip_icc()/Clipboard01-bc06a07d325148388f838c8a4c207765.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/kna7P28Yzx_LKDrUA9IF7w_7qsE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Clipboard01-bc06a07d325148388f838c8a4c207765.jpg" data-srcset="https://www.investopedia.com/thmb/Fy5kd5tQ9AKCNfM48Z1wYe0tP1I=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Clipboard01-bc06a07d325148388f838c8a4c207765.jpg 750w" data-tracking-container="true" height="1060" id="mntl-sc-block-image_1-0" width="1339"/> <noscript> <img alt="Financial Education Map" class="img--noscript universal-image__image" height="1060" sizes="750px" src="https://www.investopedia.com/thmb/kna7P28Yzx_LKDrUA9IF7w_7qsE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Clipboard01-bc06a07d325148388f838c8a4c207765.jpg" srcset="https://www.investopedia.com/thmb/Fy5kd5tQ9AKCNfM48Z1wYe0tP1I=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Clipboard01-bc06a07d325148388f838c8a4c207765.jpg 750w" width="1339"/> </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">Financial Education Map.</span> <span class="figure-article-caption-owner"><p>Next Gen Personal Finance</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <em>Source: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ngpf.org/blog/advocacy/how-many-states-require-students-to-take-a-personal-finance-course-before-graduating-from-high-school-is-it-6-or-is-it-21/">Net Gen Personal Finance</a></em><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-parents-the-burden-is-on-you"></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"> Parents, the Burden Is on You </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Yep, financial education has to start at home—and long before the kids enter high school. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Studies show that children make their first assisted purchases at age 3 (choosing the cereal box in grocery stores is the most common initial purchase), while allowances, which create opportunities for discretionary spending, often start at age 6.<span class="ql-inline-citation" data-cite="8"></span> </blockquote> <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’re already talking to your kids about everything—religion, politics, sex, you name it. Everything, that is, except money. It’s not because you’re afraid of the subject. Rather, you simply don’t know what to say. </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"> That’s what was discovered in a survey of parents. Nearly nine in 10 parents of 4- to 8-year-old children (89%) feel it's extremely important that their kids grow up with good financial habits, and nearly as many parents (91%) agree they should be the ones teaching their children these habits.<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_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> But virtually half of parents (49%) say they don’t know how to discuss money in ways they think their kids would actually understand. As a result, one in four parents never (or almost never) talk to their kids about household finances. </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-principles-of-financial-literacy"></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"> Principles of Financial Literacy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> So let me help you. Start with <em>The Squirrel Manifesto,</em> the best-selling children’s book that Jean Edelman, my wife, and I wrote in 2018 for 4- to 8-year-olds. It sets the stage for having effective, meaningful conversations with your children, from tots to teens. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Your kids learn both by observing your behavior and through their own experiences. From allowances and birthday money to cash, they’ll one day earn babysitting or mowing lawns, set your children on the path to a lifetime of fiscal responsibility through thoughtful, intentional money habits. </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"> Here are four principles to begin teaching your children financial literacy: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <li><strong>Tax a little.</strong> Kids need to be taught <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/teaching-financial-literacy-starting-early-7372094">from a very early age</a> that they don’t get to keep everything they earn. Just as the government collects a third of your income in taxes, you should withhold one-third of your child’s allowance, birthday money, or babysitting earnings. Call it a tax to get them used to the fact that they <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/teens-and-income-taxes-7152618">can’t keep everything they earn</a>—making them adjust their spending and saving plans accordingly. Then, without the child’s knowledge, put the “taxes” into a savings or investment account. When your child is ready to buy a car or go to college, hand over the account. They'll think you’re a hero, and they’ll see firsthand the value of delayed gratification and long-term investing.</li> <li><strong>Spend a little.</strong> One of the more obvious benefits of money is the joy of spending it. Allow your child to buy something they truly want—a comic book, toy, candy (purchases always subject to your approval, of course!)—so they can develop a positive relationship with money, based on a mindset of earning in order to spend.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Save a little.</strong> Not every item the child wants can be purchased immediately, as some items simply cost more than the child has available to spend. So, if your kid wants a video game, bicycle, smartphone, car, or college education—start every spending goal with a savings plan. By training them to save for long-term goals, you’ll be teaching the benefit of delayed gratification and arming them with the skills they need to avoid impulse buying.</li> <li><strong>Give a little.</strong> Children should be taught that the opportunities that come with money are also imbued with the responsibility and obligation to serve those who are less fortunate. For every dollar your child receives, decide on a portion that will go to philanthropy. The amount should be consistent, meaning that every time the child receives or earns money, the percentage must be material to reflect true sacrifice and service. Let the child decide who receives the money, whether it’s a religious institution, charity, or friend in need, and in the process, they might discover that sometimes the greatest joy in spending comes not from spending on themselves, but in supporting and caring for others.</li> </ol> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-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"> By teaching your kids foundational principles of spending and saving at an early age, you can help them form positive financial habits that will last their entire lives. </p></div>

Are your kids smart with money? Probably not! Nearly every survey on the subject shows that most adults—let alone kids—can’t answer the most basic questions about credit and debt, or saving and investing. Let’s not even try to discuss amortization and depreciation! ### Key Takeaways * Financial literacy is a key set of skills for navigating personal finances and investments. * Nonetheless, most Americans score poorly on financial literacy, with potentially bad outcomes as a result. * While they don't usually teach it in school, parents can [promote financial literacy for their children](https://www.investopedia.com/everyday-activities-that-can-teach-financial-literacy-to-kids-5091909). * Here, we go over a few key tenets of financial literacy that you can teach your kids. ## Pitfalls of Financial Illiteracy Yet, we all know the ruinous impact of financial illiteracy. In Q2 of 2021, the average 401(k) balance is $129,300, according to Fidelity. And, as of 2018, almost 60% of working-age Americans have no retirement savings at all, according to the National Institute on Retirement Savings. That’s not the worst of it. The Federal Reserve says in 2020, 30% of Americans didn't have the cash to pay an unexpected bill of $400, and the 2019 government shutdown revealed that 78% of employees are living paycheck-to-paycheck. There can be no doubt that Americans are unprepared for retirement, and with 10,000 workers reaching age 65 every day, our nation is facing a retirement security crisis of unprecedented magnitude. If you want your kids to avoid this fate, you must make sure they become financially literate. That means, quite simply, that we must teach them about money while they’re young. As obvious as this idea is, few children are getting the education they need. In 2020, only 21 states require high-school students to [study financial literacy](https://www.investopedia.com/terms/f/financial-literacy.asp) before they receive a diploma, according to the Council for Economic Education, and most employers provide little to no financial education in the workplace. ![Financial Education Map]() :max_bytes(150000):strip_icc()/Clipboard01-bc06a07d325148388f838c8a4c207765.jpg) Financial Education Map. Next Gen Personal Finance *Source: [Net Gen Personal Finance](https://www.ngpf.org/blog/advocacy/how-many-states-require-students-to-take-a-personal-finance-course-before-graduating-from-high-school-is-it-6-or-is-it-21/)* ## Parents, the Burden Is on You Yep, financial education has to start at home—and long before the kids enter high school. > Studies show that children make their first assisted purchases at age 3 (choosing the cereal box in grocery stores is the most common initial purchase), while allowances, which create opportunities for discretionary spending, often start at age 6. You’re already talking to your kids about everything—religion, politics, sex, you name it. Everything, that is, except money. It’s not because you’re afraid of the subject. Rather, you simply don’t know what to say. That’s what was discovered in a survey of parents. Nearly nine in 10 parents of 4- to 8-year-old children (89%) feel it's extremely important that their kids grow up with good financial habits, and nearly as many parents (91%) agree they should be the ones teaching their children these habits. But virtually half of parents (49%) say they don’t know how to discuss money in ways they think their kids would actually understand. As a result, one in four parents never (or almost never) talk to their kids about household finances. ## Principles of Financial Literacy So let me help you. Start with *The Squirrel Manifesto,* the best-selling children’s book that Jean Edelman, my wife, and I wrote in 2018 for 4- to 8-year-olds. It sets the stage for having effective, meaningful conversations with your children, from tots to teens. Your kids learn both by observing your behavior and through their own experiences. From allowances and birthday money to cash, they’ll one day earn babysitting or mowing lawns, set your children on the path to a lifetime of fiscal responsibility through thoughtful, intentional money habits. Here are four principles to begin teaching your children financial literacy: 1. **Tax a little.** Kids need to be taught [from a very early age](https://www.investopedia.com/teaching-financial-literacy-starting-early-7372094) that they don’t get to keep everything they earn. Just as the government collects a third of your income in taxes, you should withhold one-third of your child’s allowance, birthday money, or babysitting earnings. Call it a tax to get them used to the fact that they [can’t keep everything they earn](https://www.investopedia.com/teens-and-income-taxes-7152618)—making them adjust their spending and saving plans accordingly. Then, without the child’s knowledge, put the “taxes” into a savings or investment account. When your child is ready to buy a car or go to college, hand over the account. They'll think you’re a hero, and they’ll see firsthand the value of delayed gratification and long-term investing. 2. **Spend a little.** One of the more obvious benefits of money is the joy of spending it. Allow your child to buy something they truly want—a comic book, toy, candy (purchases always subject to your approval, of course!)—so they can develop a positive relationship with money, based on a mindset of earning in order to spend. 4. **Save a little.** Not every item the child wants can be purchased immediately, as some items simply cost more than the child has available to spend. So, if your kid wants a video game, bicycle, smartphone, car, or college education—start every spending goal with a savings plan. By training them to save for long-term goals, you’ll be teaching the benefit of delayed gratification and arming them with the skills they need to avoid impulse buying. 5. **Give a little.** Children should be taught that the opportunities that come with money are also imbued with the responsibility and obligation to serve those who are less fortunate. For every dollar your child receives, decide on a portion that will go to philanthropy. The amount should be consistent, meaning that every time the child receives or earns money, the percentage must be material to reflect true sacrifice and service. Let the child decide who receives the money, whether it’s a religious institution, charity, or friend in need, and in the process, they might discover that sometimes the greatest joy in spending comes not from spending on themselves, but in supporting and caring for others. ## The Bottom Line By teaching your kids foundational principles of spending and saving at an early age, you can help them form positive financial habits that will last their entire lives.

Are your kids smart with money? Probably not! Nearly every survey on the subject shows that most adults—let alone kids—can’t answer the most basic questions about credit and debt, or saving and investing. Let’s not even try to discuss amortization and depreciation! Key Takeaways Financial literacy is a key set of skills for navigating personal finances and investments. Nonetheless, most Americans score poorly on financial literacy, with potentially bad outcomes as a result. While they don't usually teach it in school, parents can promote financial literacy for their children. Here, we go over a few key tenets of financial literacy that you can teach your kids. Pitfalls of Financial Illiteracy Yet, we all know the ruinous impact of financial illiteracy. In Q2 of 2021, the average 401(k) balance is $129,300, according to Fidelity. And, as of 2018, almost 60% of working-age Americans have no retirement savings at all, according to the National Institute on Retirement Savings. That’s not the worst of it. The Federal Reserve says in 2020, 30% of Americans didn't have the cash to pay an unexpected bill of $400, and the 2019 government shutdown revealed that 78% of employees are living paycheck-to-paycheck. There can be no doubt that Americans are unprepared for retirement, and with 10,000 workers reaching age 65 every day, our nation is facing a retirement security crisis of unprecedented magnitude. If you want your kids to avoid this fate, you must make sure they become financially literate. That means, quite simply, that we must teach them about money while they’re young. As obvious as this idea is, few children are getting the education they need. In 2020, only 21 states require high-school students to study financial literacy before they receive a diploma, according to the Council for Economic Education, and most employers provide little to no financial education in the workplace. Financial Education Map. Next Gen Personal Finance Source: Net Gen Personal Finance Parents, the Burden Is on You Yep, financial education has to start at home—and long before the kids enter high school. Studies show that children make their first assisted purchases at age 3 (choosing the cereal box in grocery stores is the most common initial purchase), while allowances, which create opportunities for discretionary spending, often start at age 6. You’re already talking to your kids about everything—religion, politics, sex, you name it. Everything, that is, except money. It’s not because you’re afraid of the subject. Rather, you simply don’t know what to say. That’s what was discovered in a survey of parents. Nearly nine in 10 parents of 4- to 8-year-old children (89%) feel it's extremely important that their kids grow up with good financial habits, and nearly as many parents (91%) agree they should be the ones teaching their children these habits. But virtually half of parents (49%) say they don’t know how to discuss money in ways they think their kids would actually understand. As a result, one in four parents never (or almost never) talk to their kids about household finances. Principles of Financial Literacy So let me help you. Start with The Squirrel Manifesto, the best-selling children’s book that Jean Edelman, my wife, and I wrote in 2018 for 4- to 8-year-olds. It sets the stage for having effective, meaningful conversations with your children, from tots to teens. Your kids learn both by observing your behavior and through their own experiences. From allowances and birthday money to cash, they’ll one day earn babysitting or mowing lawns, set your children on the path to a lifetime of fiscal responsibility through thoughtful, intentional money habits. Here are four principles to begin teaching your children financial literacy: Tax a little. Kids need to be taught from a very early age that they don’t get to keep everything they earn. Just as the government collects a third of your income in taxes, you should withhold one-third of your child’s allowance, birthday money, or babysitting earnings. Call it a tax to get them used to the fact that they can’t keep everything they earn—making them adjust their spending and saving plans accordingly. Then, without the child’s knowledge, put the “taxes” into a savings or investment account. When your child is ready to buy a car or go to college, hand over the account. They'll think you’re a hero, and they’ll see firsthand the value of delayed gratification and long-term investing. Spend a little. One of the more obvious benefits of money is the joy of spending it. Allow your child to buy something they truly want—a comic book, toy, candy (purchases always subject to your approval, of course!)—so they can develop a positive relationship with money, based on a mindset of earning in order to spend. Save a little. Not every item the child wants can be purchased immediately, as some items simply cost more than the child has available to spend. So, if your kid wants a video game, bicycle, smartphone, car, or college education—start every spending goal with a savings plan. By training them to save for long-term goals, you’ll be teaching the benefit of delayed gratification and arming them with the skills they need to avoid impulse buying. Give a little. Children should be taught that the opportunities that come with money are also imbued with the responsibility and obligation to serve those who are less fortunate. For every dollar your child receives, decide on a portion that will go to philanthropy. The amount should be consistent, meaning that every time the child receives or earns money, the percentage must be material to reflect true sacrifice and service. Let the child decide who receives the money, whether it’s a religious institution, charity, or friend in need, and in the process, they might discover that sometimes the greatest joy in spending comes not from spending on themselves, but in supporting and caring for others. The Bottom Line By teaching your kids foundational principles of spending and saving at an early age, you can help them form positive financial habits that will last their entire lives.

https://www.investopedia.com/terms/r/ram-scraping-attack.asp

RAM Scraping Attack: What It is, How It Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-ram-scraping-attack"></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 RAM Scraping Attack? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A RAM scraping attack is an intrusion into the random access memory (RAM) of a retail sales terminal in order to steal consumer credit card information. This type of cybercrime has plagued retailers and their customers since at least 2008. </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"> RAM scraping is also called a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/point-of-sale.asp" rel="noopener noreferrer">point-of-sale</a> (POS) attack because the target is a terminal used to process retail transactions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <span class="heading-toc" id="toc-understanding-a-ram-scraping-attack"></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 a RAM Scraping Attack </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The first known RAM scraping attack was reported in an alert issued by the credit card company Visa Inc. in October 2008. The company's security team discovered that point-of-sale (POS) terminals used to process customer transactions using its cards had been accessed by hackers. The hackers had been able to obtain unencrypted customer information from the RAM in the terminals.<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> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_9-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_10-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A RAM scraping attack targets credit card transaction information stored temporarily in the point-of-sale terminal.</li><li>It is only one type of malware used to steal consumer information.</li><li>The notorious Home Depot and Target attacks used RAM scraping malware.</li><li>RAM scraping is thwarted by newer credit cards that use an embedded chip rather than a magnetic stripe.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The targets of the earliest attacks were mostly in the hospitality and retail industries, which process high volumes of credit card transactions at a large number of locations. By 2011, investigators were tracking an uptick in the introduction of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adware.asp" rel="noopener noreferrer">malware</a> bugs.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <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"> Notorious POS Attacks </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> S attacks did not gain widespread attention until 2013 and 2014 when hackers infiltrated the networks of the Target and Home Depot retail chains. The personal information of more than 40 million Target customers and 56 million Home Depot customers was stolen in those attacks, which were attributed to the use of a new spyware program known as BlackPOS.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The attacks continue, although RAM scrapers are now being replaced with more advanced types of malware such as screen grabbers and keystroke loggers. These are exactly what they sound like. They are malware programs designed to capture personal information when it is displayed or as it is entered and then transmit it to a third party. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-subheading__text"> How RAM Scrapers Work </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The plastic credit cards that we all carry contain two distinct sets of information. </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>The first set is embedded in the magnetic stripe and is invisible to the human eye. That stripe contains two tracks of information. The first track contains an alphanumeric sequence based on a standard developed by the International Air Transport Association (IATA). This sequence contains the account number, cardholder’s name, expiration date, and more in a sequence recognizable by any POS machine. The second track uses a shorter but analogous sequence developed by the American Bankers Association (ABA). There is a third track but it is little used.<span class="ql-inline-citation" data-cite="10"></span></li><li>The second piece of information is visible. It's the three- or four-digit code known as the card verification number (CVN) or card security code (CSC). This number adds an extra layer of security if it is not included in the electronic data contained in the magnetic stripe.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Screen grabbers and keystroke loggers are newer ways to steal credit card data.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The POS terminal collects all of the data in that first set, and sometimes the second code as well. The data is then held in the memory of that POS machine until it is periodically purged. </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"> When Data Is Vulnerable </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> As long as it is in temporary storage on the terminal, that information is vulnerable to RAM scrapers. </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"> Small merchants are a relatively easy target for cybercriminals since they can't devote a lot of resources to elaborate security systems. Larger retailers like Target and Home Depot are far more attractive because of the massive amounts of data they retain at any given time. </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"> Avoiding RAM Scraping </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Thwarting RAM scraping is mostly the job of the retailer, not the consumer. Luckily, a good deal of progress has been made since the infamous attacks on Home Depot and Target. </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"> Your credit card issuers have by now almost certainly sent you a new card that is inserted into a retailer's card reader rather than swiped along the side of it. The reader uses the chip embedded in the card rather than the older magnetic stripe. The purpose of this technology is to make a POS attack more difficult. </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"> Contactless payment by credit card is considered as safe as "dipping" a card. These are not yet universally accepted by retailers (or enabled by card issuers) but are increasingly an option. </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 took a long while for this switch to be fully put in place nationwide because it required every retailer who used the new system to buy new equipment in order to enable it. If you run across a retailer who still uses the old swipe readers, you might consider paying cash instead. </p></div>

## What Is a RAM Scraping Attack? A RAM scraping attack is an intrusion into the random access memory (RAM) of a retail sales terminal in order to steal consumer credit card information. This type of cybercrime has plagued retailers and their customers since at least 2008. RAM scraping is also called a [point-of-sale](https://www.investopedia.com/terms/p/point-of-sale.asp) (POS) attack because the target is a terminal used to process retail transactions. ## Understanding a RAM Scraping Attack The first known RAM scraping attack was reported in an alert issued by the credit card company Visa Inc. in October 2008. The company's security team discovered that point-of-sale (POS) terminals used to process customer transactions using its cards had been accessed by hackers. The hackers had been able to obtain unencrypted customer information from the RAM in the terminals. ### Key Takeaways * A RAM scraping attack targets credit card transaction information stored temporarily in the point-of-sale terminal. * It is only one type of malware used to steal consumer information. * The notorious Home Depot and Target attacks used RAM scraping malware. * RAM scraping is thwarted by newer credit cards that use an embedded chip rather than a magnetic stripe. The targets of the earliest attacks were mostly in the hospitality and retail industries, which process high volumes of credit card transactions at a large number of locations. By 2011, investigators were tracking an uptick in the introduction of [malware](https://www.investopedia.com/terms/a/adware.asp) bugs. ### Notorious POS Attacks S attacks did not gain widespread attention until 2013 and 2014 when hackers infiltrated the networks of the Target and Home Depot retail chains. The personal information of more than 40 million Target customers and 56 million Home Depot customers was stolen in those attacks, which were attributed to the use of a new spyware program known as BlackPOS. The attacks continue, although RAM scrapers are now being replaced with more advanced types of malware such as screen grabbers and keystroke loggers. These are exactly what they sound like. They are malware programs designed to capture personal information when it is displayed or as it is entered and then transmit it to a third party. ### How RAM Scrapers Work The plastic credit cards that we all carry contain two distinct sets of information. * The first set is embedded in the magnetic stripe and is invisible to the human eye. That stripe contains two tracks of information. The first track contains an alphanumeric sequence based on a standard developed by the International Air Transport Association (IATA). This sequence contains the account number, cardholder’s name, expiration date, and more in a sequence recognizable by any POS machine. The second track uses a shorter but analogous sequence developed by the American Bankers Association (ABA). There is a third track but it is little used. * The second piece of information is visible. It's the three- or four-digit code known as the card verification number (CVN) or card security code (CSC). This number adds an extra layer of security if it is not included in the electronic data contained in the magnetic stripe. ### Screen grabbers and keystroke loggers are newer ways to steal credit card data. The POS terminal collects all of the data in that first set, and sometimes the second code as well. The data is then held in the memory of that POS machine until it is periodically purged. ### When Data Is Vulnerable As long as it is in temporary storage on the terminal, that information is vulnerable to RAM scrapers. Small merchants are a relatively easy target for cybercriminals since they can't devote a lot of resources to elaborate security systems. Larger retailers like Target and Home Depot are far more attractive because of the massive amounts of data they retain at any given time. ### Avoiding RAM Scraping Thwarting RAM scraping is mostly the job of the retailer, not the consumer. Luckily, a good deal of progress has been made since the infamous attacks on Home Depot and Target. Your credit card issuers have by now almost certainly sent you a new card that is inserted into a retailer's card reader rather than swiped along the side of it. The reader uses the chip embedded in the card rather than the older magnetic stripe. The purpose of this technology is to make a POS attack more difficult. Contactless payment by credit card is considered as safe as "dipping" a card. These are not yet universally accepted by retailers (or enabled by card issuers) but are increasingly an option. It took a long while for this switch to be fully put in place nationwide because it required every retailer who used the new system to buy new equipment in order to enable it. If you run across a retailer who still uses the old swipe readers, you might consider paying cash instead.

What Is a RAM Scraping Attack? A RAM scraping attack is an intrusion into the random access memory (RAM) of a retail sales terminal in order to steal consumer credit card information. This type of cybercrime has plagued retailers and their customers since at least 2008. RAM scraping is also called a point-of-sale (POS) attack because the target is a terminal used to process retail transactions. Understanding a RAM Scraping Attack The first known RAM scraping attack was reported in an alert issued by the credit card company Visa Inc. in October 2008. The company's security team discovered that point-of-sale (POS) terminals used to process customer transactions using its cards had been accessed by hackers. The hackers had been able to obtain unencrypted customer information from the RAM in the terminals. Key Takeaways A RAM scraping attack targets credit card transaction information stored temporarily in the point-of-sale terminal.It is only one type of malware used to steal consumer information.The notorious Home Depot and Target attacks used RAM scraping malware.RAM scraping is thwarted by newer credit cards that use an embedded chip rather than a magnetic stripe. The targets of the earliest attacks were mostly in the hospitality and retail industries, which process high volumes of credit card transactions at a large number of locations. By 2011, investigators were tracking an uptick in the introduction of malware bugs. Notorious POS Attacks S attacks did not gain widespread attention until 2013 and 2014 when hackers infiltrated the networks of the Target and Home Depot retail chains. The personal information of more than 40 million Target customers and 56 million Home Depot customers was stolen in those attacks, which were attributed to the use of a new spyware program known as BlackPOS. The attacks continue, although RAM scrapers are now being replaced with more advanced types of malware such as screen grabbers and keystroke loggers. These are exactly what they sound like. They are malware programs designed to capture personal information when it is displayed or as it is entered and then transmit it to a third party. How RAM Scrapers Work The plastic credit cards that we all carry contain two distinct sets of information. The first set is embedded in the magnetic stripe and is invisible to the human eye. That stripe contains two tracks of information. The first track contains an alphanumeric sequence based on a standard developed by the International Air Transport Association (IATA). This sequence contains the account number, cardholder’s name, expiration date, and more in a sequence recognizable by any POS machine. The second track uses a shorter but analogous sequence developed by the American Bankers Association (ABA). There is a third track but it is little used.The second piece of information is visible. It's the three- or four-digit code known as the card verification number (CVN) or card security code (CSC). This number adds an extra layer of security if it is not included in the electronic data contained in the magnetic stripe. Screen grabbers and keystroke loggers are newer ways to steal credit card data. The POS terminal collects all of the data in that first set, and sometimes the second code as well. The data is then held in the memory of that POS machine until it is periodically purged. When Data Is Vulnerable As long as it is in temporary storage on the terminal, that information is vulnerable to RAM scrapers. Small merchants are a relatively easy target for cybercriminals since they can't devote a lot of resources to elaborate security systems. Larger retailers like Target and Home Depot are far more attractive because of the massive amounts of data they retain at any given time. Avoiding RAM Scraping Thwarting RAM scraping is mostly the job of the retailer, not the consumer. Luckily, a good deal of progress has been made since the infamous attacks on Home Depot and Target. Your credit card issuers have by now almost certainly sent you a new card that is inserted into a retailer's card reader rather than swiped along the side of it. The reader uses the chip embedded in the card rather than the older magnetic stripe. The purpose of this technology is to make a POS attack more difficult. Contactless payment by credit card is considered as safe as "dipping" a card. These are not yet universally accepted by retailers (or enabled by card issuers) but are increasingly an option. It took a long while for this switch to be fully put in place nationwide because it required every retailer who used the new system to buy new equipment in order to enable it. If you run across a retailer who still uses the old swipe readers, you might consider paying cash instead.

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

Temporal Method: What it Means, Examples

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-temporal-method"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is the Temporal Method? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The temporal method (also known as the historical method) converts the currency of a foreign subsidiary into the currency of the parent company. This technique of foreign <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency-translation.asp">currency translation</a> is used when the local currency of the subsidiary is not the same as the currency of the parent company. Differing <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchangerate.asp">exchange rates</a> are used depending on the financial statement item being translated. </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-the-temporal-method"></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 the Temporal Method </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> When a company has operations or subsidiaries in a country other than where the parent company is domiciled, the parent company must <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/remeasurement.asp">convert the values</a> on the foreign entity's financial statements back into the parent company's currency in order to calculate its profits and losses and generate the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-statements.asp">financial statements</a>. The currency used by the parent company is sometimes referred to as the subsidiary’s "<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/functional-currency.asp">functional currency</a>" or "reporting currency."  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The temporal method is used to convert the currency of a foreign subsidiary into the same currency as the parent company.</li><li>The parent company's currency is called the functional currency.</li><li>The currency translation technique allows the parent company to report profits or losses and file financial statements when it has subsidiaries outside of the country where it is domiciled.</li><li>Gains or losses due to exchange rate conversions are reported in the parent company's net earnings.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> If the subsidiary's functional currency differs from its local currency, the temporal method is used to perform currency translations. Exchange rate values are based on the time <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/functional-currency.asp">assets</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liability.asp">liabilities</a> are acquired or incurred, which makes it possible to convert the numbers on the books of an integrated foreign entity into the parent company's currency. </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"> Monetary assets and liabilities are converted using the exchange rate in effect as of the balance sheet date. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nonmonetary-assets.asp">Non-monetary assets</a> and liabilities are converted using the exchange rate in effect on the date of the transaction. Gains and losses due to foreign exchange are reported in net earnings. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-example-of-the-temporal-method"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Example of the Temporal Method </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> An example of the temporal method would be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subsidiary.asp">subsidiary</a> XYZ being domiciled in Great Britain. The local currency of XYZ is the British pound. However, if the majority of XYZ's clients reside in continental Europe, then it may conduct its business in euros. The euro would be the functional currency. In this instance, the parent company of XYZ would use the temporal method to translate XYZ's financial statements back into the currency used by the parent company. </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"> Monetary assets such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accountsreceivable.asp">accounts receivable</a>, investments, and cash are converted to the parent's currency at the exchange rate in effect on the balance sheet date. Non-monetary assets are longer-term assets—such as property, plant, and equipment—are converted using the exchange rate in effect on the date the asset was obtained. Since all foreign exchange gains and losses are reported in net earnings of the parent company, the result can be an increase in the volatility of the parent company's earnings if it has substantial income coming from subsidiaries in different countries. </p></div>

## What Is the Temporal Method? The temporal method (also known as the historical method) converts the currency of a foreign subsidiary into the currency of the parent company. This technique of foreign [currency translation](https://www.investopedia.com/terms/c/currency-translation.asp) is used when the local currency of the subsidiary is not the same as the currency of the parent company. Differing [exchange rates](https://www.investopedia.com/terms/e/exchangerate.asp) are used depending on the financial statement item being translated. ## Understanding the Temporal Method When a company has operations or subsidiaries in a country other than where the parent company is domiciled, the parent company must [convert the values](https://www.investopedia.com/terms/r/remeasurement.asp) on the foreign entity's financial statements back into the parent company's currency in order to calculate its profits and losses and generate the [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp). The currency used by the parent company is sometimes referred to as the subsidiary’s "[functional currency](https://www.investopedia.com/terms/f/functional-currency.asp)" or "reporting currency."  ### Key Takeaways * The temporal method is used to convert the currency of a foreign subsidiary into the same currency as the parent company. * The parent company's currency is called the functional currency. * The currency translation technique allows the parent company to report profits or losses and file financial statements when it has subsidiaries outside of the country where it is domiciled. * Gains or losses due to exchange rate conversions are reported in the parent company's net earnings. If the subsidiary's functional currency differs from its local currency, the temporal method is used to perform currency translations. Exchange rate values are based on the time [assets](https://www.investopedia.com/terms/f/functional-currency.asp) and [liabilities](https://www.investopedia.com/terms/l/liability.asp) are acquired or incurred, which makes it possible to convert the numbers on the books of an integrated foreign entity into the parent company's currency. Monetary assets and liabilities are converted using the exchange rate in effect as of the balance sheet date. [Non-monetary assets](https://www.investopedia.com/terms/n/nonmonetary-assets.asp) and liabilities are converted using the exchange rate in effect on the date of the transaction. Gains and losses due to foreign exchange are reported in net earnings. ## Example of the Temporal Method An example of the temporal method would be [subsidiary](https://www.investopedia.com/terms/s/subsidiary.asp) XYZ being domiciled in Great Britain. The local currency of XYZ is the British pound. However, if the majority of XYZ's clients reside in continental Europe, then it may conduct its business in euros. The euro would be the functional currency. In this instance, the parent company of XYZ would use the temporal method to translate XYZ's financial statements back into the currency used by the parent company. Monetary assets such as [accounts receivable](https://www.investopedia.com/terms/a/accountsreceivable.asp), investments, and cash are converted to the parent's currency at the exchange rate in effect on the balance sheet date. Non-monetary assets are longer-term assets—such as property, plant, and equipment—are converted using the exchange rate in effect on the date the asset was obtained. Since all foreign exchange gains and losses are reported in net earnings of the parent company, the result can be an increase in the volatility of the parent company's earnings if it has substantial income coming from subsidiaries in different countries.

What Is the Temporal Method? The temporal method (also known as the historical method) converts the currency of a foreign subsidiary into the currency of the parent company. This technique of foreign currency translation is used when the local currency of the subsidiary is not the same as the currency of the parent company. Differing exchange rates are used depending on the financial statement item being translated. Understanding the Temporal Method When a company has operations or subsidiaries in a country other than where the parent company is domiciled, the parent company must convert the values on the foreign entity's financial statements back into the parent company's currency in order to calculate its profits and losses and generate the financial statements. The currency used by the parent company is sometimes referred to as the subsidiary’s "functional currency" or "reporting currency."  Key Takeaways The temporal method is used to convert the currency of a foreign subsidiary into the same currency as the parent company.The parent company's currency is called the functional currency.The currency translation technique allows the parent company to report profits or losses and file financial statements when it has subsidiaries outside of the country where it is domiciled.Gains or losses due to exchange rate conversions are reported in the parent company's net earnings. If the subsidiary's functional currency differs from its local currency, the temporal method is used to perform currency translations. Exchange rate values are based on the time assets and liabilities are acquired or incurred, which makes it possible to convert the numbers on the books of an integrated foreign entity into the parent company's currency. Monetary assets and liabilities are converted using the exchange rate in effect as of the balance sheet date. Non-monetary assets and liabilities are converted using the exchange rate in effect on the date of the transaction. Gains and losses due to foreign exchange are reported in net earnings. Example of the Temporal Method An example of the temporal method would be subsidiary XYZ being domiciled in Great Britain. The local currency of XYZ is the British pound. However, if the majority of XYZ's clients reside in continental Europe, then it may conduct its business in euros. The euro would be the functional currency. In this instance, the parent company of XYZ would use the temporal method to translate XYZ's financial statements back into the currency used by the parent company. Monetary assets such as accounts receivable, investments, and cash are converted to the parent's currency at the exchange rate in effect on the balance sheet date. Non-monetary assets are longer-term assets—such as property, plant, and equipment—are converted using the exchange rate in effect on the date the asset was obtained. Since all foreign exchange gains and losses are reported in net earnings of the parent company, the result can be an increase in the volatility of the parent company's earnings if it has substantial income coming from subsidiaries in different countries.

https://www.investopedia.com/articles/personal-finance/090216/top-5-books-become-professional-trader.asp

Top 5 Books for a Budding Professional Investor

<div class="loc article-content"> <svg class="mntl-svg-resource is-hidden"> <defs> <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="comp round-up-content round-up-content--finance round-up-content-base mntl-block" id="round-up-content--finance_1-0"> <div class="comp mntl-sc-page--commerce article-content__description article-intro litho-sc-page mntl-sc-page mntl-block" id="article-intro_1-0"> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Many people would like to learn how to become successful traders, whether via stocks, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commoditiesexchange.asp">commodities</a>, options, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreign-exchange.asp">foreign exchange (forex)</a>, or all of the above. Unfortunately, trading and investing are not subjects commonly addressed in either high schools or colleges in the United States. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0-1"> Fortunately, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/090716/top-5-books-become-option-trader.asp">wealth of excellent books</a> are available on every aspect of trading for those with the desire and motivation to teach themselves the craft of trading. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0-2"> These books, and many others, can provide in-depth information on the complexities of investor trading from basic how-to tips to the psychology behind making investments. Visit your local bookstore, library, or online bookshop to find these books and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-economics-books-5186983">others on financial and economic topics</a>. </p> <div class="comp theme-whatyouneedtoknow mntl-sc-block litho-sc-block commerce-sc-block-callout--finance litho-sc-block-callout--finance litho-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_1-0-3"> <span class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"> Key Takeaways</span> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <ul><li>Becoming a successful trader can be a difficult achievement, with several ups and downs along the way.</li><li>There's no one right way to become a great trader, but reading about how others have done it can point you in the right direction for your personality and trading style.</li><li>Several classic books exist that not only document real-world traders and how they rose to the top, but also relate strategies you may not learn in finance class.</li></ul></div> </div> </div> <span class="heading-toc" id="toc-our-top-picks"></span> <span class="heading-toc" id="toc-reviews"></span> <div class="comp js-extended-commerce__section list-sc__commerce-wrapper mntl-block" data-click-category="commerce-widget Click" data-retailer-limit="3" id="list-sc__commerce-wrapper_1-0"> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0"> <span class="heading-toc" id="toc-reminiscences-of-a-stock-operator"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0"> <span class="mntl-sc-block-heading__text"> Reminiscences of a Stock Operator </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-1"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:154.0%;"> <img alt="Reminiscences of a Stock Operator" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/iOF1NbdSVBog3ANjOnCQIsh7tJQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg" data-srcset="https://www.investopedia.com/thmb/_9zzcNi3PdtdX5sLVCihtEeKoQc=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 300w, https://www.investopedia.com/thmb/DUdL53rBhkcdj5uxkP3fVoY_saA=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 500w, https://www.investopedia.com/thmb/FHkj8jbRNCGQGAH9pCiXZi6IaaE=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 700w, https://www.investopedia.com/thmb/pdMC7b2DB7A3Nzo1QXIuO5WXCqU=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 900w, https://www.investopedia.com/thmb/z4zD0q5ZMXT7VunzV31vEF3LoBs=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 1100w, https://www.investopedia.com/thmb/GXsarm78osNfymPLpK-YXOlFIy8=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 1300w, https://www.investopedia.com/thmb/iOF1NbdSVBog3ANjOnCQIsh7tJQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 1500w" data-tracking-container="true" height="986" id="mntl-sc-block-image_1-0" width="640"/> <noscript> <img alt="Reminiscences of a Stock Operator" class="img--noscript universal-image__image" height="986" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/iOF1NbdSVBog3ANjOnCQIsh7tJQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg" srcset="https://www.investopedia.com/thmb/_9zzcNi3PdtdX5sLVCihtEeKoQc=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 300w, https://www.investopedia.com/thmb/DUdL53rBhkcdj5uxkP3fVoY_saA=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 500w, https://www.investopedia.com/thmb/FHkj8jbRNCGQGAH9pCiXZi6IaaE=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 700w, https://www.investopedia.com/thmb/pdMC7b2DB7A3Nzo1QXIuO5WXCqU=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 900w, https://www.investopedia.com/thmb/z4zD0q5ZMXT7VunzV31vEF3LoBs=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 1100w, https://www.investopedia.com/thmb/GXsarm78osNfymPLpK-YXOlFIy8=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 1300w, https://www.investopedia.com/thmb/iOF1NbdSVBog3ANjOnCQIsh7tJQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg 1500w" width="640"/> </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>Amazon </p></span> </figcaption> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-2"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Lef%C3%A8vre/dp/0471770884/?tag=investopedia-onsite-backup-20" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-3"> <em>Reminiscences of a Stock Operator</em>, written by Edwin Lefèvre and published in 1923, is possibly the single most recommended book for aspiring traders and investors. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-4"> The book is a fictionalized account of the life of the man considered by many to be the greatest stock trader of all time, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/jesse-l-livermore.asp">Jesse Livermore</a>, presented as the main character, Larry Livingston, in the book. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-5"> This book, which is also noted as simply a good read, is one of the few attempts at a detailed biographical account (albeit fictionalized) of one of the famous investors in stock market circles in the early 20th century and provides interesting insights into Livermore's self-education as a trader. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-6"> The book is also filled with numerous pearls of wisdom on trading that are still often quoted today, such as, "Always sell what shows you a loss and keep what shows you a profit." </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-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-1"> <span class="heading-toc" id="toc-the-intelligent-investor"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-7"> <span class="mntl-sc-block-heading__text"> The Intelligent Investor </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-8"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:150.7%;"> <img alt="The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) (Collins Business Essentials)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/AB0rWktmratY3sEIQ3bGhU8-GGw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png" data-srcset="https://www.investopedia.com/thmb/VWjj5ILBv6nE6915GJNL2371kH8=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 300w, https://www.investopedia.com/thmb/KRf8qy5y0aKPW5gSEzQSwHviyYg=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 500w, https://www.investopedia.com/thmb/CT8EkRlyIspA6xAJNZMNW0W3W3o=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 700w, https://www.investopedia.com/thmb/5CsFioRzC6GLArTrRT--y37ONMU=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 900w, https://www.investopedia.com/thmb/TyeeDsdT2sNCrbA2smXoarzDTFE=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 1100w, https://www.investopedia.com/thmb/PLkVphkbdi5JfU_cU5Y2LkrOHQE=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 1300w, https://www.investopedia.com/thmb/AB0rWktmratY3sEIQ3bGhU8-GGw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 1500w" data-tracking-container="true" height="707" id="mntl-sc-block-image_1-0-1" width="469"/> <noscript> <img alt="The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) (Collins Business Essentials)" class="img--noscript universal-image__image" height="707" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/AB0rWktmratY3sEIQ3bGhU8-GGw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png" srcset="https://www.investopedia.com/thmb/VWjj5ILBv6nE6915GJNL2371kH8=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 300w, https://www.investopedia.com/thmb/KRf8qy5y0aKPW5gSEzQSwHviyYg=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 500w, https://www.investopedia.com/thmb/CT8EkRlyIspA6xAJNZMNW0W3W3o=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 700w, https://www.investopedia.com/thmb/5CsFioRzC6GLArTrRT--y37ONMU=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 900w, https://www.investopedia.com/thmb/TyeeDsdT2sNCrbA2smXoarzDTFE=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 1100w, https://www.investopedia.com/thmb/PLkVphkbdi5JfU_cU5Y2LkrOHQE=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 1300w, https://www.investopedia.com/thmb/AB0rWktmratY3sEIQ3bGhU8-GGw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png 1500w" width="469"/> </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>Courtesy of Amazon</p></span> </figcaption> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-9"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-1"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-apollo-price="true" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/?tag=investopedia-onsite-backup-20" id="button_1-0-1" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span> <span class="cost__wrapper"> <span>$0</span> </span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-10"> Benjamin Graham's <em>The Intelligent Investor</em> is considered the classic text on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueinvesting.asp">value investing</a>, which is still one of the most popular basic investing strategies and the underlying principle of hundreds of investing strategies developed since Graham's book was first published in 1949. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-11"> This book holds the distinction of being touted by famed investor Warren Buffett as the best book ever written on the subject of investing and as one of the primary sources for his own education in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0612/how-to-choose-stocks-for-day-trading.aspx">trading stocks</a>. In the book, Graham presents his core investing philosophy of identifying the intrinsic value of an investment and then looking to buy into it at a price below that value.<span class="ql-inline-citation" data-cite="1"></span> </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="2" id="mntl-sc-block-adslot_1-0-1"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-2"> <span class="heading-toc" id="toc-market-wizards"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-12"> <span class="mntl-sc-block-heading__text"> Market Wizards </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-13"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:150.0%;"> <img alt="Market Wizards" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/71Ez6E9Se3dipU9YH6PVVso9_2U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg" data-srcset="https://www.investopedia.com/thmb/kPl0zXzwjpCShCxr5lvxWpd6GSk=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 300w, https://www.investopedia.com/thmb/mqmttYvY8QSaaijl9v1hxetH980=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 500w, https://www.investopedia.com/thmb/w7clRlIjvo3-VS15BNnlstfFtms=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 700w, https://www.investopedia.com/thmb/3aerhUTpzIztT84ZEmcMkc2iFV0=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 900w, https://www.investopedia.com/thmb/sYB7taLCtBG0fCWQIgL9tmqCSrk=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 1100w, https://www.investopedia.com/thmb/4a24g-95RFX5IoMs3aho8nABroA=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 1300w, https://www.investopedia.com/thmb/71Ez6E9Se3dipU9YH6PVVso9_2U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 1500w" data-tracking-container="true" height="974" id="mntl-sc-block-image_1-0-2" width="649"/> <noscript> <img alt="Market Wizards" class="img--noscript universal-image__image" height="974" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/71Ez6E9Se3dipU9YH6PVVso9_2U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg" srcset="https://www.investopedia.com/thmb/kPl0zXzwjpCShCxr5lvxWpd6GSk=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 300w, https://www.investopedia.com/thmb/mqmttYvY8QSaaijl9v1hxetH980=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 500w, https://www.investopedia.com/thmb/w7clRlIjvo3-VS15BNnlstfFtms=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 700w, https://www.investopedia.com/thmb/3aerhUTpzIztT84ZEmcMkc2iFV0=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 900w, https://www.investopedia.com/thmb/sYB7taLCtBG0fCWQIgL9tmqCSrk=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 1100w, https://www.investopedia.com/thmb/4a24g-95RFX5IoMs3aho8nABroA=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 1300w, https://www.investopedia.com/thmb/71Ez6E9Se3dipU9YH6PVVso9_2U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg 1500w" width="649"/> </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>Amazon</p></span> </figcaption> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-14"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-2"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Market-Wizards-Updated-Interviews-Traders/dp/1118273052/?tag=investopedia-onsite-backup-20" id="button_1-0-2" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-15"> Jack Schwager has put together two very popular books on trading: <em>Market Wizards</em> and <em>The New Market Wizards</em>. Both books consist of interviews with some of the most successful traders of the past half-century, such as Paul Tudor Jones, the billionaire founder of Tudor Investment Corporation. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-16"> It is often argued that the best way to learn any craft or occupation is to be mentored by people who have already attained success in the field. Schwager's books offer readers the opportunity to pick up some mentor-like advice from very successful traders. The interviews offer both interesting biographical information on the interviewees and exposure to a wide variety of investing strategies. </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="3" id="mntl-sc-block-adslot_1-0-2"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-3"> <span class="heading-toc" id="toc-the-disciplined-trader"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-17"> <span class="mntl-sc-block-heading__text"> The Disciplined Trader </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-18"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:150.7%;"> <img alt="The Disciplined Trader" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/4TWNEuF5zjnFDC5deeBY34o3GXI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg" data-srcset="https://www.investopedia.com/thmb/uilQMsmChcjLKjE78Izbb8QLxtY=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 300w, https://www.investopedia.com/thmb/UxBhIzQaCuM4ITQ_sg25UNlB7fc=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 500w, https://www.investopedia.com/thmb/U1zkEA4dNNRlI4dLl3jZn4LsFl4=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 700w, https://www.investopedia.com/thmb/SBXCNLml0ykEyHIBgUsp6C_rfHc=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 900w, https://www.investopedia.com/thmb/oHXS5YzRic7KI9qfkXW6tydr6F4=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 1100w, https://www.investopedia.com/thmb/6s9k4zYD3CrBGeR2RDaJ-0v5kN8=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 1300w, https://www.investopedia.com/thmb/4TWNEuF5zjnFDC5deeBY34o3GXI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 1500w" data-tracking-container="true" height="965" id="mntl-sc-block-image_1-0-3" width="640"/> <noscript> <img alt="The Disciplined Trader" class="img--noscript universal-image__image" height="965" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/4TWNEuF5zjnFDC5deeBY34o3GXI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg" srcset="https://www.investopedia.com/thmb/uilQMsmChcjLKjE78Izbb8QLxtY=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 300w, https://www.investopedia.com/thmb/UxBhIzQaCuM4ITQ_sg25UNlB7fc=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 500w, https://www.investopedia.com/thmb/U1zkEA4dNNRlI4dLl3jZn4LsFl4=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 700w, https://www.investopedia.com/thmb/SBXCNLml0ykEyHIBgUsp6C_rfHc=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 900w, https://www.investopedia.com/thmb/oHXS5YzRic7KI9qfkXW6tydr6F4=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 1100w, https://www.investopedia.com/thmb/6s9k4zYD3CrBGeR2RDaJ-0v5kN8=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 1300w, https://www.investopedia.com/thmb/4TWNEuF5zjnFDC5deeBY34o3GXI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg 1500w" width="640"/> </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>Amazon</p></span> </figcaption> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-19"> <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-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Disciplined-Trader-Developing-Winning-Attitudes/dp/0132157578/?tag=investopedia-onsite-backup-20" id="button_1-0-3" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-20"> <em>The Disciplined Trader: Developing Winning Attitudes</em> written by Mark Douglas in 1990, addresses the subject of the psychology of trading, the mental discipline that is required in order to be a successful trader. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-21"> Although many other books have since been published on this subject, Douglas' book is still considered a "must-read" classic text on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trading-psychology.asp">trading psychology</a>. One of the strengths of the book is the fact that, although it addresses a subject that might appear dauntingly complex to some, it is a very clear and easy read. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-22"> Douglas does an excellent job of describing the basic mindset and attitudes that are essential for traders. Douglas subsequently penned another very popular book on trading psychology, <em>Trading in the Zone</em>. </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="4" id="mntl-sc-block-adslot_1-0-3"></div> <div class="comp mntl-sc-list-item mntl-sc-list-item--last list-sc-item mntl-block" id="list-sc-item_1-0-4"> <span class="heading-toc" id="toc-trader-vic-ii-principles-of-professional-speculation"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-23"> <span class="mntl-sc-block-heading__text"> Trader Vic II: Principles of Professional Speculation </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-24"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:143.4%;"> <img alt="Trader Vic II: Principles of Professional Speculation" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/ojUV2FpVWwoNoYNNPyOL_PcoP9E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg" data-srcset="https://www.investopedia.com/thmb/5B5WKl7HnOr4zTbVTr2ZqFAVrOQ=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 300w, https://www.investopedia.com/thmb/jPZx0z2sb9jMYkIiAdpwK6dXiXY=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 500w, https://www.investopedia.com/thmb/GMUE0kpYj4T7_D4TbiexP4p3UhY=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 700w, https://www.investopedia.com/thmb/bQTK4b0zaTCTTp9_Ks6-5BRQEVY=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 900w, https://www.investopedia.com/thmb/nbMTIWg7Jd33iWXSrcPPDbFQWLA=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 1100w, https://www.investopedia.com/thmb/zsaxqSGVmv0EQ98CP2B4t_qsopU=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 1300w, https://www.investopedia.com/thmb/ojUV2FpVWwoNoYNNPyOL_PcoP9E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 1500w" data-tracking-container="true" height="918" id="mntl-sc-block-image_1-0-4" width="640"/> <noscript> <img alt="Trader Vic II: Principles of Professional Speculation" class="img--noscript universal-image__image" height="918" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/ojUV2FpVWwoNoYNNPyOL_PcoP9E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg" srcset="https://www.investopedia.com/thmb/5B5WKl7HnOr4zTbVTr2ZqFAVrOQ=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 300w, https://www.investopedia.com/thmb/jPZx0z2sb9jMYkIiAdpwK6dXiXY=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 500w, https://www.investopedia.com/thmb/GMUE0kpYj4T7_D4TbiexP4p3UhY=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 700w, https://www.investopedia.com/thmb/bQTK4b0zaTCTTp9_Ks6-5BRQEVY=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 900w, https://www.investopedia.com/thmb/nbMTIWg7Jd33iWXSrcPPDbFQWLA=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 1100w, https://www.investopedia.com/thmb/zsaxqSGVmv0EQ98CP2B4t_qsopU=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 1300w, https://www.investopedia.com/thmb/ojUV2FpVWwoNoYNNPyOL_PcoP9E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg 1500w" width="640"/> </noscript> </div> </div> <figcaption class="comp figure-caption mntl-figure-caption figure-article-caption" id="mntl-figure-caption_1-0-4"> <span class="figure-article-caption-owner"><p>Amazon</p></span> </figcaption> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-25"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-4"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Trader-Vic-Principles-Professional-Speculation/dp/047153577X/?tag=investopedia-onsite-backup-20" id="button_1-0-4" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-26"> This book, written by Victor Sperandeo, is not as well known as many books on trading but is a favorite of many traders who have read it. In the book, Sperandeo puts forth an investment strategy that is based not on specific market events or company-specific metrics but on an analysis of the general direction of the economy as driven by factors such as the fiscal policies implemented by 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> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/042715/what-are-pros-and-cons-progressive-tax-policy-and-who-benefits-most-it.asp">tax policy</a>. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-27"> Sperandeo argues that identifying the basic direction in which such policies will inevitably drive the economy enables traders to determine the most probable overall market direction, as well as specific market sectors that will thrive. </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="5" id="mntl-sc-block-adslot_1-0-4"></div> </div> <div class="comp mntl-sc-page--commerce article-outro litho-sc-page mntl-sc-page mntl-block" id="article-outro_1-0"> <span class="heading-toc" id="toc-frequently-asked-questions"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> Frequently Asked Questions </span> </h2> <div class="comp mntl-sc-block litho-sc-block mntl-sc-block-questionandanswer" id="mntl-sc-block_3-0-1"> <span class="heading-toc" id="toc-what-does-a-financial-trader-do"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does a Financial Trader Do?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A financial trader buys and sells assets in the financial markets, either for themself or for a business. The goal is to buy or sell an asset and earn a return. Financial traders spend time educating themselves about assets and the markets, allowing them to make financial decisions on what, when, and how to trade. Though traders and investors are sometimes thought to be the same, financial traders typically engage in a shorter time frame than investors, who usually hold onto investments for the long term.</p></div> </div> <div class="comp mntl-sc-block litho-sc-block mntl-sc-block-questionandanswer" id="mntl-sc-block_3-0-2"> <span class="heading-toc" id="toc-what-qualifications-do-you-need-to-be-a-financial-trader"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Qualifications Do You Need to Be a Financial Trader?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you want to financially trade yourself, you do not actually need any qualifications. You just need access to the markets to buy and sell assets, as well as money to be able to do so. If you want to be a trader for a business, then you will need qualifications. You'll need at least a bachelor's degree from a college to get employed at a financial firm. Additionally, having an internship or previous job experience will help you land a job.</p></div> </div> <div class="comp mntl-sc-block litho-sc-block mntl-sc-block-questionandanswer" id="mntl-sc-block_3-0-3"> <span class="heading-toc" id="toc-which-trading-is-best-for-beginners"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Trading Is Best for Beginners?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It is generally considered that swing trading is best for beginners. Swing trading involves holding a position for more than a day but less than a month. This allows the type of trade to be less of a time commitment than day trading and certainly less stressful.</p></div> </div> <span class="heading-toc" id="toc-the-bottom-line"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0-4"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0-5"> While there are plenty of books out there about financial trading, these books will give you a good insight and start into trading and investing so that you can begin to put your money to work, and with the right moves, hopefully earn a return. </p> </div> </div> </span> </div>

Many people would like to learn how to become successful traders, whether via stocks, [commodities](https://www.investopedia.com/terms/c/commoditiesexchange.asp), options, [foreign exchange (forex)](https://www.investopedia.com/terms/f/foreign-exchange.asp), or all of the above. Unfortunately, trading and investing are not subjects commonly addressed in either high schools or colleges in the United States. Fortunately, a [wealth of excellent books](https://www.investopedia.com/articles/personal-finance/090716/top-5-books-become-option-trader.asp) are available on every aspect of trading for those with the desire and motivation to teach themselves the craft of trading. These books, and many others, can provide in-depth information on the complexities of investor trading from basic how-to tips to the psychology behind making investments. Visit your local bookstore, library, or online bookshop to find these books and [others on financial and economic topics](https://www.investopedia.com/best-economics-books-5186983). Key Takeaways * Becoming a successful trader can be a difficult achievement, with several ups and downs along the way. * There's no one right way to become a great trader, but reading about how others have done it can point you in the right direction for your personality and trading style. * Several classic books exist that not only document real-world traders and how they rose to the top, but also relate strategies you may not learn in finance class. ## Reminiscences of a Stock Operator ![Reminiscences of a Stock Operator]() :max_bytes(150000):strip_icc()/51eP2zBfUUL._SX322_BO1204203200_-dec8d6666162442a93b5fa2cd58d7a0c.jpg) Amazon  [Buy on Amazon](https://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Lef%C3%A8vre/dp/0471770884/?tag=investopedia-onsite-backup-20) *Reminiscences of a Stock Operator*, written by Edwin Lefèvre and published in 1923, is possibly the single most recommended book for aspiring traders and investors. The book is a fictionalized account of the life of the man considered by many to be the greatest stock trader of all time, [Jesse Livermore](https://www.investopedia.com/terms/j/jesse-l-livermore.asp), presented as the main character, Larry Livingston, in the book. This book, which is also noted as simply a good read, is one of the few attempts at a detailed biographical account (albeit fictionalized) of one of the famous investors in stock market circles in the early 20th century and provides interesting insights into Livermore's self-education as a trader. The book is also filled with numerous pearls of wisdom on trading that are still often quoted today, such as, "Always sell what shows you a loss and keep what shows you a profit." ## The Intelligent Investor ![The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) (Collins Business Essentials)]() :max_bytes(150000):strip_icc()/TheIntelligentInvestor-5a1c70dfbeba330037dd488d.png) Courtesy of Amazon [Buy on Amazon $0](https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/?tag=investopedia-onsite-backup-20) Benjamin Graham's *The Intelligent Investor* is considered the classic text on [value investing](https://www.investopedia.com/terms/v/valueinvesting.asp), which is still one of the most popular basic investing strategies and the underlying principle of hundreds of investing strategies developed since Graham's book was first published in 1949. This book holds the distinction of being touted by famed investor Warren Buffett as the best book ever written on the subject of investing and as one of the primary sources for his own education in [trading stocks](https://www.investopedia.com/financial-edge/0612/how-to-choose-stocks-for-day-trading.aspx). In the book, Graham presents his core investing philosophy of identifying the intrinsic value of an investment and then looking to buy into it at a price below that value. ## Market Wizards ![Market Wizards]() :max_bytes(150000):strip_icc()/51Xh8kTlirL-a25acc5e4ecc4d81b3a8c4d432d4fea6.jpg) Amazon [Buy on Amazon](https://www.amazon.com/Market-Wizards-Updated-Interviews-Traders/dp/1118273052/?tag=investopedia-onsite-backup-20) Jack Schwager has put together two very popular books on trading: *Market Wizards* and *The New Market Wizards*. Both books consist of interviews with some of the most successful traders of the past half-century, such as Paul Tudor Jones, the billionaire founder of Tudor Investment Corporation. It is often argued that the best way to learn any craft or occupation is to be mentored by people who have already attained success in the field. Schwager's books offer readers the opportunity to pick up some mentor-like advice from very successful traders. The interviews offer both interesting biographical information on the interviewees and exposure to a wide variety of investing strategies. ## The Disciplined Trader ![The Disciplined Trader]() :max_bytes(150000):strip_icc()/51WSANVIUL._SX329_BO1204203200_-a90a92600ef84e4b8291ed3dff370c34.jpg) Amazon [Buy on Amazon](https://www.amazon.com/Disciplined-Trader-Developing-Winning-Attitudes/dp/0132157578/?tag=investopedia-onsite-backup-20) *The Disciplined Trader: Developing Winning Attitudes* written by Mark Douglas in 1990, addresses the subject of the psychology of trading, the mental discipline that is required in order to be a successful trader. Although many other books have since been published on this subject, Douglas' book is still considered a "must-read" classic text on [trading psychology](https://www.investopedia.com/terms/t/trading-psychology.asp). One of the strengths of the book is the fact that, although it addresses a subject that might appear dauntingly complex to some, it is a very clear and easy read. Douglas does an excellent job of describing the basic mindset and attitudes that are essential for traders. Douglas subsequently penned another very popular book on trading psychology, *Trading in the Zone*. ## Trader Vic II: Principles of Professional Speculation ![Trader Vic II: Principles of Professional Speculation]() :max_bytes(150000):strip_icc()/51VmvYtLzL._SX346_BO1204203200_-d944ffd8d9364b3b964f7d52e51f65a1.jpg) Amazon [Buy on Amazon](https://www.amazon.com/Trader-Vic-Principles-Professional-Speculation/dp/047153577X/?tag=investopedia-onsite-backup-20) This book, written by Victor Sperandeo, is not as well known as many books on trading but is a favorite of many traders who have read it. In the book, Sperandeo puts forth an investment strategy that is based not on specific market events or company-specific metrics but on an analysis of the general direction of the economy as driven by factors such as the fiscal policies implemented by the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservesystem.asp) and [tax policy](https://www.investopedia.com/ask/answers/042715/what-are-pros-and-cons-progressive-tax-policy-and-who-benefits-most-it.asp). Sperandeo argues that identifying the basic direction in which such policies will inevitably drive the economy enables traders to determine the most probable overall market direction, as well as specific market sectors that will thrive. ## Frequently Asked Questions ## What Does a Financial Trader Do? A financial trader buys and sells assets in the financial markets, either for themself or for a business. The goal is to buy or sell an asset and earn a return. Financial traders spend time educating themselves about assets and the markets, allowing them to make financial decisions on what, when, and how to trade. Though traders and investors are sometimes thought to be the same, financial traders typically engage in a shorter time frame than investors, who usually hold onto investments for the long term. ## What Qualifications Do You Need to Be a Financial Trader? If you want to financially trade yourself, you do not actually need any qualifications. You just need access to the markets to buy and sell assets, as well as money to be able to do so. If you want to be a trader for a business, then you will need qualifications. You'll need at least a bachelor's degree from a college to get employed at a financial firm. Additionally, having an internship or previous job experience will help you land a job. ## Which Trading Is Best for Beginners? It is generally considered that swing trading is best for beginners. Swing trading involves holding a position for more than a day but less than a month. This allows the type of trade to be less of a time commitment than day trading and certainly less stressful. ## The Bottom Line While there are plenty of books out there about financial trading, these books will give you a good insight and start into trading and investing so that you can begin to put your money to work, and with the right moves, hopefully earn a return.

Many people would like to learn how to become successful traders, whether via stocks, commodities, options, foreign exchange (forex), or all of the above. Unfortunately, trading and investing are not subjects commonly addressed in either high schools or colleges in the United States. Fortunately, a wealth of excellent books are available on every aspect of trading for those with the desire and motivation to teach themselves the craft of trading. These books, and many others, can provide in-depth information on the complexities of investor trading from basic how-to tips to the psychology behind making investments. Visit your local bookstore, library, or online bookshop to find these books and others on financial and economic topics. Key Takeaways Becoming a successful trader can be a difficult achievement, with several ups and downs along the way.There's no one right way to become a great trader, but reading about how others have done it can point you in the right direction for your personality and trading style.Several classic books exist that not only document real-world traders and how they rose to the top, but also relate strategies you may not learn in finance class. Reminiscences of a Stock Operator Amazon  Buy on Amazon Reminiscences of a Stock Operator, written by Edwin Lefèvre and published in 1923, is possibly the single most recommended book for aspiring traders and investors. The book is a fictionalized account of the life of the man considered by many to be the greatest stock trader of all time, Jesse Livermore, presented as the main character, Larry Livingston, in the book. This book, which is also noted as simply a good read, is one of the few attempts at a detailed biographical account (albeit fictionalized) of one of the famous investors in stock market circles in the early 20th century and provides interesting insights into Livermore's self-education as a trader. The book is also filled with numerous pearls of wisdom on trading that are still often quoted today, such as, "Always sell what shows you a loss and keep what shows you a profit." The Intelligent Investor Courtesy of Amazon Buy on Amazon $0 Benjamin Graham's The Intelligent Investor is considered the classic text on value investing, which is still one of the most popular basic investing strategies and the underlying principle of hundreds of investing strategies developed since Graham's book was first published in 1949. This book holds the distinction of being touted by famed investor Warren Buffett as the best book ever written on the subject of investing and as one of the primary sources for his own education in trading stocks. In the book, Graham presents his core investing philosophy of identifying the intrinsic value of an investment and then looking to buy into it at a price below that value. Market Wizards Amazon Buy on Amazon Jack Schwager has put together two very popular books on trading: Market Wizards and The New Market Wizards. Both books consist of interviews with some of the most successful traders of the past half-century, such as Paul Tudor Jones, the billionaire founder of Tudor Investment Corporation. It is often argued that the best way to learn any craft or occupation is to be mentored by people who have already attained success in the field. Schwager's books offer readers the opportunity to pick up some mentor-like advice from very successful traders. The interviews offer both interesting biographical information on the interviewees and exposure to a wide variety of investing strategies. The Disciplined Trader Amazon Buy on Amazon The Disciplined Trader: Developing Winning Attitudes written by Mark Douglas in 1990, addresses the subject of the psychology of trading, the mental discipline that is required in order to be a successful trader. Although many other books have since been published on this subject, Douglas' book is still considered a "must-read" classic text on trading psychology. One of the strengths of the book is the fact that, although it addresses a subject that might appear dauntingly complex to some, it is a very clear and easy read. Douglas does an excellent job of describing the basic mindset and attitudes that are essential for traders. Douglas subsequently penned another very popular book on trading psychology, Trading in the Zone. Trader Vic II: Principles of Professional Speculation Amazon Buy on Amazon This book, written by Victor Sperandeo, is not as well known as many books on trading but is a favorite of many traders who have read it. In the book, Sperandeo puts forth an investment strategy that is based not on specific market events or company-specific metrics but on an analysis of the general direction of the economy as driven by factors such as the fiscal policies implemented by the Federal Reserve and tax policy. Sperandeo argues that identifying the basic direction in which such policies will inevitably drive the economy enables traders to determine the most probable overall market direction, as well as specific market sectors that will thrive. Frequently Asked Questions What Does a Financial Trader Do? A financial trader buys and sells assets in the financial markets, either for themself or for a business. The goal is to buy or sell an asset and earn a return. Financial traders spend time educating themselves about assets and the markets, allowing them to make financial decisions on what, when, and how to trade. Though traders and investors are sometimes thought to be the same, financial traders typically engage in a shorter time frame than investors, who usually hold onto investments for the long term. What Qualifications Do You Need to Be a Financial Trader? If you want to financially trade yourself, you do not actually need any qualifications. You just need access to the markets to buy and sell assets, as well as money to be able to do so. If you want to be a trader for a business, then you will need qualifications. You'll need at least a bachelor's degree from a college to get employed at a financial firm. Additionally, having an internship or previous job experience will help you land a job. Which Trading Is Best for Beginners? It is generally considered that swing trading is best for beginners. Swing trading involves holding a position for more than a day but less than a month. This allows the type of trade to be less of a time commitment than day trading and certainly less stressful. The Bottom Line While there are plenty of books out there about financial trading, these books will give you a good insight and start into trading and investing so that you can begin to put your money to work, and with the right moves, hopefully earn a return.

https://www.investopedia.com/short-term-vs-long-term-cd-terms-5270644

Short-Term vs. Long-Term CD Terms: 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-short-term-vs-long-term-cd-terms-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"> Short-Term vs. Long-Term CD Terms: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A certificate of deposit (CD) account can be used for different savings goals. When opening a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit</a>, it's important to consider what type of term works best. Though short-term CDs can offer flexibility, a longer-term CD could yield a higher interest rate. </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 certificate of deposit is a time deposit account that pays interest over a set time frame until the CD matures.</li><li>Banks can offer CDs with shorter terms and CDs with longer terms to help meet different savers' needs.</li><li>Short-term CDs can offer flexibility because they take less time to mature.</li><li>Choosing longer-term CDs could make sense for saving funds you don't think you'll need to spend right away.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A CD is a type of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timedeposit.asp">time deposit</a> savings vehicle. When you put money into a CD, it's under the agreement that you'll leave it there until a certain maturity is reached. This maturity period is the CD term. At the end of the CD term, you can withdraw the initial deposit and interest earned or roll the entire amount into a new CD account.<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"> Banks and credit unions can offer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-many-cd-terms-are-there-5235795">CDs with varying terms</a>. For example, you might be able to open a CD that matures in 28 or 30 days. Or you may have the option of choosing a CD with a five- or 10-year maturity. Withdrawing money prior to maturity may trigger a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cd-early-withdrawal-penalty-5225111">CD early-withdrawal penalty</a>. This penalty can be equal to some or all of the interest earned.<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 amount of money you'll need to open a CD can depend on the bank. Some CDs may have initial deposits as low as $100 or $500; others may require you to deposit $5,000 or more. CDs generally do not have monthly maintenance fees the way a savings account or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/042116/money-market-vs-cds-which-better-investment.asp">money market account</a> might. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> When CDs are held at member banks, they're protected by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corporation (FDIC)</a> insurance coverage.<span class="ql-inline-citation" data-cite="6"></span> Credit unions can insure CDs through the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua.asp">National Credit Union Administration (NCUA)</a>.<span class="ql-inline-citation" data-cite="7"></span> In either case, your CDs would be insured for up to $250,000 per depositor, per account ownership type, per financial institution in the event that your bank or credit union fails. </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">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>There's no limit on the number of CDs you can open, but holding multiple CDs at the same bank or credit union could exhaust your FDIC or NCUA coverage limits.</p></div></div></div> <span class="heading-toc" id="toc-short-term-cds"></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"> Short-Term CDs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> A short-term CD is a certificate of deposit that has a maturity term of less than one year. Banks can offer short-term CDs with varying maturity terms. For example, your bank might offer these options for opening a short-term CD: </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>30-day CDs</li> <li>Three-month CDs</li> <li>Six-month CDs</li> <li>Nine-month CDs</li> <li><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-month CDs</a></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"> The advantage of a short-term CD is that your money isn't locked in for years. You can add money to a short-term CD, then pull it out again within a relatively short time frame. Choosing a short-term CD could make sense if you: </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>Are saving for a short-term goal, like a vacation or new furniture</li><li>Expect CD rates to rise in the near term</li><li>Want to avoid early withdrawal penalties</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The tradeoff, however, is that short-term CD rates are typically lower than what you might get with a longer-term CD. That's because banks often reward savers who choose long-term CDs with higher rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_27-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" 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 with-title" id="mntl-sc-block-callout-heading_3-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>CD interest rates can be influenced by movements in 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>; when this rate goes up or down, CD rates can follow suit.<span class="ql-inline-citation" data-cite="8"></span><br/></p></div></div></div> <span class="heading-toc" id="toc-long-term-cds"></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"> Long-Term CDs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> A long-term CD is generally any CD with a maturity term of one year or longer. Banks and credit unions can offer different types of long-term CDs. Some of the CD terms you might be able to choose from include: </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>15-month CDs</li> <li><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 CDs</a></li> <li>24-month CDs</li> <li>36-month CDs</li> <li>48-month CDs</li> <li>60-month CDs</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"> It's also possible to find CDs with even longer terms. Choosing a CD term of one year or longer usually means being certain that you won't need to withdraw the money any sooner. Otherwise, you might face an early-withdrawal fee. </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"> Longer-term CDs may be useful if you: </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>Have a fully funded <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> for short-term financial needs</li> <li>Don't expect CD interest rates to rise anytime soon</li> <li>Want a safe, secure place to keep your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savings.asp">savings</a> until you need them</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"> Compared to short-term CDs, you may get better rates from long-term CDs. Again, banks can use higher rates as an incentive to get savers to choose longer CD terms. So instead of earning 0.50%, for example, you might earn 2.00%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_42-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_43-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Online banks may offer higher rates for short-term and long-term CDs versus traditional banks.</p></div></div></div> <span class="heading-toc" id="toc-short-term-vs-long-term-cds-which-is-better"></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"> Short-Term vs. Long-Term CDs: Which Is Better? </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_45-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="Short-Term vs. Long-Term CDs" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/Dc8hOVg1bMnkf28nvDTXGKbypb0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/short-term-vs-long-term-cd-terms-5270644_final-0c1356d8c6dc475ebe60925ec1bf8486.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/Dc8hOVg1bMnkf28nvDTXGKbypb0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/short-term-vs-long-term-cd-terms-5270644_final-0c1356d8c6dc475ebe60925ec1bf8486.jpg" data-srcset="https://www.investopedia.com/thmb/5a0juXMFzl6KqcUUjQmjVKwA5Do=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/short-term-vs-long-term-cd-terms-5270644_final-0c1356d8c6dc475ebe60925ec1bf8486.jpg 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Short-Term vs. Long-Term CDs" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/Dc8hOVg1bMnkf28nvDTXGKbypb0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/short-term-vs-long-term-cd-terms-5270644_final-0c1356d8c6dc475ebe60925ec1bf8486.jpg" srcset="https://www.investopedia.com/thmb/5a0juXMFzl6KqcUUjQmjVKwA5Do=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/short-term-vs-long-term-cd-terms-5270644_final-0c1356d8c6dc475ebe60925ec1bf8486.jpg 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Ellen Lindner</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Whether it's better to choose a short-term or long-term CD can depend on your financial needs and goals. Short-term CDs are designed to hold money temporarily until you plan to spend it. So you might use a CD to hold sinking funds for planned annual expenses, like car repairs or insurance premiums, for example. You know your money is somewhere safe and you can earn interest while you're at 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"> The key is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-pick-the-right-cd-term-for-your-needs-5224203">choosing the right maturity term</a>. Otherwise, you may get hit with an early withdrawal penalty if you need to pull money out sooner than expected. </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"> With long-term CDs, getting the timing right is more important for interest earnings. If you think rates might go up in the next 12 months, then it might not make sense to lock up all your money in a five-year CD. The only exception would be if it's a CD that allows you to raise your rate at some point during the maturity term. </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"> Opening a mix of short- and long-term CDs using a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cd-ladder.asp">CD ladder</a> can help you avoid early withdrawal fees and missed opportunities with interest rates. When you ladder CDs, you open <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-many-cds-can-i-have-5248694">multiple CDs</a> with different maturity terms and rates. As each CD on the ladder matures, you can decide whether to roll it over to a new CD or withdraw the money. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-is-a-cd-short-term-or-long-term"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a CD Short-Term or Long-Term?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A CD can be short-term or long-term, depending on its maturity term. A short-term CD typically has a maturity term of less than one year, while a long-term CD usually has a term of one year or more.</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-is-the-best-term-for-a-cd"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Best Term for a CD?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The best term for a CD is the one that will offer you the highest interest rate within a time frame that matches your financial goals. Withdrawing money from a CD before it matures can result in an early-withdrawal penalty.</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-makes-more-money-a-short-term-cd-or-a-long-term-cd"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Makes More Money, a Short-Term CD or a Long-Term CD?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Whether a short-term or long-term CD makes more money depends on the interest rate and annual percentage yield (APY). Generally, CDs with longer terms tend to offer savers higher interest rates and APYs, though banks may offer special promotional CDs with higher rates and shorter terms.</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"> When choosing CDs, it's important to consider the maturity term and how well that matches up with what you need. It's also good to shop around to find 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 the maturity term that you're seeking. Doing your research beforehand can help you find the right CD option. </p></div>

## Short-Term vs. Long-Term CD Terms: An Overview A certificate of deposit (CD) account can be used for different savings goals. When opening a [certificate of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp), it's important to consider what type of term works best. Though short-term CDs can offer flexibility, a longer-term CD could yield a higher interest rate. ### Key Takeaways * A certificate of deposit is a time deposit account that pays interest over a set time frame until the CD matures. * Banks can offer CDs with shorter terms and CDs with longer terms to help meet different savers' needs. * Short-term CDs can offer flexibility because they take less time to mature. * Choosing longer-term CDs could make sense for saving funds you don't think you'll need to spend right away. A CD is a type of [time deposit](https://www.investopedia.com/terms/t/timedeposit.asp) savings vehicle. When you put money into a CD, it's under the agreement that you'll leave it there until a certain maturity is reached. This maturity period is the CD term. At the end of the CD term, you can withdraw the initial deposit and interest earned or roll the entire amount into a new CD account. Banks and credit unions can offer [CDs with varying terms](https://www.investopedia.com/how-many-cd-terms-are-there-5235795). For example, you might be able to open a CD that matures in 28 or 30 days. Or you may have the option of choosing a CD with a five- or 10-year maturity. Withdrawing money prior to maturity may trigger a [CD early-withdrawal penalty](https://www.investopedia.com/cd-early-withdrawal-penalty-5225111). This penalty can be equal to some or all of the interest earned. The amount of money you'll need to open a CD can depend on the bank. Some CDs may have initial deposits as low as $100 or $500; others may require you to deposit $5,000 or more. CDs generally do not have monthly maintenance fees the way a savings account or [money market account](https://www.investopedia.com/articles/personal-finance/042116/money-market-vs-cds-which-better-investment.asp) might. When CDs are held at member banks, they're protected by [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp) insurance coverage. Credit unions can insure CDs through the [National Credit Union Administration (NCUA)](https://www.investopedia.com/terms/n/ncua.asp). In either case, your CDs would be insured for up to $250,000 per depositor, per account ownership type, per financial institution in the event that your bank or credit union fails. ### Important There's no limit on the number of CDs you can open, but holding multiple CDs at the same bank or credit union could exhaust your FDIC or NCUA coverage limits. ## Short-Term CDs A short-term CD is a certificate of deposit that has a maturity term of less than one year. Banks can offer short-term CDs with varying maturity terms. For example, your bank might offer these options for opening a short-term CD: * 30-day CDs * Three-month CDs * Six-month CDs * Nine-month CDs * [12-month CDs](https://www.investopedia.com/best-1-year-cd-rates-4796650) The advantage of a short-term CD is that your money isn't locked in for years. You can add money to a short-term CD, then pull it out again within a relatively short time frame. Choosing a short-term CD could make sense if you: * Are saving for a short-term goal, like a vacation or new furniture * Expect CD rates to rise in the near term * Want to avoid early withdrawal penalties The tradeoff, however, is that short-term CD rates are typically lower than what you might get with a longer-term CD. That's because banks often reward savers who choose long-term CDs with higher rates. ### Note CD interest rates can be influenced by movements in the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp); when this rate goes up or down, CD rates can follow suit. ## Long-Term CDs A long-term CD is generally any CD with a maturity term of one year or longer. Banks and credit unions can offer different types of long-term CDs. Some of the CD terms you might be able to choose from include: * 15-month CDs * [18-month CDs](https://www.investopedia.com/best-18-month-cd-rates-5272348) * 24-month CDs * 36-month CDs * 48-month CDs * 60-month CDs It's also possible to find CDs with even longer terms. Choosing a CD term of one year or longer usually means being certain that you won't need to withdraw the money any sooner. Otherwise, you might face an early-withdrawal fee. Longer-term CDs may be useful if you: * Have a fully funded [emergency fund](https://www.investopedia.com/terms/e/emergency_fund.asp) for short-term financial needs * Don't expect CD interest rates to rise anytime soon * Want a safe, secure place to keep your [savings](https://www.investopedia.com/terms/s/savings.asp) until you need them Compared to short-term CDs, you may get better rates from long-term CDs. Again, banks can use higher rates as an incentive to get savers to choose longer CD terms. So instead of earning 0.50%, for example, you might earn 2.00%. ### Tip Online banks may offer higher rates for short-term and long-term CDs versus traditional banks. ## Short-Term vs. Long-Term CDs: Which Is Better? ![Short-Term vs. Long-Term CDs]() :max_bytes(150000):strip_icc()/short-term-vs-long-term-cd-terms-5270644_final-0c1356d8c6dc475ebe60925ec1bf8486.jpg) Investopedia / Ellen Lindner Whether it's better to choose a short-term or long-term CD can depend on your financial needs and goals. Short-term CDs are designed to hold money temporarily until you plan to spend it. So you might use a CD to hold sinking funds for planned annual expenses, like car repairs or insurance premiums, for example. You know your money is somewhere safe and you can earn interest while you're at it. The key is [choosing the right maturity term](https://www.investopedia.com/how-to-pick-the-right-cd-term-for-your-needs-5224203). Otherwise, you may get hit with an early withdrawal penalty if you need to pull money out sooner than expected. With long-term CDs, getting the timing right is more important for interest earnings. If you think rates might go up in the next 12 months, then it might not make sense to lock up all your money in a five-year CD. The only exception would be if it's a CD that allows you to raise your rate at some point during the maturity term. Opening a mix of short- and long-term CDs using a [CD ladder](https://www.investopedia.com/terms/c/cd-ladder.asp) can help you avoid early withdrawal fees and missed opportunities with interest rates. When you ladder CDs, you open [multiple CDs](https://www.investopedia.com/how-many-cds-can-i-have-5248694) with different maturity terms and rates. As each CD on the ladder matures, you can decide whether to roll it over to a new CD or withdraw the money. ## Is a CD Short-Term or Long-Term? A CD can be short-term or long-term, depending on its maturity term. A short-term CD typically has a maturity term of less than one year, while a long-term CD usually has a term of one year or more. ## What Is the Best Term for a CD? The best term for a CD is the one that will offer you the highest interest rate within a time frame that matches your financial goals. Withdrawing money from a CD before it matures can result in an early-withdrawal penalty. ## What Makes More Money, a Short-Term CD or a Long-Term CD? Whether a short-term or long-term CD makes more money depends on the interest rate and annual percentage yield (APY). Generally, CDs with longer terms tend to offer savers higher interest rates and APYs, though banks may offer special promotional CDs with higher rates and shorter terms. ## The Bottom Line When choosing CDs, it's important to consider the maturity term and how well that matches up with what you need. It's also good to shop around to find the [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) for the maturity term that you're seeking. Doing your research beforehand can help you find the right CD option.

Short-Term vs. Long-Term CD Terms: An Overview A certificate of deposit (CD) account can be used for different savings goals. When opening a certificate of deposit, it's important to consider what type of term works best. Though short-term CDs can offer flexibility, a longer-term CD could yield a higher interest rate. Key Takeaways A certificate of deposit is a time deposit account that pays interest over a set time frame until the CD matures.Banks can offer CDs with shorter terms and CDs with longer terms to help meet different savers' needs.Short-term CDs can offer flexibility because they take less time to mature.Choosing longer-term CDs could make sense for saving funds you don't think you'll need to spend right away. A CD is a type of time deposit savings vehicle. When you put money into a CD, it's under the agreement that you'll leave it there until a certain maturity is reached. This maturity period is the CD term. At the end of the CD term, you can withdraw the initial deposit and interest earned or roll the entire amount into a new CD account. Banks and credit unions can offer CDs with varying terms. For example, you might be able to open a CD that matures in 28 or 30 days. Or you may have the option of choosing a CD with a five- or 10-year maturity. Withdrawing money prior to maturity may trigger a CD early-withdrawal penalty. This penalty can be equal to some or all of the interest earned. The amount of money you'll need to open a CD can depend on the bank. Some CDs may have initial deposits as low as $100 or $500; others may require you to deposit $5,000 or more. CDs generally do not have monthly maintenance fees the way a savings account or money market account might. When CDs are held at member banks, they're protected by Federal Deposit Insurance Corporation (FDIC) insurance coverage. Credit unions can insure CDs through the National Credit Union Administration (NCUA). In either case, your CDs would be insured for up to $250,000 per depositor, per account ownership type, per financial institution in the event that your bank or credit union fails. Important There's no limit on the number of CDs you can open, but holding multiple CDs at the same bank or credit union could exhaust your FDIC or NCUA coverage limits. Short-Term CDs A short-term CD is a certificate of deposit that has a maturity term of less than one year. Banks can offer short-term CDs with varying maturity terms. For example, your bank might offer these options for opening a short-term CD: 30-day CDs Three-month CDs Six-month CDs Nine-month CDs 12-month CDs The advantage of a short-term CD is that your money isn't locked in for years. You can add money to a short-term CD, then pull it out again within a relatively short time frame. Choosing a short-term CD could make sense if you: Are saving for a short-term goal, like a vacation or new furnitureExpect CD rates to rise in the near termWant to avoid early withdrawal penalties The tradeoff, however, is that short-term CD rates are typically lower than what you might get with a longer-term CD. That's because banks often reward savers who choose long-term CDs with higher rates. Note CD interest rates can be influenced by movements in the federal funds rate; when this rate goes up or down, CD rates can follow suit. Long-Term CDs A long-term CD is generally any CD with a maturity term of one year or longer. Banks and credit unions can offer different types of long-term CDs. Some of the CD terms you might be able to choose from include: 15-month CDs 18-month CDs 24-month CDs 36-month CDs 48-month CDs 60-month CDs It's also possible to find CDs with even longer terms. Choosing a CD term of one year or longer usually means being certain that you won't need to withdraw the money any sooner. Otherwise, you might face an early-withdrawal fee. Longer-term CDs may be useful if you: Have a fully funded emergency fund for short-term financial needs Don't expect CD interest rates to rise anytime soon Want a safe, secure place to keep your savings until you need them Compared to short-term CDs, you may get better rates from long-term CDs. Again, banks can use higher rates as an incentive to get savers to choose longer CD terms. So instead of earning 0.50%, for example, you might earn 2.00%. Tip Online banks may offer higher rates for short-term and long-term CDs versus traditional banks. Short-Term vs. Long-Term CDs: Which Is Better? Investopedia / Ellen Lindner Whether it's better to choose a short-term or long-term CD can depend on your financial needs and goals. Short-term CDs are designed to hold money temporarily until you plan to spend it. So you might use a CD to hold sinking funds for planned annual expenses, like car repairs or insurance premiums, for example. You know your money is somewhere safe and you can earn interest while you're at it. The key is choosing the right maturity term. Otherwise, you may get hit with an early withdrawal penalty if you need to pull money out sooner than expected. With long-term CDs, getting the timing right is more important for interest earnings. If you think rates might go up in the next 12 months, then it might not make sense to lock up all your money in a five-year CD. The only exception would be if it's a CD that allows you to raise your rate at some point during the maturity term. Opening a mix of short- and long-term CDs using a CD ladder can help you avoid early withdrawal fees and missed opportunities with interest rates. When you ladder CDs, you open multiple CDs with different maturity terms and rates. As each CD on the ladder matures, you can decide whether to roll it over to a new CD or withdraw the money. Is a CD Short-Term or Long-Term? A CD can be short-term or long-term, depending on its maturity term. A short-term CD typically has a maturity term of less than one year, while a long-term CD usually has a term of one year or more. What Is the Best Term for a CD? The best term for a CD is the one that will offer you the highest interest rate within a time frame that matches your financial goals. Withdrawing money from a CD before it matures can result in an early-withdrawal penalty. What Makes More Money, a Short-Term CD or a Long-Term CD? Whether a short-term or long-term CD makes more money depends on the interest rate and annual percentage yield (APY). Generally, CDs with longer terms tend to offer savers higher interest rates and APYs, though banks may offer special promotional CDs with higher rates and shorter terms. The Bottom Line When choosing CDs, it's important to consider the maturity term and how well that matches up with what you need. It's also good to shop around to find the best CD rates for the maturity term that you're seeking. Doing your research beforehand can help you find the right CD option.

https://www.investopedia.com/articles/bonds/08/bond-portfolio-strategies.asp

Top 4 Strategies for Managing a Bond Portfolio

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> To the casual observer, bond investing would appear to be as simple as buying the bond with the highest yield and holding onto it until it reaches maturity. While this works well when shopping for a certificate of deposit (CD) at the local bank, it doesn't work in the wider world of debt investing. </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 number of options are available for structuring a bond portfolio, and each strategy comes with its own risk and reward tradeoffs. The four principal strategies used to manage bond portfolios are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> <li>Passive, or "buy and hold"</li> <li>Index matching, or "quasi-passive"</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/immunization.asp">Immunization</a>, or "quasi-active"</li> <li>Dedicated and active</li> </ul> <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>Owning a bond portfolio can generate steady income, but bond prices are sensitive to interest rate changes.</li><li>An active approach requires staying ahead of interest rate moves.</li><li>An immunization approach reduces the impact of interest rate changes on a portfolio's value.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-4-bond-management-strategies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> The 4 Bond Management Strategies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Passive investing is for investors who want predictable income. </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"> Active investing is for investors who want to make bets on the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Indexation and immunization fall in the middle. They offer some predictability, but not as much as a passive strategy will produce. </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-passive-bond-management-strategy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Passive Bond Management Strategy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The passive buy-and-hold investor is looking to maximize the income-generating properties of bonds. Buy and hold involves purchasing individual bonds and holding them to maturity. </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"> To the passive investor, bonds are a safe, predictable source of income. The cash flow can contribute immediately to the investor's income or can be reinvested in other bonds or other assets. </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 a passive strategy, there are no assumptions made as to the direction of future interest rates and any changes in the current value of the bond due to shifts in the yield are not important. The bond may be originally purchased at a premium or a discount while assuming that full par will be received upon maturity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The only variation in total return from the actual coupon yield is the reinvestment of the coupons as they occur. </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"> A Stable Anchor </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> On the surface, this may appear to be a lazy style of investing. In reality, passive bond portfolios provide stable anchors in rough financial storms. They minimize or eliminate <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transactioncosts.asp">transaction costs</a>, and if originally implemented during a period of relatively high-interest rates, they have a decent chance of outperforming active strategies. </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 passive strategy works best with very high-quality, non-callable bonds like government or investment-grade corporate or municipal bonds. These types of bonds are well suited for a buy-and-hold strategy as they minimize the risk associated with changes in the investor's income stream due to embedded options, which are written into the bond's covenants at issue and stay with the bond for life. </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"> Like the stated coupon, call and put features embedded in a bond allow the issuer to act on those options under specified market conditions. </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"> Example of a Call Feature </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Company A issues $100 million in bonds at a 5% coupon rate to the public market; the bonds are completely sold out at issue. There is a call feature in the bonds' covenants that allows the lender to call (recall) the bonds if rates fall enough to reissue the bonds at a lower prevailing interest rate. </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"> Three years later, the prevailing interest rate is 3%. Due to the company's good credit rating, it is able to buy back the bonds at a predetermined price and reissue them at a 3% coupon rate. This is good for the lender but bad for the borrower. </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-bond-laddering-in-passive-investing"></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"> Bond Laddering in Passive Investing </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/terms/b/bondladdering.asp">Bond laddering</a> is one of the most common forms of passive bond investing. The investor divides the portfolio into equal parts, then buys bonds that mature on different dates. Each maturity date represents a "rung" on the ladder, which is the investor's entire <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timehorizon.asp">time horizon</a>. </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"> As the bonds reach maturity, the proceeds are reinvested at the currently available rate. This strategy reduces the impact of fluctuation in bond rates. </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"> Figure 1 is an example of a basic 10-year laddered $1 million bond portfolio with a stated coupon of 5%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_44-0"> <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> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Year</b></th> <th><b>1</b></th> <th><b>2</b></th> <th><b>3</b></th> <th><b>4</b></th> <th><b>5</b></th> <th><b>6</b></th> <th><b>7</b></th> <th><b>8</b></th> <th><b>9</b></th> <th><b>10</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>Principal</td> <td>$100,000</td> <td>$100,000</td> <td>$100,000</td> <td>$100,000</td> <td>$100,000</td> <td>$100,000</td> <td>$100,000</td> <td>$100,000</td> <td>$100,000</td> <td>$100,000</td> </tr> <tr> <td>Coupon Income</td> <td>$5,000</td> <td>$5,000</td> <td>$5,000</td> <td>$5,000</td> <td>$5,000</td> <td>$5,000</td> <td>$5,000</td> <td>$5,000</td> <td>$5,000</td> <td>$5,000</td> </tr> </tbody> </table> </div></figure> <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"> Figure 1 </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"> Dividing the principal into equal parts provides a steady equal stream of cash flow each year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_50-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_51-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Bond investing is not as simple or predictable as it might seem to the casual observer. There are many ways to build a bond portfolio and each has its risks and rewards.</p></div></div></div> <span class="heading-toc" id="toc-indexing-bond-strategy"></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"> Indexing Bond Strategy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Indexing is considered to be quasi-passive by design. The main objective of indexing a bond portfolio is to provide a return and risk characteristic closely tied to the targeted index. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> While this strategy carries some of the same characteristics of the passive buy-and-hold, it has some flexibility. Just like tracking a specific stock market index, a bond portfolio can be structured to mimic any published bond index. </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"> One common index mimicked by portfolio managers is the Bloomberg U.S. Aggregate Bond Index. Due to the size of this index, the strategy would work well with a large portfolio due to the number of bonds required to replicate the index. </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"> One also needs to consider the transaction costs associated with the original investment and the periodic <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rebalancing.asp">rebalancing</a> of the portfolio to reflect changes in the index. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-immunization-bond-strategy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> Immunization Bond Strategy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/022615/portfolio-immunization-vs-cash-flow-matching.asp">immunization strategy</a> has some of the characteristics of both active and passive strategies. It seeks to match the duration of assets and liabilities (such as discounted future cash flows required by the portfolio) to protect against interest rate fluctuations. </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"> By definition, pure immunization implies that a portfolio is invested for a defined return for a specific period of time regardless of any outside influences, such as changes in interest rates. </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"> Similar to indexing, the immunization strategy potentially gives up the upside potential of an active strategy for the assurance that the portfolio will achieve the intended desired return. As in the buy-and-hold strategy, the instruments best suited for this strategy are high-grade bonds with remote possibilities of default. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-subheading__text"> Eliminating the Variables </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> The purest form of immunization would be to invest in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/z/zero-couponbond.asp">zero-coupon bond</a> and match the maturity of the bond to the date on which the cash flow is expected to be needed. This eliminates any variability of return, positive or negative, associated with the reinvestment of cash flows.<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_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Duration, or the average life of a bond, is commonly used in immunization. It is a much more accurate predictive measure of a bond's volatility than maturity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> The duration strategy is commonly used by insurance companies, pension funds, and banks to match the time horizon of their future liabilities with structured cash flows. It is one of the soundest strategies and can be used successfully by individuals. </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"> A pension fund might use an immunization strategy to plan for cash flows for an individual's retirement. The same individual could build a dedicated portfolio independently. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <span class="heading-toc" id="toc-active-bond-strategy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_77-0"> <span class="mntl-sc-block-heading__text"> Active Bond Strategy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> The goal of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activemanagement.asp">active management</a> is maximizing total return. Along with the enhanced opportunity for returns comes increased risk. </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"> Some examples of active styles include interest rate anticipation, timing, valuation, spread exploitation, and multiple interest rate scenarios. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> The basic premise of all active strategies is that the investor is willing to make bets on the future rather than settle for the potentially lower returns a passive strategy offers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_84-0"><span class="heading-toc" id="toc-what-is-a-bond-and-why-would-i-invest-in-them"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Bond and Why Would I Invest in Them?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A bond is essentially an IOU. When a corporation, a government, or some other agency wants to raise a sum of money, it might issue a round of bonds. Investors buy the bonds in return for a set amount of interest, usually paid in installments. When the bond reaches its maturity date, the issuer returns the original sum invested.</p><p>High-quality bonds represent a reasonably safe alternative for the investor. "High-quality" means the bonds come with a rating of BBB- or better from one of the three major <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondrating.asp">bond rating agencies</a>.<span class="ql-inline-citation" data-cite="2"></span></p><p>The return the investor will get is known up front. The rating indicates that the company is extremely likely to pay the interest and return the principal.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_86-0"><span class="heading-toc" id="toc-are-bonds-a-good-investment-when-inflation-is-high"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Bonds a Good Investment When Inflation Is High?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When inflation rises, the interest rates on newly-issued bonds typically will increase in order to remain competitive.</p><p>The same trend, however, causes the value of existing bonds to decrease on the secondary bond market. The existing bonds cannot compete with newer, higher-paying bonds.</p><p>That is why it is often said that bond prices are inversely related to interest rates.</p><p>Price fluctuations in the secondary bond market have no impact on the value of bonds being held to maturity by investors.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_88-0"><span class="heading-toc" id="toc-can-i-lose-money-investing-in-bonds"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Lose Money Investing in Bonds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An investor is highly unlikely to lose money on bonds as long as the bonds are investment quality, meaning they are rated BBB- or better.<span class="ql-inline-citation" data-cite="2"></span></p><p>That is the reason that investors prize bonds. They provide a steady, reliable income with little chance of a loss of principle.</p><p>The risk in bonds lies in the potential for missed opportunities. If an investor buys a one-year bond that pays 3.9 percent interest in March and new bonds issued four months later pay 4.3 percent, the investor has missed an opportunity for a better return.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_90-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_91-0"> There are many strategies for investing in bonds that investors can employ. The buy-and-hold approach appeals to investors who are looking for income and are not willing to make predictions. The middle-of-the-road strategies include indexation and immunization, both of which offer some security and predictability. Then there is the active world, which is not for the casual investor. </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"> Each strategy has its place and when implemented correctly, can achieve the goals for which it was intended. </p></div>

To the casual observer, bond investing would appear to be as simple as buying the bond with the highest yield and holding onto it until it reaches maturity. While this works well when shopping for a certificate of deposit (CD) at the local bank, it doesn't work in the wider world of debt investing. A number of options are available for structuring a bond portfolio, and each strategy comes with its own risk and reward tradeoffs. The four principal strategies used to manage bond portfolios are: * Passive, or "buy and hold" * Index matching, or "quasi-passive" * [Immunization](https://www.investopedia.com/terms/i/immunization.asp), or "quasi-active" * Dedicated and active ### Key Takeaways * Owning a bond portfolio can generate steady income, but bond prices are sensitive to interest rate changes. * An active approach requires staying ahead of interest rate moves. * An immunization approach reduces the impact of interest rate changes on a portfolio's value. ## The 4 Bond Management Strategies Passive investing is for investors who want predictable income. Active investing is for investors who want to make bets on the future. Indexation and immunization fall in the middle. They offer some predictability, but not as much as a passive strategy will produce. ## Passive Bond Management Strategy The passive buy-and-hold investor is looking to maximize the income-generating properties of bonds. Buy and hold involves purchasing individual bonds and holding them to maturity. To the passive investor, bonds are a safe, predictable source of income. The cash flow can contribute immediately to the investor's income or can be reinvested in other bonds or other assets. In a passive strategy, there are no assumptions made as to the direction of future interest rates and any changes in the current value of the bond due to shifts in the yield are not important. The bond may be originally purchased at a premium or a discount while assuming that full par will be received upon maturity. The only variation in total return from the actual coupon yield is the reinvestment of the coupons as they occur. ### A Stable Anchor On the surface, this may appear to be a lazy style of investing. In reality, passive bond portfolios provide stable anchors in rough financial storms. They minimize or eliminate [transaction costs](https://www.investopedia.com/terms/t/transactioncosts.asp), and if originally implemented during a period of relatively high-interest rates, they have a decent chance of outperforming active strategies. A passive strategy works best with very high-quality, non-callable bonds like government or investment-grade corporate or municipal bonds. These types of bonds are well suited for a buy-and-hold strategy as they minimize the risk associated with changes in the investor's income stream due to embedded options, which are written into the bond's covenants at issue and stay with the bond for life. Like the stated coupon, call and put features embedded in a bond allow the issuer to act on those options under specified market conditions. ### Example of a Call Feature Company A issues $100 million in bonds at a 5% coupon rate to the public market; the bonds are completely sold out at issue. There is a call feature in the bonds' covenants that allows the lender to call (recall) the bonds if rates fall enough to reissue the bonds at a lower prevailing interest rate. Three years later, the prevailing interest rate is 3%. Due to the company's good credit rating, it is able to buy back the bonds at a predetermined price and reissue them at a 3% coupon rate. This is good for the lender but bad for the borrower. ## Bond Laddering in Passive Investing [Bond laddering](https://www.investopedia.com/terms/b/bondladdering.asp) is one of the most common forms of passive bond investing. The investor divides the portfolio into equal parts, then buys bonds that mature on different dates. Each maturity date represents a "rung" on the ladder, which is the investor's entire [time horizon](https://www.investopedia.com/terms/t/timehorizon.asp). As the bonds reach maturity, the proceeds are reinvested at the currently available rate. This strategy reduces the impact of fluctuation in bond rates. Figure 1 is an example of a basic 10-year laddered $1 million bond portfolio with a stated coupon of 5%. | **Year** | **1** | **2** | **3** | **4** | **5** | **6** | **7** | **8** | **9** | **10** | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Principal | $100,000 | $100,000 | $100,000 | $100,000 | $100,000 | $100,000 | $100,000 | $100,000 | $100,000 | $100,000 | | Coupon Income | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | Figure 1 Dividing the principal into equal parts provides a steady equal stream of cash flow each year. ### Bond investing is not as simple or predictable as it might seem to the casual observer. There are many ways to build a bond portfolio and each has its risks and rewards. ## Indexing Bond Strategy Indexing is considered to be quasi-passive by design. The main objective of indexing a bond portfolio is to provide a return and risk characteristic closely tied to the targeted index. While this strategy carries some of the same characteristics of the passive buy-and-hold, it has some flexibility. Just like tracking a specific stock market index, a bond portfolio can be structured to mimic any published bond index. One common index mimicked by portfolio managers is the Bloomberg U.S. Aggregate Bond Index. Due to the size of this index, the strategy would work well with a large portfolio due to the number of bonds required to replicate the index. One also needs to consider the transaction costs associated with the original investment and the periodic [rebalancing](https://www.investopedia.com/terms/r/rebalancing.asp) of the portfolio to reflect changes in the index. ## Immunization Bond Strategy The [immunization strategy](https://www.investopedia.com/articles/investing/022615/portfolio-immunization-vs-cash-flow-matching.asp) has some of the characteristics of both active and passive strategies. It seeks to match the duration of assets and liabilities (such as discounted future cash flows required by the portfolio) to protect against interest rate fluctuations. By definition, pure immunization implies that a portfolio is invested for a defined return for a specific period of time regardless of any outside influences, such as changes in interest rates. Similar to indexing, the immunization strategy potentially gives up the upside potential of an active strategy for the assurance that the portfolio will achieve the intended desired return. As in the buy-and-hold strategy, the instruments best suited for this strategy are high-grade bonds with remote possibilities of default. ### Eliminating the Variables The purest form of immunization would be to invest in a [zero-coupon bond](https://www.investopedia.com/terms/z/zero-couponbond.asp) and match the maturity of the bond to the date on which the cash flow is expected to be needed. This eliminates any variability of return, positive or negative, associated with the reinvestment of cash flows. Duration, or the average life of a bond, is commonly used in immunization. It is a much more accurate predictive measure of a bond's volatility than maturity. The duration strategy is commonly used by insurance companies, pension funds, and banks to match the time horizon of their future liabilities with structured cash flows. It is one of the soundest strategies and can be used successfully by individuals. A pension fund might use an immunization strategy to plan for cash flows for an individual's retirement. The same individual could build a dedicated portfolio independently. ## Active Bond Strategy The goal of [active management](https://www.investopedia.com/terms/a/activemanagement.asp) is maximizing total return. Along with the enhanced opportunity for returns comes increased risk. Some examples of active styles include interest rate anticipation, timing, valuation, spread exploitation, and multiple interest rate scenarios. The basic premise of all active strategies is that the investor is willing to make bets on the future rather than settle for the potentially lower returns a passive strategy offers. ## What Is a Bond and Why Would I Invest in Them? A bond is essentially an IOU. When a corporation, a government, or some other agency wants to raise a sum of money, it might issue a round of bonds. Investors buy the bonds in return for a set amount of interest, usually paid in installments. When the bond reaches its maturity date, the issuer returns the original sum invested. High-quality bonds represent a reasonably safe alternative for the investor. "High-quality" means the bonds come with a rating of BBB- or better from one of the three major [bond rating agencies](https://www.investopedia.com/terms/b/bondrating.asp). The return the investor will get is known up front. The rating indicates that the company is extremely likely to pay the interest and return the principal. ## Are Bonds a Good Investment When Inflation Is High? When inflation rises, the interest rates on newly-issued bonds typically will increase in order to remain competitive. The same trend, however, causes the value of existing bonds to decrease on the secondary bond market. The existing bonds cannot compete with newer, higher-paying bonds. That is why it is often said that bond prices are inversely related to interest rates. Price fluctuations in the secondary bond market have no impact on the value of bonds being held to maturity by investors. ## Can I Lose Money Investing in Bonds? An investor is highly unlikely to lose money on bonds as long as the bonds are investment quality, meaning they are rated BBB- or better. That is the reason that investors prize bonds. They provide a steady, reliable income with little chance of a loss of principle. The risk in bonds lies in the potential for missed opportunities. If an investor buys a one-year bond that pays 3.9 percent interest in March and new bonds issued four months later pay 4.3 percent, the investor has missed an opportunity for a better return. ## The Bottom Line There are many strategies for investing in bonds that investors can employ. The buy-and-hold approach appeals to investors who are looking for income and are not willing to make predictions. The middle-of-the-road strategies include indexation and immunization, both of which offer some security and predictability. Then there is the active world, which is not for the casual investor. Each strategy has its place and when implemented correctly, can achieve the goals for which it was intended.

To the casual observer, bond investing would appear to be as simple as buying the bond with the highest yield and holding onto it until it reaches maturity. While this works well when shopping for a certificate of deposit (CD) at the local bank, it doesn't work in the wider world of debt investing. A number of options are available for structuring a bond portfolio, and each strategy comes with its own risk and reward tradeoffs. The four principal strategies used to manage bond portfolios are: Passive, or "buy and hold" Index matching, or "quasi-passive" Immunization, or "quasi-active" Dedicated and active Key Takeaways Owning a bond portfolio can generate steady income, but bond prices are sensitive to interest rate changes.An active approach requires staying ahead of interest rate moves.An immunization approach reduces the impact of interest rate changes on a portfolio's value. The 4 Bond Management Strategies Passive investing is for investors who want predictable income. Active investing is for investors who want to make bets on the future. Indexation and immunization fall in the middle. They offer some predictability, but not as much as a passive strategy will produce. Passive Bond Management Strategy The passive buy-and-hold investor is looking to maximize the income-generating properties of bonds. Buy and hold involves purchasing individual bonds and holding them to maturity. To the passive investor, bonds are a safe, predictable source of income. The cash flow can contribute immediately to the investor's income or can be reinvested in other bonds or other assets. In a passive strategy, there are no assumptions made as to the direction of future interest rates and any changes in the current value of the bond due to shifts in the yield are not important. The bond may be originally purchased at a premium or a discount while assuming that full par will be received upon maturity. The only variation in total return from the actual coupon yield is the reinvestment of the coupons as they occur. A Stable Anchor On the surface, this may appear to be a lazy style of investing. In reality, passive bond portfolios provide stable anchors in rough financial storms. They minimize or eliminate transaction costs, and if originally implemented during a period of relatively high-interest rates, they have a decent chance of outperforming active strategies. A passive strategy works best with very high-quality, non-callable bonds like government or investment-grade corporate or municipal bonds. These types of bonds are well suited for a buy-and-hold strategy as they minimize the risk associated with changes in the investor's income stream due to embedded options, which are written into the bond's covenants at issue and stay with the bond for life. Like the stated coupon, call and put features embedded in a bond allow the issuer to act on those options under specified market conditions. Example of a Call Feature Company A issues $100 million in bonds at a 5% coupon rate to the public market; the bonds are completely sold out at issue. There is a call feature in the bonds' covenants that allows the lender to call (recall) the bonds if rates fall enough to reissue the bonds at a lower prevailing interest rate. Three years later, the prevailing interest rate is 3%. Due to the company's good credit rating, it is able to buy back the bonds at a predetermined price and reissue them at a 3% coupon rate. This is good for the lender but bad for the borrower. Bond Laddering in Passive Investing Bond laddering is one of the most common forms of passive bond investing. The investor divides the portfolio into equal parts, then buys bonds that mature on different dates. Each maturity date represents a "rung" on the ladder, which is the investor's entire time horizon. As the bonds reach maturity, the proceeds are reinvested at the currently available rate. This strategy reduces the impact of fluctuation in bond rates. Figure 1 is an example of a basic 10-year laddered $1 million bond portfolio with a stated coupon of 5%. Year 1 2 3 4 5 6 7 8 9 10 Principal $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 Coupon Income $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 Figure 1 Dividing the principal into equal parts provides a steady equal stream of cash flow each year. Bond investing is not as simple or predictable as it might seem to the casual observer. There are many ways to build a bond portfolio and each has its risks and rewards. Indexing Bond Strategy Indexing is considered to be quasi-passive by design. The main objective of indexing a bond portfolio is to provide a return and risk characteristic closely tied to the targeted index. While this strategy carries some of the same characteristics of the passive buy-and-hold, it has some flexibility. Just like tracking a specific stock market index, a bond portfolio can be structured to mimic any published bond index. One common index mimicked by portfolio managers is the Bloomberg U.S. Aggregate Bond Index. Due to the size of this index, the strategy would work well with a large portfolio due to the number of bonds required to replicate the index. One also needs to consider the transaction costs associated with the original investment and the periodic rebalancing of the portfolio to reflect changes in the index. Immunization Bond Strategy The immunization strategy has some of the characteristics of both active and passive strategies. It seeks to match the duration of assets and liabilities (such as discounted future cash flows required by the portfolio) to protect against interest rate fluctuations. By definition, pure immunization implies that a portfolio is invested for a defined return for a specific period of time regardless of any outside influences, such as changes in interest rates. Similar to indexing, the immunization strategy potentially gives up the upside potential of an active strategy for the assurance that the portfolio will achieve the intended desired return. As in the buy-and-hold strategy, the instruments best suited for this strategy are high-grade bonds with remote possibilities of default. Eliminating the Variables The purest form of immunization would be to invest in a zero-coupon bond and match the maturity of the bond to the date on which the cash flow is expected to be needed. This eliminates any variability of return, positive or negative, associated with the reinvestment of cash flows. Duration, or the average life of a bond, is commonly used in immunization. It is a much more accurate predictive measure of a bond's volatility than maturity. The duration strategy is commonly used by insurance companies, pension funds, and banks to match the time horizon of their future liabilities with structured cash flows. It is one of the soundest strategies and can be used successfully by individuals. A pension fund might use an immunization strategy to plan for cash flows for an individual's retirement. The same individual could build a dedicated portfolio independently. Active Bond Strategy The goal of active management is maximizing total return. Along with the enhanced opportunity for returns comes increased risk. Some examples of active styles include interest rate anticipation, timing, valuation, spread exploitation, and multiple interest rate scenarios. The basic premise of all active strategies is that the investor is willing to make bets on the future rather than settle for the potentially lower returns a passive strategy offers. What Is a Bond and Why Would I Invest in Them? A bond is essentially an IOU. When a corporation, a government, or some other agency wants to raise a sum of money, it might issue a round of bonds. Investors buy the bonds in return for a set amount of interest, usually paid in installments. When the bond reaches its maturity date, the issuer returns the original sum invested.High-quality bonds represent a reasonably safe alternative for the investor. "High-quality" means the bonds come with a rating of BBB- or better from one of the three major bond rating agencies.The return the investor will get is known up front. The rating indicates that the company is extremely likely to pay the interest and return the principal. Are Bonds a Good Investment When Inflation Is High? When inflation rises, the interest rates on newly-issued bonds typically will increase in order to remain competitive.The same trend, however, causes the value of existing bonds to decrease on the secondary bond market. The existing bonds cannot compete with newer, higher-paying bonds.That is why it is often said that bond prices are inversely related to interest rates.Price fluctuations in the secondary bond market have no impact on the value of bonds being held to maturity by investors. Can I Lose Money Investing in Bonds? An investor is highly unlikely to lose money on bonds as long as the bonds are investment quality, meaning they are rated BBB- or better.That is the reason that investors prize bonds. They provide a steady, reliable income with little chance of a loss of principle.The risk in bonds lies in the potential for missed opportunities. If an investor buys a one-year bond that pays 3.9 percent interest in March and new bonds issued four months later pay 4.3 percent, the investor has missed an opportunity for a better return. The Bottom Line There are many strategies for investing in bonds that investors can employ. The buy-and-hold approach appeals to investors who are looking for income and are not willing to make predictions. The middle-of-the-road strategies include indexation and immunization, both of which offer some security and predictability. Then there is the active world, which is not for the casual investor. Each strategy has its place and when implemented correctly, can achieve the goals for which it was intended.

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

Eurocurrency: Meaning, Overview, 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-eurocurrency"></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 Eurocurrency? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Eurocurrency is currency held on deposit by governments or corporations operating outside of their home market. For example, a deposit of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/usd.asp" rel="noopener noreferrer">U.S. dollars (USD)</a> held in a British bank would be considered eurocurrency, as would a deposit of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gbp.asp" rel="noopener noreferrer">British Pounds (GBP)</a> made in the United States. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The term eurocurrency refers to currency deposits held at banks outside of their country of origin.</li><li>The most famous example of eurocurrency is the eurodollar, which involves U.S. dollar (USD) deposits held outside the United States.</li><li>Eurocurrency has become an extremely important facet of the global financial system, due to factors such as globalization and financial regulations.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-eurocurrency"></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 Eurocurrency </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The term “eurocurrency” applies to any currency deposit held outside of the home market in which that currency is issued. Importantly, despite its name, it does not necessarily need to involve European currencies. For instance, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/k/kpw-north-korean-won.asp" rel="noopener noreferrer">South Korean won (KPW)</a> deposited at a bank in South Africa would be considered eurocurrency, even if no European currency is involved. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Eurocurrency is an important part of the global financial system. Since <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/globalization.asp" rel="noopener noreferrer">globalization</a> has led to a sharp rise in cross-border transactions in recent decades, many banks find themselves needing to access deposits of local currency in different regions throughout the world. This has led to a large and active eurocurrency market, in which international banks regularly exchange and lend foreign currencies with one-another out of their eurocurrency deposits. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> In addition to the rise of international transactions, another explanation for the use of eurocurrency throughout the world concerns <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/11/government-regulations.asp" rel="noopener noreferrer">regulation</a>. For many banks, borrowing from other banks through the eurocurrency market can be a faster and more efficient way to access short-term financing as compared to finding alternative sources of funding within their home market.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-real-world-example-of-eurocurrency"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Real World Example of Eurocurrency </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The most prominent example of a eurocurrency market are the USD-denominated time deposits held at banks outside the United States. Colloquially referred to as “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eurodollar.asp" rel="noopener noreferrer">eurodollars</a>”, these deposits have become an integral part of the global financial system as a source of short-term USD funding for financial firms throughout the world.  </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"> Since the USD is the world’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reservecurrency.asp" rel="noopener noreferrer">reserve currency</a>, virtually all multinational corporations, banks, and governments require large quantities of USD in order to satisfy their routine financial obligations. Often, these firms rely on the eurodollar market to satisfy these short-term funding needs. Although it is difficult to obtain reliable estimates of the size of the eurodollar market, recent estimates have placed it at nearly $14 trillion.<br/> </p></div>

## What Is Eurocurrency? Eurocurrency is currency held on deposit by governments or corporations operating outside of their home market. For example, a deposit of [U.S. dollars (USD)](https://www.investopedia.com/terms/u/usd.asp) held in a British bank would be considered eurocurrency, as would a deposit of [British Pounds (GBP)](https://www.investopedia.com/terms/g/gbp.asp) made in the United States. ### Key Takeaways * The term eurocurrency refers to currency deposits held at banks outside of their country of origin. * The most famous example of eurocurrency is the eurodollar, which involves U.S. dollar (USD) deposits held outside the United States. * Eurocurrency has become an extremely important facet of the global financial system, due to factors such as globalization and financial regulations. ## Understanding Eurocurrency The term “eurocurrency” applies to any currency deposit held outside of the home market in which that currency is issued. Importantly, despite its name, it does not necessarily need to involve European currencies. For instance, [South Korean won (KPW)](https://www.investopedia.com/terms/forex/k/kpw-north-korean-won.asp) deposited at a bank in South Africa would be considered eurocurrency, even if no European currency is involved. Eurocurrency is an important part of the global financial system. Since [globalization](https://www.investopedia.com/terms/g/globalization.asp) has led to a sharp rise in cross-border transactions in recent decades, many banks find themselves needing to access deposits of local currency in different regions throughout the world. This has led to a large and active eurocurrency market, in which international banks regularly exchange and lend foreign currencies with one-another out of their eurocurrency deposits. In addition to the rise of international transactions, another explanation for the use of eurocurrency throughout the world concerns [regulation](https://www.investopedia.com/articles/economics/11/government-regulations.asp). For many banks, borrowing from other banks through the eurocurrency market can be a faster and more efficient way to access short-term financing as compared to finding alternative sources of funding within their home market.  ## Real World Example of Eurocurrency The most prominent example of a eurocurrency market are the USD-denominated time deposits held at banks outside the United States. Colloquially referred to as “[eurodollars](https://www.investopedia.com/terms/e/eurodollar.asp)”, these deposits have become an integral part of the global financial system as a source of short-term USD funding for financial firms throughout the world.  Since the USD is the world’s [reserve currency](https://www.investopedia.com/terms/r/reservecurrency.asp), virtually all multinational corporations, banks, and governments require large quantities of USD in order to satisfy their routine financial obligations. Often, these firms rely on the eurodollar market to satisfy these short-term funding needs. Although it is difficult to obtain reliable estimates of the size of the eurodollar market, recent estimates have placed it at nearly $14 trillion.

What Is Eurocurrency? Eurocurrency is currency held on deposit by governments or corporations operating outside of their home market. For example, a deposit of U.S. dollars (USD) held in a British bank would be considered eurocurrency, as would a deposit of British Pounds (GBP) made in the United States. Key Takeaways The term eurocurrency refers to currency deposits held at banks outside of their country of origin.The most famous example of eurocurrency is the eurodollar, which involves U.S. dollar (USD) deposits held outside the United States.Eurocurrency has become an extremely important facet of the global financial system, due to factors such as globalization and financial regulations. Understanding Eurocurrency The term “eurocurrency” applies to any currency deposit held outside of the home market in which that currency is issued. Importantly, despite its name, it does not necessarily need to involve European currencies. For instance, South Korean won (KPW) deposited at a bank in South Africa would be considered eurocurrency, even if no European currency is involved. Eurocurrency is an important part of the global financial system. Since globalization has led to a sharp rise in cross-border transactions in recent decades, many banks find themselves needing to access deposits of local currency in different regions throughout the world. This has led to a large and active eurocurrency market, in which international banks regularly exchange and lend foreign currencies with one-another out of their eurocurrency deposits. In addition to the rise of international transactions, another explanation for the use of eurocurrency throughout the world concerns regulation. For many banks, borrowing from other banks through the eurocurrency market can be a faster and more efficient way to access short-term financing as compared to finding alternative sources of funding within their home market.  Real World Example of Eurocurrency The most prominent example of a eurocurrency market are the USD-denominated time deposits held at banks outside the United States. Colloquially referred to as “eurodollars”, these deposits have become an integral part of the global financial system as a source of short-term USD funding for financial firms throughout the world.  Since the USD is the world’s reserve currency, virtually all multinational corporations, banks, and governments require large quantities of USD in order to satisfy their routine financial obligations. Often, these firms rely on the eurodollar market to satisfy these short-term funding needs. Although it is difficult to obtain reliable estimates of the size of the eurodollar market, recent estimates have placed it at nearly $14 trillion.

https://www.investopedia.com/huntington-bank-review-5069923

Huntington 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="Huntington Bank" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/MIkAE3rvTee1OtSTCUpxJhrIpms=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/huntington-bank-logo-28d7ed0d047e46258d54cd7999316609.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhEgAEAPEAAAAAAHZtZVumPAAAACH5BAEAAAAALAAAAAASAAQAQQgjAAEIAEAwAMGDCBEKGAjAYICHDh8WFDhQIsSIFgUmTCjxYEAAOw==')" width="1500"/> <noscript> <img alt="Huntington Bank" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/MIkAE3rvTee1OtSTCUpxJhrIpms=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/huntington-bank-logo-28d7ed0d047e46258d54cd7999316609.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.huntington.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 1866, and still headquartered in Columbus, Ohio, Huntington is a regional bank serving 11 states located primarily in the Midwest. A full-service bank, it offers consumers a one-stop shopping for banking needs.<span class="ql-inline-citation" data-cite="7"></span> Read our in-depth review to determine if Huntington's products and services are 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>Basic checking account is fee free</p></li> <li><p>All day deposit</p></li> <li><p>24-hour grace period on overdrafts</p></li> <li><p>Robust customer support</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Only available in 11 states</p></li> <li><p>Low APY</p></li> <li><p>High minimum balances on interest-bearing checking accounts</p></li> <li><p>High overdraft fees</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="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"> 1866 </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.huntington.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, checking, CDs, MMA, credit card </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–Sunday, 7 a.m. to 7 p.m. (ET): 800-480-2265 </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="Huntington Bank" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/MIkAE3rvTee1OtSTCUpxJhrIpms=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/huntington-bank-logo-28d7ed0d047e46258d54cd7999316609.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhEgAEAPEAAAAAAHZtZVumPAAAACH5BAEAAAAALAAAAAASAAQAQQgjAAEIAEAwAMGDCBEKGAjAYICHDh8WFDhQIsSIFgUmTCjxYEAAOw==')" width="1500"/> <noscript> <img alt="Huntington Bank" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/MIkAE3rvTee1OtSTCUpxJhrIpms=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/huntington-bank-logo-28d7ed0d047e46258d54cd7999316609.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.huntington.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-Huntington 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"> Huntington 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-huntington-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-huntington-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-huntington" 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-huntington-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-with-huntington" 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-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_3-0-7" 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_3-0-8"> <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>Basic checking account is fee-free: </strong>The basic checking account, Asterisk-Free Checking, has no monthly fee, no minimum balance, and no minimum deposit to open the account. There is also no fee for receiving paper statements via mail if you prefer that to emailed statements.<span class="ql-inline-citation" data-cite="8"></span></li><li><strong>All-day deposit: </strong>This feature extends the cut off for getting in a deposit on a business day to midnight. If you make an ATM or mobile bank deposit on a business day prior to midnight, then Huntington will consider that day to be the day of your deposit.</li><li><strong>24-hour grace period on overdrafts: </strong>If you overdraw your account, a 24-hour grace policy gives you until midnight on the next day to make a deposit or transfer to cover the overdraft.<span class="ql-inline-citation" data-cite="9"></span></li><li><strong>Robust customer support: </strong>Customers can reach a customer service agent via phone daily from 7 a.m. to 8 p.m. (ET). You can also access an automated assistant any time on the website and find answers to your questions in the easy-to-navigate and thorough FAQ for customer support. The bank also encourages customers to contact customer service via Facebook or X (formerly Twitter).</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>Only available in 11 states: </strong>Huntington currently has a presence in just 11 states: Ohio, Colorado, Florida, Illinois, Indiana, Kentucky, Michigan, Minnesota, Pennsylvania, West Virginia, and Wisconsin.<span class="ql-inline-citation" data-cite="7"></span></li><li><strong>Low annual percentage yield</strong> (<strong>APY): </strong>Huntington's rates for interest-bearing accounts are easily beaten by other banks, especially online-only banks that do not have to invest in brick-and-mortar branches.</li><li><strong>High minimum balances on interest-bearing checking accounts: </strong>Though the basic checking account doesn't charge fees or require a minimum balance, interest-bearing accounts require either a $5,000 minimum balance or a $25,000 minimum balance across all accounts to remain fee free.<span class="ql-inline-citation" data-cite="17"></span></li><li><strong>High overdraft fee totals: </strong>Though<strong> </strong>Huntington offers methods to avoid overdraft fees, the fee itself is $15 per overdraft and can be incurred up to three times daily.<span class="ql-inline-citation" data-cite="8"></span></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_2-0-4"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>For accounts or products that have area-specific interest rates, customers who live outside of the 11-state region will receive the rate associated with Columbus, Ohio, where Huntington is headquartered.</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-who-is-huntington-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_2-0-5"> <span class="mntl-sc-block-heading__text"> Who Is Huntington 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_2-0-6"> Huntington Bank will appeal to customers looking for basic checking and savings accounts. It will be especially tempting to those 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_2-0-7"> <li>Live within Huntington's 11-state geographic footprint</li><li>Want multiple options to avoid overdraft fees</li><li>Need a truly free checking account</li><li>Would like to have their checking and savings under one roof</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp sc-block-iframe--datawrapper mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_2-0-8"> <iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp lazyload mntl-sc-block-iframe__uri mntl-block" data-src="https://datawrapper.dwcdn.net/J7dmy/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Huntington Branches by State"></iframe><!-- end: comp lazyload mntl-sc-block-iframe__uri mntl-block --> </div><!-- end: comp sc-block-iframe--datawrapper mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block --> <span class="heading-toc" id="toc-what-does-huntington-offer"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-9"> <span class="mntl-sc-block-heading__text"> What Does Huntington 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_2-0-10"> Huntington offers a robust menu of products and services including: </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>Savings accounts</li> <li>Checking accounts</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 account</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp" rel="noopener noreferrer">Certificates of Deposit (CDs)</a></li> <li>Credit card</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_2-0-12"> <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_2-0-13"> <strong>Huntington Premier Savings</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_2-0-14"> This is the basic savings account for Huntington customers. Premier Savings is free of fees for customers who have a linked Asterisk-Free Checking or any other personal checking account, or who maintain an average daily balance of $300 or more. Otherwise, the monthly maintenance fee is $4. You can open an account with a minimum deposit of $50. Premier Savings offers savers an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apy.asp">APY</a> of 0.01% and only requires a balance of $0.01 to earn.<span class="ql-inline-citation" data-cite="10"></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_2-0-15"> Deposit-to-deposit overdraft protection is provided if you have a linked checking account. If you overdraw, Huntington will automatically transfer money in increments of $100 to cover the overdraft from your Premier Savings account. There is no fee for this protection, but be aware of potential transfer limits.<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_2-0-16"> <strong>Huntington Relationship Savings</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_2-0-17"> This account gives savers an improved APY that gets even better if you have additional linked accounts. The basic rate is 0.01% and goes up based on the types of accounts you also have with Huntington:<span class="ql-inline-citation" data-cite="12"></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_2-0-18"> <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">Relationship Savings Rates</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Relationship Rate</b></td> <td><b>APY</b></td> </tr> <tr> <td>Non-Relationship Rate</td> <td>0.01%</td> </tr> <tr> <td>Relationship Savings linked with Huntington Perks Checking</td> <td>0.02%</td> </tr> <tr> <td>Relationship Savings linked with Huntington Platinum Perks Checking</td> <td>0.02%</td> </tr> <tr> <td>Relationship Savings linked with Private Client Account</td> <td>0.06%</td> </tr> </tbody> </table> <figcaption>As of Apr. 24, 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_2-0-19"> With the improved rate comes bigger costs, however. Relationship Savings is free for customers who maintain an average daily balance of $2,500 or link the account to either a Huntington Perks or Huntington Platinum Perks checking account. Both have a minimum daily balance requirement and a fee if that balance is not met. Otherwise, savers with a Relationship Savings account will pay a $10 monthly maintenance fee.<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_2-0-20"> Like the Premier Savings account, Relationship Savings offers deposit-to-deposit overdraft protection, provided you link to a Huntington Perks Checking 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_2-0-21"> <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> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Premier Savings and Relationship Savings Rates and Terms</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Account</b></td> <td><b>Monthly Maintenance Fee</b></td> <td><b>Minimum Balance to Avoid Fee</b></td> <td>APY</td> </tr> <tr> <td>Premier Savings</td> <td>$4</td> <td>$300</td> <td>0.01%</td> </tr> <tr> <td>Relationship Savings</td> <td>$10</td> <td>$2,500</td> <td>Ranging from 0.01% to 0.06%</td> </tr> </tbody> </table> <figcaption>As of Apr. 24, 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"> 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_2-0-23"> <strong>Asterisk-Free Checking</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_2-0-24"> Huntington tries very hard to make sure this basic checking account lives up to the Asterisk-Free name. There is no monthly maintenance fee, no minimum deposit to open the account, and no minimum balance required. And contrary to common banking policies in the 21st Century, Huntington does not charge fees for providing paper statements rather than email statements, if that's your preference.<span class="ql-inline-citation" data-cite="8"></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_2-0-25"> Additionally, the all-day deposit policy, which treats any deposit made before midnight on a business day as getting in on the same business day, is a remarkably forgiving rule that helps customers stay in the black. Pair that with the 24-hour grace policy for overdrafts, which gives customers until midnight the day after an overdraft to make a deposit or transfer to cover the overdraft, as well as the free deposit-to-deposit overdraft protection with a Premier Savings account. </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_2-0-26"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>If you overdraw funds, the overdraft fee of $15 can be levied up to three times per day.<span class="ql-inline-citation" data-cite="8"></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_2-0-27"> <strong>Huntington Perks Checking</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"> This is Huntington's lower-level interest-bearing checking account. Customers can earn 0.02% APY on their account balance. There is no minimum required to earn and no minimum deposit to open this account. If you make at least $1,000 in deposits monthly or maintain $5,000 in total relationship balances, there is no fee. Otherwise, you will pay $10 per 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_2-0-29"> Huntington Perks Checking offers the same forgiving policies as Asterisk-Free checking. You get all day deposit, a 24-hour grace period, and overdraft protection. You need to link this account to a Relationship Savings account to receive the overdraft protection. Account holders get free credit score monitoring as well as five out-of-network ATM fee waivers per month.<span class="ql-inline-citation" data-cite="13"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-30"> <strong>Huntington Platinum Perks Checking</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_2-0-31"> For customers looking for higher rates from an interest-bearing checking account, the bank offers Huntington Platinum Perks Checking. Account holders earn 0.03% APY on any size balance. However, expect to pay $25 per month in maintenance fees unless you are able to maintain $25,000 in total relationship balances among your 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_2-0-32"> Like the other checking accounts, Huntington Platinum Perks provides all-day deposit, a 24-hour grace period, and overdraft protection (with a Relationship 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_2-0-33"> It also comes with some other major perks: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-34"> <li>Free credit and identity monitoring</li> <li>Free paper checks</li> <li>Unlimited out-of-network ATM fee waivers</li> <li>A relationship discount on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/heloc/">home equity line of credit (HELOC)</a>, plus an annual fee waiver</li> <li>A relationship discount on a mortgage</li> <li>100 commission-free online equity or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded fund (ETF)</a> trades per year through Huntington Financial Advisors<span class="ql-inline-citation" data-cite="14"></span></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_2-0-35"> <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">Huntington Checking Accounts</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Account Name</b></td> <td><b>Monthly Maintenance Fee</b></td> <td><b>Minimum Balance to Avoid Fee</b></td> <td><b>APY</b></td> </tr> <tr> <td>Asterisk-Free Checking</td> <td>$0</td> <td>$0</td> <td>None</td> </tr> <tr> <td>Huntington Perks Checking</td> <td>$10</td> <td>$5,000</td> <td>0.02%</td> </tr> <tr> <td>Huntington Platinum Perks Checking</td> <td>$25</td> <td>$25,000</td> <td>0.03%</td> </tr> </tbody> </table> <figcaption>As of Apr. 24, 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_2-0-36"> <span class="mntl-sc-block-subheading__text"> Money Market 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_2-0-37"> <strong>Huntington Relationship Money Market Account</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_2-0-38"> Like the Relationship Savings account, Huntington's money market account offers better rates if you have additional accounts. Provided you have a minimum of $25,000 in your Relationship Money Market account, you can earn between 4.49% and 4.70% APY depending on what other accounts you have at Huntington. Balances below $25,000 don't earn interest. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-39"> The Relationship Money Market account also comes with a $25 monthly fee, which is waived for customers who either maintain a $25,000 minimum balance or who have a linked Huntington Perks or Huntington Platinum Perks checking account.<span class="ql-inline-citation" data-cite="15"></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"> Like Huntington's traditional checking accounts, the Relationship Money Market account also provides all-day deposit, a 24-hour grace period, and overdraft protection. </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_2-0-41"> <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">Relationship Money Market Rates</th> </tr> </thead> <tbody data-check="-1"> <tr> <td> </td> <td><b>APY</b></td> </tr> <tr> <td>Relationship Money Market Account</td> <td>4.49%</td> </tr> <tr> <td>Relationship Money Market Account with linked Huntington Perks Checking</td> <td>4.54%</td> </tr> <tr> <td>Relationship Money Market Account with linked Huntington Platinum Perks Checking</td> <td>4.59%</td> </tr> <tr> <td>Relationship Money Market Account with linked Private Client Account</td> <td>4.70%</td> </tr> </tbody> </table> <figcaption>As of Feb. 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_2-0-42"> <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_2-0-43"> Huntington offers standard CDs with terms ranging from one to 72 months and promotional CDs with terms of seven to 25 months. CDs require a minimum deposit of $1,000.<span class="ql-inline-citation" data-cite="16"></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_2-0-44"> <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">Huntington Promotional CD Rates</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Term</b></td> <td><b>APY</b></td> </tr> <tr> <td>7 months</td> <td>5.13%</td> </tr> <tr> <td>11 months</td> <td>4.86%</td> </tr> </tbody> </table> <figcaption>As of Apr. 24, 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_2-0-45"> Jumbo CDs are also available, with a minimum deposit of $100,000. The terms range from seven to 1,825 days (approximately 60 months) and the rates from 0.05% to 0.10%.<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_2-0-46"> The fact that Huntington describes its jumbo CD terms in days, rather than months, makes it difficult to compare jumbo rates with standard rates. Converting the terms from days to months helps to clarify that jumbo rates seem to be approximately the same for similar term lengths. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-47"> Huntington may offer higher than normal promotional APYs on CDs, so be sure to check its website. </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_2-0-48"> <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">Huntington Jumbo Promotional CD Rates</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Term</b></td> <td><b>APY</b></td> </tr> <tr> <td>215 Days</td> <td>5.13%</td> </tr> <tr> <td>335 Days</td> <td>4.86%</td> </tr> </tbody> </table> <figcaption>As of Apr. 24, 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_2-0-49"> <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_2-0-50"> Huntington has three credit cards, all offered through Mastercard. These are the Cashback Credit Card, the Voice Rewards Credit Card, and the Lower APR Voice Credit Card. Customers can choose to receive cash back rewards or a lower <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>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-other-financial-products-offered-by-huntington"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-51"> <span class="mntl-sc-block-heading__text"> Other Financial Products Offered by Huntington </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_2-0-52"> In addition to the above products and services, Huntington also offers 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_2-0-53"> <li>Car loans</li><li>Purchase mortgages</li><li>Home equity loans</li><li>Home equity lines of credit (HELOCs)</li><li>IRAs</li><li>Self-directed trading</li><li>Managed investment portfolios</li><li>Private banking</li><li>Financial advisors</li><li>Business loans</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-huntington-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_2-0-54"> <span class="mntl-sc-block-heading__text"> Huntington 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_2-0-55"> Customers have a number of avenues available to reach customer support, starting with live agents available daily by phone (800-480-2265) from 7 a.m. to 8 p.m. (ET). The website also boasts automated customer support systems, as well as an easy-to-use search tool, and a comprehensive FAQ page. You can also reach out to Huntington via X or Facebook any time. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-bank-with-huntington"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-56"> <span class="mntl-sc-block-heading__text"> How to Bank With Huntington </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-57"> You can open an account online or in a branch. Though Huntington is only present in 11 states, the bank appears to be friendly to customers outside of this region. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-58"> The Huntington mobile app allows customers to handle transactions (including mobile check deposit) on the go. It can be downloaded on iOS and Android devices. Third-party reviews give the app mixed ratings. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_2-0-59"> <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_2-0-60"> Customers looking for solid options for basic checking and savings accounts would be well served by Huntington. Its truly free checking account, forgiving policies that keep minor withdrawal mistakes contained, and easy methods to avoid fees with the basic savings account make it attractive to many customers' needs. Add the fact that Huntington also offers a wide array of other products and services, and it's clear that this is a good one-stop-shop for banking 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_2-0-61"> For those with higher balances, Huntington is not necessarily a good choice. Additionally, Huntington is only present in 11 states which limits the bank's reach, especially for customers who want basic banking options and like to be able to walk into a branch. </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_2-0-62"> <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_2-0-63"> 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_2-0-64"> <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.huntington.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-7"><p>The Huntington National Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/About-Us" rel="nofollow sponsored">About Us</a>.”</p></li> <li class="mntl-sources__source" id="citation-8"><p>The Huntington National Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/-/media/pdf/rrasteriskfreechkrpac.pdf" rel="nofollow sponsored">Asterisk-Free Checking Account</a>,” Pages 1-3.</p></li> <li class="mntl-sources__source" id="citation-9"><p>The Huntington National Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/Personal/checking/24-hour-grace-overdraft-fee-relief" rel="nofollow sponsored">24-Hour Grace</a>.”</p></li> <li class="mntl-sources__source" id="citation-17"><p>The Huntington National Bank. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/Personal/checking" rel="nofollow sponsored">Open a Checking Account Online</a>."</p></li> <li class="mntl-sources__source" id="citation-10"><p>The Huntington National Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/Personal/savings-cds-overview/premier-savings-account" rel="nofollow sponsored">Premier Savings Account</a>.”</p></li> <li class="mntl-sources__source" id="citation-11"><p>The Huntington National Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/Personal/checking/overdraft-fees-explained#%C2%A7" rel="nofollow sponsored">Overdrafts and Returns Explained</a>.”</p></li> <li class="mntl-sources__source" id="citation-12"><p>The Huntington National Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/Personal/savings-cds-overview/relationship-savings-account" rel="nofollow sponsored">Relationship Savings: Higher Interest Savings Account</a>.”</p></li> <li class="mntl-sources__source" id="citation-13"><p>The Huntington National Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/-/media/pdf/RR5INTCHKRPAC.PDF?rev=db917aedbb1b49a795eec957bf12960a" rel="nofollow sponsored">Huntington Perks Checking Account</a>.”</p></li> <li class="mntl-sources__source" id="citation-14"><p>The Huntington National Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/Personal/checking/platinum-perks" rel="nofollow sponsored">Huntington Platinum Perks Checking</a>.”</p></li> <li class="mntl-sources__source" id="citation-15"><p>The Huntington National Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/Personal/savings-cds-overview/relationship-money-market-account" rel="nofollow sponsored">Relationship Money Market Account.</a>”</p></li> <li class="mntl-sources__source" id="citation-16"><p>The Huntington National Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/Personal/savings-cds-overview/certificates-of-deposit" rel="nofollow sponsored">Certificates of Deposit</a>.”</p></li> <li class="mntl-sources__source" id="citation-6"><p>Huntington Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.huntington.com/Personal/savings-cds-overview/certificates-of-deposit" rel="nofollow sponsored">Certificates of Deposit</a>.”</p></li> </ol> </div> </div></div> <div class="comp prm-recirc related-recirc-section--articles 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:fill(white):max_bytes(150000):strip_icc()/huntington-bank-logo-28d7ed0d047e46258d54cd7999316609.png) :fill(white):max_bytes(150000):strip_icc()/huntington-bank-logo-28d7ed0d047e46258d54cd7999316609.png) [Open Account](https://www.huntington.com/) Founded in 1866, and still headquartered in Columbus, Ohio, Huntington is a regional bank serving 11 states located primarily in the Midwest. A full-service bank, it offers consumers a one-stop shopping for banking needs. Read our in-depth review to determine if Huntington's products and services are right for you. * Pros & Cons * Company Overview Pros & Cons Pros * Basic checking account is fee free * All day deposit * 24-hour grace period on overdrafts * Robust customer support Cons * Only available in 11 states * Low APY * High minimum balances on interest-bearing checking accounts * High overdraft fees Company Overview * Year Founded 1866 * Official Website www.huntington.com * Banking Products Offered Savings, checking, CDs, MMA, credit card * Customer Service Phone line: Monday–Sunday, 7 a.m. to 7 p.m. (ET): 800-480-2265 :fill(white):max_bytes(150000):strip_icc()/huntington-bank-logo-28d7ed0d047e46258d54cd7999316609.png) :fill(white):max_bytes(150000):strip_icc()/huntington-bank-logo-28d7ed0d047e46258d54cd7999316609.png) [Open Account](https://www.huntington.com/) Table of Contents View All Huntington Bank Review * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Best for](#toc-who-is-huntington-best-for) * [Bank Offerings](#toc-what-does-huntington-offer) * [Other Products](#toc-other-financial-products-offered-by-huntington) * [Customer Service](#toc-huntington-customer-service) * [How to Bank](#toc-how-to-bank-with-huntington) * [Final Verdict](#toc-final-verdict) * [Methodology](#toc-methodology) ## Pros Explained * **Basic checking account is fee-free:** The basic checking account, Asterisk-Free Checking, has no monthly fee, no minimum balance, and no minimum deposit to open the account. There is also no fee for receiving paper statements via mail if you prefer that to emailed statements. * **All-day deposit:** This feature extends the cut off for getting in a deposit on a business day to midnight. If you make an ATM or mobile bank deposit on a business day prior to midnight, then Huntington will consider that day to be the day of your deposit. * **24-hour grace period on overdrafts:** If you overdraw your account, a 24-hour grace policy gives you until midnight on the next day to make a deposit or transfer to cover the overdraft. * **Robust customer support:** Customers can reach a customer service agent via phone daily from 7 a.m. to 8 p.m. (ET). You can also access an automated assistant any time on the website and find answers to your questions in the easy-to-navigate and thorough FAQ for customer support. The bank also encourages customers to contact customer service via Facebook or X (formerly Twitter). ## Cons Explained * **Only available in 11 states:** Huntington currently has a presence in just 11 states: Ohio, Colorado, Florida, Illinois, Indiana, Kentucky, Michigan, Minnesota, Pennsylvania, West Virginia, and Wisconsin. * **Low annual percentage yield** (**APY):** Huntington's rates for interest-bearing accounts are easily beaten by other banks, especially online-only banks that do not have to invest in brick-and-mortar branches. * **High minimum balances on interest-bearing checking accounts:** Though the basic checking account doesn't charge fees or require a minimum balance, interest-bearing accounts require either a $5,000 minimum balance or a $25,000 minimum balance across all accounts to remain fee free. * **High overdraft fee totals:** ThoughHuntington offers methods to avoid overdraft fees, the fee itself is $15 per overdraft and can be incurred up to three times daily. For accounts or products that have area-specific interest rates, customers who live outside of the 11-state region will receive the rate associated with Columbus, Ohio, where Huntington is headquartered. ## Who Is Huntington Best for? Huntington Bank will appeal to customers looking for basic checking and savings accounts. It will be especially tempting to those who: * Live within Huntington's 11-state geographic footprint * Want multiple options to avoid overdraft fees * Need a truly free checking account * Would like to have their checking and savings under one roof ## What Does Huntington Offer? Huntington offers a robust menu of products and services including: * Savings accounts * Checking accounts * [Money market account](https://www.investopedia.com/terms/m/moneymarketaccount.asp) * [Certificates of Deposit (CDs)](https://www.investopedia.com/terms/c/certificateofdeposit.asp) * Credit card ### Savings Accounts **Huntington Premier Savings** This is the basic savings account for Huntington customers. Premier Savings is free of fees for customers who have a linked Asterisk-Free Checking or any other personal checking account, or who maintain an average daily balance of $300 or more. Otherwise, the monthly maintenance fee is $4. You can open an account with a minimum deposit of $50. Premier Savings offers savers an [APY](https://www.investopedia.com/terms/a/apy.asp) of 0.01% and only requires a balance of $0.01 to earn. Deposit-to-deposit overdraft protection is provided if you have a linked checking account. If you overdraw, Huntington will automatically transfer money in increments of $100 to cover the overdraft from your Premier Savings account. There is no fee for this protection, but be aware of potential transfer limits. **Huntington Relationship Savings** This account gives savers an improved APY that gets even better if you have additional linked accounts. The basic rate is 0.01% and goes up based on the types of accounts you also have with Huntington: | Relationship Savings Rates | | | --- | --- | | **Relationship Rate** | **APY** | | Non-Relationship Rate | 0.01% | | Relationship Savings linked with Huntington Perks Checking | 0.02% | | Relationship Savings linked with Huntington Platinum Perks Checking | 0.02% | | Relationship Savings linked with Private Client Account | 0.06% | As of Apr. 24, 2024 With the improved rate comes bigger costs, however. Relationship Savings is free for customers who maintain an average daily balance of $2,500 or link the account to either a Huntington Perks or Huntington Platinum Perks checking account. Both have a minimum daily balance requirement and a fee if that balance is not met. Otherwise, savers with a Relationship Savings account will pay a $10 monthly maintenance fee. Like the Premier Savings account, Relationship Savings offers deposit-to-deposit overdraft protection, provided you link to a Huntington Perks Checking account. | Premier Savings and Relationship Savings Rates and Terms | | | | | --- | --- | --- | --- | | **Account** | **Monthly Maintenance Fee** | **Minimum Balance to Avoid Fee** | APY | | Premier Savings | $4 | $300 | 0.01% | | Relationship Savings | $10 | $2,500 | Ranging from 0.01% to 0.06% | As of Apr. 24, 2024 ### Checking Accounts **Asterisk-Free Checking** Huntington tries very hard to make sure this basic checking account lives up to the Asterisk-Free name. There is no monthly maintenance fee, no minimum deposit to open the account, and no minimum balance required. And contrary to common banking policies in the 21st Century, Huntington does not charge fees for providing paper statements rather than email statements, if that's your preference. Additionally, the all-day deposit policy, which treats any deposit made before midnight on a business day as getting in on the same business day, is a remarkably forgiving rule that helps customers stay in the black. Pair that with the 24-hour grace policy for overdrafts, which gives customers until midnight the day after an overdraft to make a deposit or transfer to cover the overdraft, as well as the free deposit-to-deposit overdraft protection with a Premier Savings account. If you overdraw funds, the overdraft fee of $15 can be levied up to three times per day. **Huntington Perks Checking** This is Huntington's lower-level interest-bearing checking account. Customers can earn 0.02% APY on their account balance. There is no minimum required to earn and no minimum deposit to open this account. If you make at least $1,000 in deposits monthly or maintain $5,000 in total relationship balances, there is no fee. Otherwise, you will pay $10 per month. Huntington Perks Checking offers the same forgiving policies as Asterisk-Free checking. You get all day deposit, a 24-hour grace period, and overdraft protection. You need to link this account to a Relationship Savings account to receive the overdraft protection. Account holders get free credit score monitoring as well as five out-of-network ATM fee waivers per month. **Huntington Platinum Perks Checking** For customers looking for higher rates from an interest-bearing checking account, the bank offers Huntington Platinum Perks Checking. Account holders earn 0.03% APY on any size balance. However, expect to pay $25 per month in maintenance fees unless you are able to maintain $25,000 in total relationship balances among your accounts. Like the other checking accounts, Huntington Platinum Perks provides all-day deposit, a 24-hour grace period, and overdraft protection (with a Relationship Savings account). It also comes with some other major perks: * Free credit and identity monitoring * Free paper checks * Unlimited out-of-network ATM fee waivers * A relationship discount on a [home equity line of credit (HELOC)](https://www.investopedia.com/mortgage/heloc/), plus an annual fee waiver * A relationship discount on a mortgage * 100 commission-free online equity or [exchange-traded fund (ETF)](https://www.investopedia.com/terms/e/etf.asp) trades per year through Huntington Financial Advisors | Huntington Checking Accounts | | | | | --- | --- | --- | --- | | **Account Name** | **Monthly Maintenance Fee** | **Minimum Balance to Avoid Fee** | **APY** | | Asterisk-Free Checking | $0 | $0 | None | | Huntington Perks Checking | $10 | $5,000 | 0.02% | | Huntington Platinum Perks Checking | $25 | $25,000 | 0.03% | As of Apr. 24, 2024 ### Money Market Account **Huntington Relationship Money Market Account** Like the Relationship Savings account, Huntington's money market account offers better rates if you have additional accounts. Provided you have a minimum of $25,000 in your Relationship Money Market account, you can earn between 4.49% and 4.70% APY depending on what other accounts you have at Huntington. Balances below $25,000 don't earn interest. The Relationship Money Market account also comes with a $25 monthly fee, which is waived for customers who either maintain a $25,000 minimum balance or who have a linked Huntington Perks or Huntington Platinum Perks checking account. Like Huntington's traditional checking accounts, the Relationship Money Market account also provides all-day deposit, a 24-hour grace period, and overdraft protection. | Relationship Money Market Rates | | | --- | --- | | | **APY** | | Relationship Money Market Account | 4.49% | | Relationship Money Market Account with linked Huntington Perks Checking | 4.54% | | Relationship Money Market Account with linked Huntington Platinum Perks Checking | 4.59% | | Relationship Money Market Account with linked Private Client Account | 4.70% | As of Feb. 20, 2024 ### CDs Huntington offers standard CDs with terms ranging from one to 72 months and promotional CDs with terms of seven to 25 months. CDs require a minimum deposit of $1,000. | Huntington Promotional CD Rates | | | --- | --- | | **Term** | **APY** | | 7 months | 5.13% | | 11 months | 4.86% | As of Apr. 24, 2024 Jumbo CDs are also available, with a minimum deposit of $100,000. The terms range from seven to 1,825 days (approximately 60 months) and the rates from 0.05% to 0.10%. The fact that Huntington describes its jumbo CD terms in days, rather than months, makes it difficult to compare jumbo rates with standard rates. Converting the terms from days to months helps to clarify that jumbo rates seem to be approximately the same for similar term lengths. Huntington may offer higher than normal promotional APYs on CDs, so be sure to check its website. | Huntington Jumbo Promotional CD Rates | | | --- | --- | | **Term** | **APY** | | 215 Days | 5.13% | | 335 Days | 4.86% | As of Apr. 24, 2024 ### Credit Cards Huntington has three credit cards, all offered through Mastercard. These are the Cashback Credit Card, the Voice Rewards Credit Card, and the Lower APR Voice Credit Card. Customers can choose to receive cash back rewards or a lower [annual percentage rate (APR)](https://www.investopedia.com/terms/a/apr.asp). ## Other Financial Products Offered by Huntington In addition to the above products and services, Huntington also offers the following: * Car loans * Purchase mortgages * Home equity loans * Home equity lines of credit (HELOCs) * IRAs * Self-directed trading * Managed investment portfolios * Private banking * Financial advisors * Business loans ## Huntington Customer Service Customers have a number of avenues available to reach customer support, starting with live agents available daily by phone (800-480-2265) from 7 a.m. to 8 p.m. (ET). The website also boasts automated customer support systems, as well as an easy-to-use search tool, and a comprehensive FAQ page. You can also reach out to Huntington via X or Facebook any time. ## How to Bank With Huntington You can open an account online or in a branch. Though Huntington is only present in 11 states, the bank appears to be friendly to customers outside of this region. The Huntington mobile app allows customers to handle transactions (including mobile check deposit) on the go. It can be downloaded on iOS and Android devices. Third-party reviews give the app mixed ratings. ## Final Verdict Customers looking for solid options for basic checking and savings accounts would be well served by Huntington. Its truly free checking account, forgiving policies that keep minor withdrawal mistakes contained, and easy methods to avoid fees with the basic savings account make it attractive to many customers' needs. Add the fact that Huntington also offers a wide array of other products and services, and it's clear that this is a good one-stop-shop for banking customers. For those with higher balances, Huntington is not necessarily a good choice. Additionally, Huntington is only present in 11 states which limits the bank's reach, especially for customers who want basic banking options and like to be able to walk into a branch. ## 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.huntington.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. The Huntington National Bank. “[About Us](https://www.huntington.com/About-Us).” 2. The Huntington National Bank. “[Asterisk-Free Checking Account](https://www.huntington.com/-/media/pdf/rrasteriskfreechkrpac.pdf),” Pages 1-3. 3. The Huntington National Bank. “[24-Hour Grace](https://www.huntington.com/Personal/checking/24-hour-grace-overdraft-fee-relief).” 4. The Huntington National Bank. "[Open a Checking Account Online](https://www.huntington.com/Personal/checking)." 5. The Huntington National Bank. “[Premier Savings Account](https://www.huntington.com/Personal/savings-cds-overview/premier-savings-account).” 6. The Huntington National Bank. “[Overdrafts and Returns Explained](https://www.huntington.com/Personal/checking/overdraft-fees-explained#%C2%A7).” 7. The Huntington National Bank. “[Relationship Savings: Higher Interest Savings Account](https://www.huntington.com/Personal/savings-cds-overview/relationship-savings-account).” 8. The Huntington National Bank. “[Huntington Perks Checking Account](https://www.huntington.com/-/media/pdf/RR5INTCHKRPAC.PDF?rev=db917aedbb1b49a795eec957bf12960a).” 9. The Huntington National Bank. “[Huntington Platinum Perks Checking](https://www.huntington.com/Personal/checking/platinum-perks).” 10. The Huntington National Bank. “[Relationship Money Market Account.](https://www.huntington.com/Personal/savings-cds-overview/relationship-money-market-account)” 11. The Huntington National Bank. “[Certificates of Deposit](https://www.huntington.com/Personal/savings-cds-overview/certificates-of-deposit).” 12. Huntington Bank. “[Certificates of Deposit](https://www.huntington.com/Personal/savings-cds-overview/certificates-of-deposit).” Related Articles [![Regions Bank]() :max_bytes(150000):strip_icc()/regions-bank-260ece120ed749a2a89d384e566304dd.jpg) Regions Bank Review 2024](https://www.investopedia.com/regions-bank-review-8644041) [![Woman withdrawing money from ATM ]() :max_bytes(150000):strip_icc()/Primary-Image-huntington-bank-bonuses-february-2023-7112528-a5583428c2b44edc876463c003ab1249.jpg) Huntington Bank Bonuses: May 2024](https://www.investopedia.com/huntington-bank-bonuses-7112528) [![KeyBank]() :max_bytes(150000):strip_icc()/Key_Bank-4e1550638a7b42548bcad15989a517a5.jpg) KeyBank Review 2024](https://www.investopedia.com/keybank-review-8638216) [![Fifth Third Bank Review]() :max_bytes(150000):strip_icc()/Fifth_Third_Recirc-573af423cbc94dc4901077b1a8748630.jpg) Fifth Third Bank Review](https://www.investopedia.com/fifth-third-bank-review-4802194) [![Wells Fargo]() :max_bytes(150000):strip_icc()/Wells_Fargo_Recirc-cb9d83efd7f04a6c8900447ffc94b256.jpg) Wells Fargo Bank Review](https://www.investopedia.com/wells-fargo-bank-review-5024853) [![HSBC]() :max_bytes(150000):strip_icc()/HSBC_Recirccopy-49da390d53cf45aeaa0003bf317e97ae.jpg) HSBC Bank Review](https://www.investopedia.com/hsbc-bank-review-4842759)

Open Account Founded in 1866, and still headquartered in Columbus, Ohio, Huntington is a regional bank serving 11 states located primarily in the Midwest. A full-service bank, it offers consumers a one-stop shopping for banking needs. Read our in-depth review to determine if Huntington's products and services are right for you. Pros & Cons Company Overview Pros & Cons Pros Basic checking account is fee free All day deposit 24-hour grace period on overdrafts Robust customer support Cons Only available in 11 states Low APY High minimum balances on interest-bearing checking accounts High overdraft fees Company Overview Year Founded 1866 Official Website www.huntington.com Banking Products Offered Savings, checking, CDs, MMA, credit card Customer Service Phone line: Monday–Sunday, 7 a.m. to 7 p.m. (ET): 800-480-2265 Open Account Table of Contents View All Huntington Bank Review Pros Explained Cons Explained Best for Bank Offerings Other Products Customer Service How to Bank Final Verdict Methodology Pros Explained Basic checking account is fee-free: The basic checking account, Asterisk-Free Checking, has no monthly fee, no minimum balance, and no minimum deposit to open the account. There is also no fee for receiving paper statements via mail if you prefer that to emailed statements.All-day deposit: This feature extends the cut off for getting in a deposit on a business day to midnight. If you make an ATM or mobile bank deposit on a business day prior to midnight, then Huntington will consider that day to be the day of your deposit.24-hour grace period on overdrafts: If you overdraw your account, a 24-hour grace policy gives you until midnight on the next day to make a deposit or transfer to cover the overdraft.Robust customer support: Customers can reach a customer service agent via phone daily from 7 a.m. to 8 p.m. (ET). You can also access an automated assistant any time on the website and find answers to your questions in the easy-to-navigate and thorough FAQ for customer support. The bank also encourages customers to contact customer service via Facebook or X (formerly Twitter). Cons Explained Only available in 11 states: Huntington currently has a presence in just 11 states: Ohio, Colorado, Florida, Illinois, Indiana, Kentucky, Michigan, Minnesota, Pennsylvania, West Virginia, and Wisconsin.Low annual percentage yield (APY): Huntington's rates for interest-bearing accounts are easily beaten by other banks, especially online-only banks that do not have to invest in brick-and-mortar branches.High minimum balances on interest-bearing checking accounts: Though the basic checking account doesn't charge fees or require a minimum balance, interest-bearing accounts require either a $5,000 minimum balance or a $25,000 minimum balance across all accounts to remain fee free.High overdraft fee totals: Though Huntington offers methods to avoid overdraft fees, the fee itself is $15 per overdraft and can be incurred up to three times daily. For accounts or products that have area-specific interest rates, customers who live outside of the 11-state region will receive the rate associated with Columbus, Ohio, where Huntington is headquartered. Who Is Huntington Best for? Huntington Bank will appeal to customers looking for basic checking and savings accounts. It will be especially tempting to those who: Live within Huntington's 11-state geographic footprintWant multiple options to avoid overdraft feesNeed a truly free checking accountWould like to have their checking and savings under one roof What Does Huntington Offer? Huntington offers a robust menu of products and services including: Savings accounts Checking accounts Money market account Certificates of Deposit (CDs) Credit card Savings Accounts Huntington Premier Savings This is the basic savings account for Huntington customers. Premier Savings is free of fees for customers who have a linked Asterisk-Free Checking or any other personal checking account, or who maintain an average daily balance of $300 or more. Otherwise, the monthly maintenance fee is $4. You can open an account with a minimum deposit of $50. Premier Savings offers savers an APY of 0.01% and only requires a balance of $0.01 to earn. Deposit-to-deposit overdraft protection is provided if you have a linked checking account. If you overdraw, Huntington will automatically transfer money in increments of $100 to cover the overdraft from your Premier Savings account. There is no fee for this protection, but be aware of potential transfer limits. Huntington Relationship Savings This account gives savers an improved APY that gets even better if you have additional linked accounts. The basic rate is 0.01% and goes up based on the types of accounts you also have with Huntington: Relationship Savings Rates Relationship Rate APY Non-Relationship Rate 0.01% Relationship Savings linked with Huntington Perks Checking 0.02% Relationship Savings linked with Huntington Platinum Perks Checking 0.02% Relationship Savings linked with Private Client Account 0.06% As of Apr. 24, 2024 With the improved rate comes bigger costs, however. Relationship Savings is free for customers who maintain an average daily balance of $2,500 or link the account to either a Huntington Perks or Huntington Platinum Perks checking account. Both have a minimum daily balance requirement and a fee if that balance is not met. Otherwise, savers with a Relationship Savings account will pay a $10 monthly maintenance fee. Like the Premier Savings account, Relationship Savings offers deposit-to-deposit overdraft protection, provided you link to a Huntington Perks Checking account. Premier Savings and Relationship Savings Rates and Terms Account Monthly Maintenance Fee Minimum Balance to Avoid Fee APY Premier Savings $4 $300 0.01% Relationship Savings $10 $2,500 Ranging from 0.01% to 0.06% As of Apr. 24, 2024 Checking Accounts Asterisk-Free Checking Huntington tries very hard to make sure this basic checking account lives up to the Asterisk-Free name. There is no monthly maintenance fee, no minimum deposit to open the account, and no minimum balance required. And contrary to common banking policies in the 21st Century, Huntington does not charge fees for providing paper statements rather than email statements, if that's your preference. Additionally, the all-day deposit policy, which treats any deposit made before midnight on a business day as getting in on the same business day, is a remarkably forgiving rule that helps customers stay in the black. Pair that with the 24-hour grace policy for overdrafts, which gives customers until midnight the day after an overdraft to make a deposit or transfer to cover the overdraft, as well as the free deposit-to-deposit overdraft protection with a Premier Savings account. If you overdraw funds, the overdraft fee of $15 can be levied up to three times per day. Huntington Perks Checking This is Huntington's lower-level interest-bearing checking account. Customers can earn 0.02% APY on their account balance. There is no minimum required to earn and no minimum deposit to open this account. If you make at least $1,000 in deposits monthly or maintain $5,000 in total relationship balances, there is no fee. Otherwise, you will pay $10 per month. Huntington Perks Checking offers the same forgiving policies as Asterisk-Free checking. You get all day deposit, a 24-hour grace period, and overdraft protection. You need to link this account to a Relationship Savings account to receive the overdraft protection. Account holders get free credit score monitoring as well as five out-of-network ATM fee waivers per month. Huntington Platinum Perks Checking For customers looking for higher rates from an interest-bearing checking account, the bank offers Huntington Platinum Perks Checking. Account holders earn 0.03% APY on any size balance. However, expect to pay $25 per month in maintenance fees unless you are able to maintain $25,000 in total relationship balances among your accounts. Like the other checking accounts, Huntington Platinum Perks provides all-day deposit, a 24-hour grace period, and overdraft protection (with a Relationship Savings account). It also comes with some other major perks: Free credit and identity monitoring Free paper checks Unlimited out-of-network ATM fee waivers A relationship discount on a home equity line of credit (HELOC), plus an annual fee waiver A relationship discount on a mortgage 100 commission-free online equity or exchange-traded fund (ETF) trades per year through Huntington Financial Advisors Huntington Checking Accounts Account Name Monthly Maintenance Fee Minimum Balance to Avoid Fee APY Asterisk-Free Checking $0 $0 None Huntington Perks Checking $10 $5,000 0.02% Huntington Platinum Perks Checking $25 $25,000 0.03% As of Apr. 24, 2024 Money Market Account Huntington Relationship Money Market Account Like the Relationship Savings account, Huntington's money market account offers better rates if you have additional accounts. Provided you have a minimum of $25,000 in your Relationship Money Market account, you can earn between 4.49% and 4.70% APY depending on what other accounts you have at Huntington. Balances below $25,000 don't earn interest. The Relationship Money Market account also comes with a $25 monthly fee, which is waived for customers who either maintain a $25,000 minimum balance or who have a linked Huntington Perks or Huntington Platinum Perks checking account. Like Huntington's traditional checking accounts, the Relationship Money Market account also provides all-day deposit, a 24-hour grace period, and overdraft protection. Relationship Money Market Rates   APY Relationship Money Market Account 4.49% Relationship Money Market Account with linked Huntington Perks Checking 4.54% Relationship Money Market Account with linked Huntington Platinum Perks Checking 4.59% Relationship Money Market Account with linked Private Client Account 4.70% As of Feb. 20, 2024 CDs Huntington offers standard CDs with terms ranging from one to 72 months and promotional CDs with terms of seven to 25 months. CDs require a minimum deposit of $1,000. Huntington Promotional CD Rates Term APY 7 months 5.13% 11 months 4.86% As of Apr. 24, 2024 Jumbo CDs are also available, with a minimum deposit of $100,000. The terms range from seven to 1,825 days (approximately 60 months) and the rates from 0.05% to 0.10%. The fact that Huntington describes its jumbo CD terms in days, rather than months, makes it difficult to compare jumbo rates with standard rates. Converting the terms from days to months helps to clarify that jumbo rates seem to be approximately the same for similar term lengths. Huntington may offer higher than normal promotional APYs on CDs, so be sure to check its website. Huntington Jumbo Promotional CD Rates Term APY 215 Days 5.13% 335 Days 4.86% As of Apr. 24, 2024 Credit Cards Huntington has three credit cards, all offered through Mastercard. These are the Cashback Credit Card, the Voice Rewards Credit Card, and the Lower APR Voice Credit Card. Customers can choose to receive cash back rewards or a lower annual percentage rate (APR). Other Financial Products Offered by Huntington In addition to the above products and services, Huntington also offers the following: Car loansPurchase mortgagesHome equity loansHome equity lines of credit (HELOCs)IRAsSelf-directed tradingManaged investment portfoliosPrivate bankingFinancial advisorsBusiness loans Huntington Customer Service Customers have a number of avenues available to reach customer support, starting with live agents available daily by phone (800-480-2265) from 7 a.m. to 8 p.m. (ET). The website also boasts automated customer support systems, as well as an easy-to-use search tool, and a comprehensive FAQ page. You can also reach out to Huntington via X or Facebook any time. How to Bank With Huntington You can open an account online or in a branch. Though Huntington is only present in 11 states, the bank appears to be friendly to customers outside of this region. The Huntington mobile app allows customers to handle transactions (including mobile check deposit) on the go. It can be downloaded on iOS and Android devices. Third-party reviews give the app mixed ratings. Final Verdict Customers looking for solid options for basic checking and savings accounts would be well served by Huntington. Its truly free checking account, forgiving policies that keep minor withdrawal mistakes contained, and easy methods to avoid fees with the basic savings account make it attractive to many customers' needs. Add the fact that Huntington also offers a wide array of other products and services, and it's clear that this is a good one-stop-shop for banking customers. For those with higher balances, Huntington is not necessarily a good choice. Additionally, Huntington is only present in 11 states which limits the bank's reach, especially for customers who want basic banking options and like to be able to walk into a branch. 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. The Huntington National Bank. “About Us.” The Huntington National Bank. “Asterisk-Free Checking Account,” Pages 1-3. The Huntington National Bank. “24-Hour Grace.” The Huntington National Bank. "Open a Checking Account Online." The Huntington National Bank. “Premier Savings Account.” The Huntington National Bank. “Overdrafts and Returns Explained.” The Huntington National Bank. “Relationship Savings: Higher Interest Savings Account.” The Huntington National Bank. “Huntington Perks Checking Account.” The Huntington National Bank. “Huntington Platinum Perks Checking.” The Huntington National Bank. “Relationship Money Market Account.” The Huntington National Bank. “Certificates of Deposit.” Huntington Bank. “Certificates of Deposit.” Related Articles Regions Bank Review 2024 Huntington Bank Bonuses: May 2024 KeyBank Review 2024 Fifth Third Bank Review Wells Fargo Bank Review HSBC Bank Review

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

Common Stock: What It Is, Different Types, vs. Preferred Stock

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Common stock is not just a piece of paper—or, these days, a digital entry—but a ticket to ownership in a company. When you hold common stock, you get to weigh in on corporate decisions by voting for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/boardoftrustees.asp">board of directors</a> and corporate policies. Over the long term, this type of equity can offer attractive returns. But remember, this comes with a catch: if a company has to liquidate its assets, common stockholders are at the back of the line, getting paid only after bondholders, preferred shareholders, and other creditors have gotten their share. </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 value of common stock issued is reported in the stockholder's equity section of a company's balance sheet. </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>Common stock is a security that represents ownership in a corporation.</li><li>In a liquidation, common stockholders receive whatever assets remain after creditors, bondholders, and preferred stockholders are paid.</li><li>There are different kinds of stock traded in the market: value stocks are lower in price in relation to their fundamentals and growth stocks are in companies that tend to increase in value due to increasing earnings.</li><li>Investors should diversify their portfolios by putting money into different securities based on their tolerance for risk.</li></ul></div></div></div> <span class="heading-toc" id="toc-common-stock-explained"></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"> Common Stock Explained </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Common stock is primarily a form of ownership in a corporation, representing a claim on part of the company's assets and earnings. If you're a shareholder, this makes “part-owner,” but this doesn't mean you own the company's physical assets like chairs or computers; those are owned by the corporation itself, a distinct legal entity. Instead, as a shareholder, you own a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/residual-equity-theory.asp">residual claim</a> to the company's profits and assets, which means you are entitled to what's left after all other obligations are met. </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"> Traded on exchanges, common stock can be bought and sold by investors or traders, and common stockholders are entitled to dividends when the company's board of directors declares them. Typically, they are paid out of a company's earnings, and the decision to distribute them is made by the board taking into account factors like company performance, future capital requirements, and broader financial goals.<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"> The first-ever common stock was issued in 1602 by the Dutch East India Company and traded on the Amsterdam Stock Exchange. Over the following four centuries years, stock markets have been created worldwide, with major exchanges like the London Stock Exchange and the Tokyo Stock Exchange listing tens of thousands of companies. </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"> Larger U.S.-based stocks are traded on a public exchange, such as the New York Stock Exchange (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp">NYSE</a>) or Nasdaq. As of mid-2023, the NYSE had some 2300 listings of its own, with another 5700 listed from the other U.S. stock markets, making the NYSE the largest in the world by market cap.<span class="ql-inline-citation" data-cite="2"></span> Smaller companies that can't meet the listing requirements of these major exchanges are considered unlisted and their stocks are traded <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/otc.asp">over the counter</a>. </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-what-is-preferred-stock"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> What Is Preferred Stock? </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/p/preferredstock.asp">Preferred stock</a> is a distinct class of stock that provides different rights compared with common stock. While both types confer ownership in a company, preferred stockholders have a higher claim to the company's assets and dividends than common stockholders. This elevated status is reflected in the name “preferred” stock. </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-common-stock-vs-preferred-stock"></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"> Common Stock vs. Preferred Stock </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Common and preferred stock both let investors own a stake in a business, but there are key differences that investors need to understand. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_22-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">Common Stock vs. Preferred Stock</th> </tr> <tr> <th> </th> <th>Common Stock</th> <th>Preferred Stock</th> </tr> </thead> <tbody data-check="0"> <tr> <th>Voting Rights</th> <td>Holders have voting rights in the company and can participate in decisions about corporate policies and the election of the board of directors.</td> <td>Generally, holders do not have voting rights, although this can vary depending on the specific share terms. </td> </tr> <tr> <th>Dividends</th> <td>Not guaranteed and are paid out at the board of directors' discretion.</td> <td>Usually fixed it must be paid before any dividends are given to common stockholders. </td> </tr> <tr> <th>Liquidation Preference</th> <td>Holders are last in line to claim any remaining assets, following bondholders and preferred stockholders.</td> <td>Holders have a higher claim on assets and are paid out before common stockholders.</td> </tr> <tr> <th>Convertibility</th> <td>Cannot be converted into other forms of security.</td> <td>May be converted to common shares based on terms.</td> </tr> <tr> <th>Volatilability</th> <td>Generally, more since it is more alert to company performance and market conditions.</td> <td>Less, due to fixed dividends and a greater claim on assets.</td> </tr> <tr> <th>Market Participation</th> <td>Holders benefit directly from increases in the company's value.</td> <td>Typically, do not participate in the company's growth beyond the fixed dividends.</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <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"> Voting Rights </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Shareholders in a company have the right to vote on important decisions regarding the company's management. For example, shareholders vote on the members of the board of directors. Usually, common stock allows the shareholder to vote, but preferred stock often does not confer voting rights.<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> <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"> Dividends </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Both common and preferred stockholders can receive dividends from a company. However, preferred stock dividends are specified in advance based on the share's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parvalue.asp">par</a> or face value and the dividend rate of the stock. Businesses can choose whether or not and how much to pay in dividends to common stockholders. </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"> Should a company not have enough money to pay all stockholders dividends, preferred stockholders have priority over common stockholders and get paid first. For holders of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cumulative_preferred_stock.asp">cumulative preferred stock</a>, any skipped dividend payments accumulate as “dividends in arrears” and must be paid before dividends are issued to common stockholders. </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"> Trading and Price Changes </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Common stock and preferred stock trade on the open market. Investors can choose to purchase or sell either type of share. </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"> However, investors generally trade common stocks rather than preferred stocks. Due to their fixed dividends and lower risk profile, preferred stocks typically have less price volatility and greater growth potential than common stocks. Because of their stable dividends and lower volatility, preferred stocks are often favored by institutional investors pursuing a predictable income stream. These stocks are also normally less liquid than common stocks, meaning they are traded less frequently, making them less suitable for retail investors looking for short-term gains. </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"> Corporate Bankruptcy </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> For common stock, when a company goes bankrupt, the common stockholders do not receive their share of the assets until after creditors, bondholders, and preferred shareholders. This makes common stock riskier than debt or preferred shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The upside to common shares is they usually outperform bonds and preferred shares in the long run. Most companies issue all three types of securities. For example, Wells Fargo &amp; Company has several bonds available on the secondary market: preferred stock, such as its Series L (WFC-L), and common stock (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=wfc">WFC</a>). </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"> Initial Public Offerings </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> For a company to issue stock, it initiates an <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). An IPO is a major way for a company seeking additional capital to expand the enterprise. To begin the IPO process, a company works with an underwriting investment bank to determine the type and price of the stock. Once the IPO is complete, the stock becomes available for purchase by the general public on the secondary market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></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_45-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:72.3%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/WRCx1qFjwBDHSInQk-HhyxFpA24=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Common_Stock_2020-01-03fbeb0664c74b71aa025dcfd7661c82.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/WRCx1qFjwBDHSInQk-HhyxFpA24=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Common_Stock_2020-01-03fbeb0664c74b71aa025dcfd7661c82.jpg" data-srcset="https://www.investopedia.com/thmb/7-bCOAyIRSsboubef6B21cTmNLI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Common_Stock_2020-01-03fbeb0664c74b71aa025dcfd7661c82.jpg 750w" data-tracking-container="true" height="3918" id="mntl-sc-block-image_1-0" width="5417"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3918" sizes="750px" src="https://www.investopedia.com/thmb/WRCx1qFjwBDHSInQk-HhyxFpA24=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Common_Stock_2020-01-03fbeb0664c74b71aa025dcfd7661c82.jpg" srcset="https://www.investopedia.com/thmb/7-bCOAyIRSsboubef6B21cTmNLI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Common_Stock_2020-01-03fbeb0664c74b71aa025dcfd7661c82.jpg 750w" width="5417"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2020</span> </figcaption></figure> <span class="heading-toc" id="toc-advantages-and-disadvantages"></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"> Advantages and Disadvantages </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Both common stock and preferred stock have pros and cons for investors to consider. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <span class="heading-toc" id="toc-pros-and-cons-of-common-stock"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-heading__text"> Pros and Cons of Common Stock </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_50-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_51-0"> <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>More frequently traded than preferred stock</p></li> <li><p>Higher potential returns</p></li> <li><p>Voting rights</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>May not receive dividends</p></li> <li><p>Lower priority to receive dividends or in the event of bankruptcy</p></li> <li><p>More price volatility</p></li> </ul> </div> </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-pros-and-cons-of-preferred-stock"></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 Preferred Stock </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>Higher priority to receive dividends</p></li> <li><p>Less price volatility</p></li> <li><p>Fixed dividends that won't decrease</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>May lack voting rights</p></li> <li><p>Lower potential returns</p></li> <li><p>Traded less frequently</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> <span class="heading-toc" id="toc-how-to-invest-in-common-stock"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> How to Invest in Common Stock </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Stocks should be considered an important part of any investor’s portfolio. They carry greater risk than assets like CDs, preferred stocks, and bonds. However, the greater risk comes with a higher potential for rewards. Over the long term, stocks tend to outperform other investments but in the short term have more volatility. </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"> Investors can choose from different kinds of common stock. Growth stocks belong to companies expected to experience increasing earnings, which raises their share value. Meanwhile, value stocks are priced lower relative to their fundamentals and often pay dividends, unlike growth stocks. </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"> Stocks are also classified by market capitalization into large-, mid-, and small-cap categories. Large-cap stocks are more frequently traded and usually represent well-established, stable companies. In contrast, small-cap stocks often belong to newer, growth-oriented firms and tend to be more volatile. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <span class="heading-toc" id="toc-how-to-invest-in-preferred-stock"></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"> How to Invest in Preferred Stock </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Investors can trade for preferred stock just like common stock. However, because of how they differ from common stock, investors need a different approach when investing in them. </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"> Researching the issuing company is essential. Investing in preferred stock from a shaky company is as risky as buying its common stock. If the company fares poorly, both types of stock are likely to produce losses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> One key thing to consider when choosing preferred stock is the dividend. Compare the dividends you'll receive relative to the share price to determine if the yield offers an attractive return. A better yield can result in greater returns. </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"> Moreover, take note of whether the stock is callable or convertible. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/callablepreferredstock.asp">Callable preferred stocks</a> can be repurchased by the issuer at a preset date and price, causing you to miss out on future dividends. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/convertiblepreferredstock.asp">Convertible preferred stock</a>, meanwhile, can be converted into common stock at the company's discretion, which can be an advantage if the price of the common stock rises significantly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_73-0"><span class="heading-toc" id="toc-how-do-i-use-common-stock-to-vote-at-company-meetings"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Use Common Stock to Vote at Company Meetings?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most ordinary common shares come with one vote per share, granting shareholders the right to vote on corporate actions, often conducted at company shareholder meeting. If you cannot attend, you can cast your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/proxy-vote.asp">vote by proxy</a>, where a third party will vote on your behalf. The most important votes are taken on issues like the company engaging in a merger or acquisition, whom to elect to the board of directors, or whether to approve stock splits or dividends.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_75-0"><span class="heading-toc" id="toc-why-is-common-stock-called-an-equity"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is Common Stock Called an Equity?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Common stock represents a residual ownership stake in a company, the right to claim any other corporate assets after all other financial obligations have been met. A company maintains a balance sheet composed of assets and liabilities. Assets include what the company owns or is owed, such as its property, equipment, cash reserves, and accounts receivable. On the other side of the ledger are liabilities, which are what the company owes. These include payables, debts, and other obligations. If a company is healthy, the total assets will be larger than the total liabilities. The residual amount left to the owners is known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shareholdersequity.asp">shareholders' equity</a> and is represented by a company's shares.</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-why-do-companies-issue-preferred-stock"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Do Companies Issue Preferred Stock?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Selling preferred stock, like any other shares, lets a company raise money by selling a stake in the business. A company may do this to raise capital for business expansion, debt repayment, or to invest in new projects. Preferred stocks are less dilutive of company ownership since they do not come with voting rights. They offer the issuing firm other benefits, not least because being less volatile makes them appeal to different investors. The fixed dividends also stabilize the company's balance sheet, making it more attractive to additional investors. Another reason is that, for some companies, the cost of issuing preferred stock is lower than issuing bonds. Unlike interest payments on bonds, dividends on preferred stock are not mandatory and generally are not tax-deductible for the corporation. However, they might still be less costly than the higher interest rates a company might have to pay to entice bond investors.</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-is-preferred-or-common-stock-a-better-investment"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Preferred or Common Stock a Better Investment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Each type has pros and cons. Common stock tends to offer higher potential returns, but more volatility. Preferred stock may be less volatile but have a lower potential for returns. This suggests that long-term investors who can handle greater volatility will prefer common stock, while those who want to avoid such fluctuations are more likely to choose preferred stock.</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-are-there-other-different-types-of-stock"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Other Different Types of Stock?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Common and Preferred are the two major types. Some companies issue different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/class.asp">classes of stock</a> or even types of common stock. For example, Alphabet, the parent company of Google, has two classes of common stock: GOOG and GOOGL.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_83-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> Common stock, as its name implies, is one of the most ordinary types of stock. It gives shareholders a stake in the underlying business, as well as voting rights to elect a board of directors and a claim to a portion of the company's assets and future revenues. However, common stockholders have a lower position than preferred stockholders, who get priority on dividend payments and in recovering their investment if the company is liquidated. </p></div>

Common stock is not just a piece of paper—or, these days, a digital entry—but a ticket to ownership in a company. When you hold common stock, you get to weigh in on corporate decisions by voting for the [board of directors](https://www.investopedia.com/terms/b/boardoftrustees.asp) and corporate policies. Over the long term, this type of equity can offer attractive returns. But remember, this comes with a catch: if a company has to liquidate its assets, common stockholders are at the back of the line, getting paid only after bondholders, preferred shareholders, and other creditors have gotten their share. The value of common stock issued is reported in the stockholder's equity section of a company's balance sheet. ### Key Takeaways * Common stock is a security that represents ownership in a corporation. * In a liquidation, common stockholders receive whatever assets remain after creditors, bondholders, and preferred stockholders are paid. * There are different kinds of stock traded in the market: value stocks are lower in price in relation to their fundamentals and growth stocks are in companies that tend to increase in value due to increasing earnings. * Investors should diversify their portfolios by putting money into different securities based on their tolerance for risk. ## Common Stock Explained Common stock is primarily a form of ownership in a corporation, representing a claim on part of the company's assets and earnings. If you're a shareholder, this makes “part-owner,” but this doesn't mean you own the company's physical assets like chairs or computers; those are owned by the corporation itself, a distinct legal entity. Instead, as a shareholder, you own a [residual claim](https://www.investopedia.com/terms/r/residual-equity-theory.asp) to the company's profits and assets, which means you are entitled to what's left after all other obligations are met. Traded on exchanges, common stock can be bought and sold by investors or traders, and common stockholders are entitled to dividends when the company's board of directors declares them. Typically, they are paid out of a company's earnings, and the decision to distribute them is made by the board taking into account factors like company performance, future capital requirements, and broader financial goals. The first-ever common stock was issued in 1602 by the Dutch East India Company and traded on the Amsterdam Stock Exchange. Over the following four centuries years, stock markets have been created worldwide, with major exchanges like the London Stock Exchange and the Tokyo Stock Exchange listing tens of thousands of companies. Larger U.S.-based stocks are traded on a public exchange, such as the New York Stock Exchange ([NYSE](https://www.investopedia.com/terms/n/nyse.asp)) or Nasdaq. As of mid-2023, the NYSE had some 2300 listings of its own, with another 5700 listed from the other U.S. stock markets, making the NYSE the largest in the world by market cap. Smaller companies that can't meet the listing requirements of these major exchanges are considered unlisted and their stocks are traded [over the counter](https://www.investopedia.com/terms/o/otc.asp). ## What Is Preferred Stock? [Preferred stock](https://www.investopedia.com/terms/p/preferredstock.asp) is a distinct class of stock that provides different rights compared with common stock. While both types confer ownership in a company, preferred stockholders have a higher claim to the company's assets and dividends than common stockholders. This elevated status is reflected in the name “preferred” stock. ## Common Stock vs. Preferred Stock Common and preferred stock both let investors own a stake in a business, but there are key differences that investors need to understand. | Common Stock vs. Preferred Stock | | | | --- | --- | --- | | | Common Stock | Preferred Stock | | Voting Rights | Holders have voting rights in the company and can participate in decisions about corporate policies and the election of the board of directors. | Generally, holders do not have voting rights, although this can vary depending on the specific share terms. | | Dividends | Not guaranteed and are paid out at the board of directors' discretion. | Usually fixed it must be paid before any dividends are given to common stockholders. | | Liquidation Preference | Holders are last in line to claim any remaining assets, following bondholders and preferred stockholders. | Holders have a higher claim on assets and are paid out before common stockholders. | | Convertibility | Cannot be converted into other forms of security. | May be converted to common shares based on terms. | | Volatilability | Generally, more since it is more alert to company performance and market conditions. | Less, due to fixed dividends and a greater claim on assets. | | Market Participation | Holders benefit directly from increases in the company's value. | Typically, do not participate in the company's growth beyond the fixed dividends. | ### Voting Rights Shareholders in a company have the right to vote on important decisions regarding the company's management. For example, shareholders vote on the members of the board of directors. Usually, common stock allows the shareholder to vote, but preferred stock often does not confer voting rights. ### Dividends Both common and preferred stockholders can receive dividends from a company. However, preferred stock dividends are specified in advance based on the share's [par](https://www.investopedia.com/terms/p/parvalue.asp) or face value and the dividend rate of the stock. Businesses can choose whether or not and how much to pay in dividends to common stockholders. Should a company not have enough money to pay all stockholders dividends, preferred stockholders have priority over common stockholders and get paid first. For holders of [cumulative preferred stock](https://www.investopedia.com/terms/c/cumulative_preferred_stock.asp), any skipped dividend payments accumulate as “dividends in arrears” and must be paid before dividends are issued to common stockholders. ### Trading and Price Changes Common stock and preferred stock trade on the open market. Investors can choose to purchase or sell either type of share. However, investors generally trade common stocks rather than preferred stocks. Due to their fixed dividends and lower risk profile, preferred stocks typically have less price volatility and greater growth potential than common stocks. Because of their stable dividends and lower volatility, preferred stocks are often favored by institutional investors pursuing a predictable income stream. These stocks are also normally less liquid than common stocks, meaning they are traded less frequently, making them less suitable for retail investors looking for short-term gains. ### Corporate Bankruptcy For common stock, when a company goes bankrupt, the common stockholders do not receive their share of the assets until after creditors, bondholders, and preferred shareholders. This makes common stock riskier than debt or preferred shares. The upside to common shares is they usually outperform bonds and preferred shares in the long run. Most companies issue all three types of securities. For example, Wells Fargo & Company has several bonds available on the secondary market: preferred stock, such as its Series L (WFC-L), and common stock ([WFC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=wfc)). ### Initial Public Offerings For a company to issue stock, it initiates an [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO). An IPO is a major way for a company seeking additional capital to expand the enterprise. To begin the IPO process, a company works with an underwriting investment bank to determine the type and price of the stock. Once the IPO is complete, the stock becomes available for purchase by the general public on the secondary market. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Common_Stock_2020-01-03fbeb0664c74b71aa025dcfd7661c82.jpg) Image by Sabrina Jiang © Investopedia 2020 ## Advantages and Disadvantages Both common stock and preferred stock have pros and cons for investors to consider. ## Pros and Cons of Common Stock Pros * More frequently traded than preferred stock * Higher potential returns * Voting rights Cons * May not receive dividends * Lower priority to receive dividends or in the event of bankruptcy * More price volatility ## Pros and Cons of Preferred Stock Pros * Higher priority to receive dividends * Less price volatility * Fixed dividends that won't decrease Cons * May lack voting rights * Lower potential returns * Traded less frequently ## How to Invest in Common Stock Stocks should be considered an important part of any investor’s portfolio. They carry greater risk than assets like CDs, preferred stocks, and bonds. However, the greater risk comes with a higher potential for rewards. Over the long term, stocks tend to outperform other investments but in the short term have more volatility. Investors can choose from different kinds of common stock. Growth stocks belong to companies expected to experience increasing earnings, which raises their share value. Meanwhile, value stocks are priced lower relative to their fundamentals and often pay dividends, unlike growth stocks. Stocks are also classified by market capitalization into large-, mid-, and small-cap categories. Large-cap stocks are more frequently traded and usually represent well-established, stable companies. In contrast, small-cap stocks often belong to newer, growth-oriented firms and tend to be more volatile. ## How to Invest in Preferred Stock Investors can trade for preferred stock just like common stock. However, because of how they differ from common stock, investors need a different approach when investing in them. Researching the issuing company is essential. Investing in preferred stock from a shaky company is as risky as buying its common stock. If the company fares poorly, both types of stock are likely to produce losses. One key thing to consider when choosing preferred stock is the dividend. Compare the dividends you'll receive relative to the share price to determine if the yield offers an attractive return. A better yield can result in greater returns. Moreover, take note of whether the stock is callable or convertible. [Callable preferred stocks](https://www.investopedia.com/terms/c/callablepreferredstock.asp) can be repurchased by the issuer at a preset date and price, causing you to miss out on future dividends. [Convertible preferred stock](https://www.investopedia.com/terms/c/convertiblepreferredstock.asp), meanwhile, can be converted into common stock at the company's discretion, which can be an advantage if the price of the common stock rises significantly. ## How Do I Use Common Stock to Vote at Company Meetings? Most ordinary common shares come with one vote per share, granting shareholders the right to vote on corporate actions, often conducted at company shareholder meeting. If you cannot attend, you can cast your [vote by proxy](https://www.investopedia.com/terms/p/proxy-vote.asp), where a third party will vote on your behalf. The most important votes are taken on issues like the company engaging in a merger or acquisition, whom to elect to the board of directors, or whether to approve stock splits or dividends. ## Why Is Common Stock Called an Equity? Common stock represents a residual ownership stake in a company, the right to claim any other corporate assets after all other financial obligations have been met. A company maintains a balance sheet composed of assets and liabilities. Assets include what the company owns or is owed, such as its property, equipment, cash reserves, and accounts receivable. On the other side of the ledger are liabilities, which are what the company owes. These include payables, debts, and other obligations. If a company is healthy, the total assets will be larger than the total liabilities. The residual amount left to the owners is known as [shareholders' equity](https://www.investopedia.com/terms/s/shareholdersequity.asp) and is represented by a company's shares. ## Why Do Companies Issue Preferred Stock? Selling preferred stock, like any other shares, lets a company raise money by selling a stake in the business. A company may do this to raise capital for business expansion, debt repayment, or to invest in new projects. Preferred stocks are less dilutive of company ownership since they do not come with voting rights. They offer the issuing firm other benefits, not least because being less volatile makes them appeal to different investors. The fixed dividends also stabilize the company's balance sheet, making it more attractive to additional investors. Another reason is that, for some companies, the cost of issuing preferred stock is lower than issuing bonds. Unlike interest payments on bonds, dividends on preferred stock are not mandatory and generally are not tax-deductible for the corporation. However, they might still be less costly than the higher interest rates a company might have to pay to entice bond investors. ## Is Preferred or Common Stock a Better Investment? Each type has pros and cons. Common stock tends to offer higher potential returns, but more volatility. Preferred stock may be less volatile but have a lower potential for returns. This suggests that long-term investors who can handle greater volatility will prefer common stock, while those who want to avoid such fluctuations are more likely to choose preferred stock. ## Are There Other Different Types of Stock? Common and Preferred are the two major types. Some companies issue different [classes of stock](https://www.investopedia.com/terms/c/class.asp) or even types of common stock. For example, Alphabet, the parent company of Google, has two classes of common stock: GOOG and GOOGL. ## The Bottom Line Common stock, as its name implies, is one of the most ordinary types of stock. It gives shareholders a stake in the underlying business, as well as voting rights to elect a board of directors and a claim to a portion of the company's assets and future revenues. However, common stockholders have a lower position than preferred stockholders, who get priority on dividend payments and in recovering their investment if the company is liquidated.

Common stock is not just a piece of paper—or, these days, a digital entry—but a ticket to ownership in a company. When you hold common stock, you get to weigh in on corporate decisions by voting for the board of directors and corporate policies. Over the long term, this type of equity can offer attractive returns. But remember, this comes with a catch: if a company has to liquidate its assets, common stockholders are at the back of the line, getting paid only after bondholders, preferred shareholders, and other creditors have gotten their share. The value of common stock issued is reported in the stockholder's equity section of a company's balance sheet. Key Takeaways Common stock is a security that represents ownership in a corporation.In a liquidation, common stockholders receive whatever assets remain after creditors, bondholders, and preferred stockholders are paid.There are different kinds of stock traded in the market: value stocks are lower in price in relation to their fundamentals and growth stocks are in companies that tend to increase in value due to increasing earnings.Investors should diversify their portfolios by putting money into different securities based on their tolerance for risk. Common Stock Explained Common stock is primarily a form of ownership in a corporation, representing a claim on part of the company's assets and earnings. If you're a shareholder, this makes “part-owner,” but this doesn't mean you own the company's physical assets like chairs or computers; those are owned by the corporation itself, a distinct legal entity. Instead, as a shareholder, you own a residual claim to the company's profits and assets, which means you are entitled to what's left after all other obligations are met. Traded on exchanges, common stock can be bought and sold by investors or traders, and common stockholders are entitled to dividends when the company's board of directors declares them. Typically, they are paid out of a company's earnings, and the decision to distribute them is made by the board taking into account factors like company performance, future capital requirements, and broader financial goals. The first-ever common stock was issued in 1602 by the Dutch East India Company and traded on the Amsterdam Stock Exchange. Over the following four centuries years, stock markets have been created worldwide, with major exchanges like the London Stock Exchange and the Tokyo Stock Exchange listing tens of thousands of companies. Larger U.S.-based stocks are traded on a public exchange, such as the New York Stock Exchange (NYSE) or Nasdaq. As of mid-2023, the NYSE had some 2300 listings of its own, with another 5700 listed from the other U.S. stock markets, making the NYSE the largest in the world by market cap. Smaller companies that can't meet the listing requirements of these major exchanges are considered unlisted and their stocks are traded over the counter. What Is Preferred Stock? Preferred stock is a distinct class of stock that provides different rights compared with common stock. While both types confer ownership in a company, preferred stockholders have a higher claim to the company's assets and dividends than common stockholders. This elevated status is reflected in the name “preferred” stock. Common Stock vs. Preferred Stock Common and preferred stock both let investors own a stake in a business, but there are key differences that investors need to understand. Common Stock vs. Preferred Stock   Common Stock Preferred Stock Voting Rights Holders have voting rights in the company and can participate in decisions about corporate policies and the election of the board of directors. Generally, holders do not have voting rights, although this can vary depending on the specific share terms.  Dividends Not guaranteed and are paid out at the board of directors' discretion. Usually fixed it must be paid before any dividends are given to common stockholders.  Liquidation Preference Holders are last in line to claim any remaining assets, following bondholders and preferred stockholders. Holders have a higher claim on assets and are paid out before common stockholders. Convertibility Cannot be converted into other forms of security. May be converted to common shares based on terms. Volatilability Generally, more since it is more alert to company performance and market conditions. Less, due to fixed dividends and a greater claim on assets. Market Participation Holders benefit directly from increases in the company's value. Typically, do not participate in the company's growth beyond the fixed dividends. Voting Rights Shareholders in a company have the right to vote on important decisions regarding the company's management. For example, shareholders vote on the members of the board of directors. Usually, common stock allows the shareholder to vote, but preferred stock often does not confer voting rights. Dividends Both common and preferred stockholders can receive dividends from a company. However, preferred stock dividends are specified in advance based on the share's par or face value and the dividend rate of the stock. Businesses can choose whether or not and how much to pay in dividends to common stockholders. Should a company not have enough money to pay all stockholders dividends, preferred stockholders have priority over common stockholders and get paid first. For holders of cumulative preferred stock, any skipped dividend payments accumulate as “dividends in arrears” and must be paid before dividends are issued to common stockholders. Trading and Price Changes Common stock and preferred stock trade on the open market. Investors can choose to purchase or sell either type of share. However, investors generally trade common stocks rather than preferred stocks. Due to their fixed dividends and lower risk profile, preferred stocks typically have less price volatility and greater growth potential than common stocks. Because of their stable dividends and lower volatility, preferred stocks are often favored by institutional investors pursuing a predictable income stream. These stocks are also normally less liquid than common stocks, meaning they are traded less frequently, making them less suitable for retail investors looking for short-term gains. Corporate Bankruptcy For common stock, when a company goes bankrupt, the common stockholders do not receive their share of the assets until after creditors, bondholders, and preferred shareholders. This makes common stock riskier than debt or preferred shares. The upside to common shares is they usually outperform bonds and preferred shares in the long run. Most companies issue all three types of securities. For example, Wells Fargo & Company has several bonds available on the secondary market: preferred stock, such as its Series L (WFC-L), and common stock (WFC). Initial Public Offerings For a company to issue stock, it initiates an initial public offering (IPO). An IPO is a major way for a company seeking additional capital to expand the enterprise. To begin the IPO process, a company works with an underwriting investment bank to determine the type and price of the stock. Once the IPO is complete, the stock becomes available for purchase by the general public on the secondary market. Image by Sabrina Jiang © Investopedia 2020 Advantages and Disadvantages Both common stock and preferred stock have pros and cons for investors to consider. Pros and Cons of Common Stock Pros More frequently traded than preferred stock Higher potential returns Voting rights Cons May not receive dividends Lower priority to receive dividends or in the event of bankruptcy More price volatility Pros and Cons of Preferred Stock Pros Higher priority to receive dividends Less price volatility Fixed dividends that won't decrease Cons May lack voting rights Lower potential returns Traded less frequently How to Invest in Common Stock Stocks should be considered an important part of any investor’s portfolio. They carry greater risk than assets like CDs, preferred stocks, and bonds. However, the greater risk comes with a higher potential for rewards. Over the long term, stocks tend to outperform other investments but in the short term have more volatility. Investors can choose from different kinds of common stock. Growth stocks belong to companies expected to experience increasing earnings, which raises their share value. Meanwhile, value stocks are priced lower relative to their fundamentals and often pay dividends, unlike growth stocks. Stocks are also classified by market capitalization into large-, mid-, and small-cap categories. Large-cap stocks are more frequently traded and usually represent well-established, stable companies. In contrast, small-cap stocks often belong to newer, growth-oriented firms and tend to be more volatile. How to Invest in Preferred Stock Investors can trade for preferred stock just like common stock. However, because of how they differ from common stock, investors need a different approach when investing in them. Researching the issuing company is essential. Investing in preferred stock from a shaky company is as risky as buying its common stock. If the company fares poorly, both types of stock are likely to produce losses. One key thing to consider when choosing preferred stock is the dividend. Compare the dividends you'll receive relative to the share price to determine if the yield offers an attractive return. A better yield can result in greater returns. Moreover, take note of whether the stock is callable or convertible. Callable preferred stocks can be repurchased by the issuer at a preset date and price, causing you to miss out on future dividends. Convertible preferred stock, meanwhile, can be converted into common stock at the company's discretion, which can be an advantage if the price of the common stock rises significantly. How Do I Use Common Stock to Vote at Company Meetings? Most ordinary common shares come with one vote per share, granting shareholders the right to vote on corporate actions, often conducted at company shareholder meeting. If you cannot attend, you can cast your vote by proxy, where a third party will vote on your behalf. The most important votes are taken on issues like the company engaging in a merger or acquisition, whom to elect to the board of directors, or whether to approve stock splits or dividends. Why Is Common Stock Called an Equity? Common stock represents a residual ownership stake in a company, the right to claim any other corporate assets after all other financial obligations have been met. A company maintains a balance sheet composed of assets and liabilities. Assets include what the company owns or is owed, such as its property, equipment, cash reserves, and accounts receivable. On the other side of the ledger are liabilities, which are what the company owes. These include payables, debts, and other obligations. If a company is healthy, the total assets will be larger than the total liabilities. The residual amount left to the owners is known as shareholders' equity and is represented by a company's shares. Why Do Companies Issue Preferred Stock? Selling preferred stock, like any other shares, lets a company raise money by selling a stake in the business. A company may do this to raise capital for business expansion, debt repayment, or to invest in new projects. Preferred stocks are less dilutive of company ownership since they do not come with voting rights. They offer the issuing firm other benefits, not least because being less volatile makes them appeal to different investors. The fixed dividends also stabilize the company's balance sheet, making it more attractive to additional investors. Another reason is that, for some companies, the cost of issuing preferred stock is lower than issuing bonds. Unlike interest payments on bonds, dividends on preferred stock are not mandatory and generally are not tax-deductible for the corporation. However, they might still be less costly than the higher interest rates a company might have to pay to entice bond investors. Is Preferred or Common Stock a Better Investment? Each type has pros and cons. Common stock tends to offer higher potential returns, but more volatility. Preferred stock may be less volatile but have a lower potential for returns. This suggests that long-term investors who can handle greater volatility will prefer common stock, while those who want to avoid such fluctuations are more likely to choose preferred stock. Are There Other Different Types of Stock? Common and Preferred are the two major types. Some companies issue different classes of stock or even types of common stock. For example, Alphabet, the parent company of Google, has two classes of common stock: GOOG and GOOGL. The Bottom Line Common stock, as its name implies, is one of the most ordinary types of stock. It gives shareholders a stake in the underlying business, as well as voting rights to elect a board of directors and a claim to a portion of the company's assets and future revenues. However, common stockholders have a lower position than preferred stockholders, who get priority on dividend payments and in recovering their investment if the company is liquidated.

https://www.investopedia.com/reddit-q1-2024-earnings-preview-8642033

What You Need To Know Ahead of Reddit's First Earnings Report Since Its IPO

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Reddit will announce its first-quarter results on Tuesday after the bell, in its first quarterly earnings report since the social media company started trading publicly in March.</li><li>The company's financials could offer more insight into the platform's monetization efforts.<br/></li><li>Analysts expect Reddit to report strong average daily unique user numbers, showcasing the platform's engaged user base.</li><li>Reddit could also provide investors details about its growth strategy, specifically for advertising and data licensing for artificial intelligence training.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Reddit (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=RDDT">RDDT</a>) is set to announce on Tuesday its first quarterly earnings since the social media company made its trading debut on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp">New York Stock Exchange (NYSE)</a> in March.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> <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> filings show Reddit's 2023 revenue was $804 million, representing 21% growth from 2022's $666.7 million.<span class="ql-inline-citation" data-cite="2"></span> Reddit's net loss was $90.8 million in 2023, narrowing from $158.6 million the previous year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> For the fourth quarter of 2023, Reddit said its revenue came in at $249.8 million, up from $207.5 million in the third quarter and $200.4 million in the fourth quarter of 2022, suggesting Reddit's recent revenue trajectory has been one characterized by growth. However, Reddit also saw its revenue decline in first quarter of 2023 from the fourth quarter of 2024 as well as the first quarter of 2022 from the fourth quarter of 2021, in what could point to seasonal weakness in the first quarter. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_9-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/WxB6X/2/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Reddit Quarterly Revenue"></iframe></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-key-metric-average-daily-unique-user-count"></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"> Key Metric: Average Daily Unique User Count </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Reddit offers investors a look into its user engagement by providing quarterly averages for daily unique user (DAUq) counts. Reddit records quarterly DAUq numbers for logged-in users and those accessing the platform's content while logged out. </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"> Raymond James analysts indicated they expect DAUq to be a "positive standout" for Reddit.<span class="ql-inline-citation" data-cite="4"></span> They projected the company will report 38.5 million logged-in DAUq in the first quarter, up from 36.4 million in the final quarter of 2023 and the 31.1 million recorded in the year-ago period. </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"> JPMorgan analysts, who wrote that they "remain on the sidelines" in part waiting for "greater confidence in DAUq trajectory over time," said that they expect "strong 20%+ Y/Y DAUq growth, in line with recent levels, but we recognize growth will likely decelerate through 2H on tougher comps and as the user base grows larger."<span class="ql-inline-citation" data-cite="3"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-business-spotlight-advertising-and-data-licensing-opportunities"></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"> Business Spotlight: Advertising and Data Licensing Opportunities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> When filing for its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering (IPO)</a>, Reddit disclosed that it was advertising and licensing its data for <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> training. </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"> Bank of America analysts called Reddit a "senior" social company that is "still early in advertising and data license monetization."<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> JPMorgan analysts said that "Reddit captures a hard-to-reach audience that’s highly engaged," noting "the company’s corpus of historical information could represent a compelling source for LLM (large language model) training." </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 analysts estimated "ad revenue growth of +21% Y/Y &amp; expectations may be even higher" for the first quarter. Reddit's first-quarter earnings report could help strengthen investor sentiment about its growth prospects. </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"> Reddit's stock price at $46.64 as of Friday's close was up about 37% from its IPO price of $34. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * Reddit will announce its first-quarter results on Tuesday after the bell, in its first quarterly earnings report since the social media company started trading publicly in March. * The company's financials could offer more insight into the platform's monetization efforts. * Analysts expect Reddit to report strong average daily unique user numbers, showcasing the platform's engaged user base. * Reddit could also provide investors details about its growth strategy, specifically for advertising and data licensing for artificial intelligence training. Reddit ([RDDT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=RDDT)) is set to announce on Tuesday its first quarterly earnings since the social media company made its trading debut on the [New York Stock Exchange (NYSE)](https://www.investopedia.com/terms/n/nyse.asp) in March. [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) filings show Reddit's 2023 revenue was $804 million, representing 21% growth from 2022's $666.7 million. Reddit's net loss was $90.8 million in 2023, narrowing from $158.6 million the previous year. For the fourth quarter of 2023, Reddit said its revenue came in at $249.8 million, up from $207.5 million in the third quarter and $200.4 million in the fourth quarter of 2022, suggesting Reddit's recent revenue trajectory has been one characterized by growth. However, Reddit also saw its revenue decline in first quarter of 2023 from the fourth quarter of 2024 as well as the first quarter of 2022 from the fourth quarter of 2021, in what could point to seasonal weakness in the first quarter. ## Key Metric: Average Daily Unique User Count Reddit offers investors a look into its user engagement by providing quarterly averages for daily unique user (DAUq) counts. Reddit records quarterly DAUq numbers for logged-in users and those accessing the platform's content while logged out. Raymond James analysts indicated they expect DAUq to be a "positive standout" for Reddit. They projected the company will report 38.5 million logged-in DAUq in the first quarter, up from 36.4 million in the final quarter of 2023 and the 31.1 million recorded in the year-ago period. JPMorgan analysts, who wrote that they "remain on the sidelines" in part waiting for "greater confidence in DAUq trajectory over time," said that they expect "strong 20%+ Y/Y DAUq growth, in line with recent levels, but we recognize growth will likely decelerate through 2H on tougher comps and as the user base grows larger." ## Business Spotlight: Advertising and Data Licensing Opportunities When filing for its [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp), Reddit disclosed that it was advertising and licensing its data for [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) training. Bank of America analysts called Reddit a "senior" social company that is "still early in advertising and data license monetization." JPMorgan analysts said that "Reddit captures a hard-to-reach audience that’s highly engaged," noting "the company’s corpus of historical information could represent a compelling source for LLM (large language model) training." The analysts estimated "ad revenue growth of +21% Y/Y & expectations may be even higher" for the first quarter. Reddit's first-quarter earnings report could help strengthen investor sentiment about its growth prospects. Reddit's stock price at $46.64 as of Friday's close was up about 37% from its IPO price of $34. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Reddit will announce its first-quarter results on Tuesday after the bell, in its first quarterly earnings report since the social media company started trading publicly in March.The company's financials could offer more insight into the platform's monetization efforts.Analysts expect Reddit to report strong average daily unique user numbers, showcasing the platform's engaged user base.Reddit could also provide investors details about its growth strategy, specifically for advertising and data licensing for artificial intelligence training. Reddit (RDDT) is set to announce on Tuesday its first quarterly earnings since the social media company made its trading debut on the New York Stock Exchange (NYSE) in March. Securities and Exchange Commission (SEC) filings show Reddit's 2023 revenue was $804 million, representing 21% growth from 2022's $666.7 million. Reddit's net loss was $90.8 million in 2023, narrowing from $158.6 million the previous year. For the fourth quarter of 2023, Reddit said its revenue came in at $249.8 million, up from $207.5 million in the third quarter and $200.4 million in the fourth quarter of 2022, suggesting Reddit's recent revenue trajectory has been one characterized by growth. However, Reddit also saw its revenue decline in first quarter of 2023 from the fourth quarter of 2024 as well as the first quarter of 2022 from the fourth quarter of 2021, in what could point to seasonal weakness in the first quarter. Key Metric: Average Daily Unique User Count Reddit offers investors a look into its user engagement by providing quarterly averages for daily unique user (DAUq) counts. Reddit records quarterly DAUq numbers for logged-in users and those accessing the platform's content while logged out. Raymond James analysts indicated they expect DAUq to be a "positive standout" for Reddit. They projected the company will report 38.5 million logged-in DAUq in the first quarter, up from 36.4 million in the final quarter of 2023 and the 31.1 million recorded in the year-ago period. JPMorgan analysts, who wrote that they "remain on the sidelines" in part waiting for "greater confidence in DAUq trajectory over time," said that they expect "strong 20%+ Y/Y DAUq growth, in line with recent levels, but we recognize growth will likely decelerate through 2H on tougher comps and as the user base grows larger." Business Spotlight: Advertising and Data Licensing Opportunities When filing for its initial public offering (IPO), Reddit disclosed that it was advertising and licensing its data for artificial intelligence (AI) training. Bank of America analysts called Reddit a "senior" social company that is "still early in advertising and data license monetization." JPMorgan analysts said that "Reddit captures a hard-to-reach audience that’s highly engaged," noting "the company’s corpus of historical information could represent a compelling source for LLM (large language model) training." The analysts estimated "ad revenue growth of +21% Y/Y & expectations may be even higher" for the first quarter. Reddit's first-quarter earnings report could help strengthen investor sentiment about its growth prospects. Reddit's stock price at $46.64 as of Friday's close was up about 37% from its IPO price of $34. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/articles/insights/080316/how-financial-spreadbetting-companies-make-money-igghy.asp

How Financial Spread Betting Companies Make Money

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Many investors wonder how financial <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/082113/what-spread-betting.asp">spread betting</a> companies in the U.K. make money when they don't charge brokerage fees on bets placed. Below we look at how spread betting companies generate revenue, whether they make money from spreads (or whether they profit by trading against their clients), and what investors should look for when choosing a broker. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Some brokers categorize clients into two categories: A-book clients who are mostly successful and B-book clients who typically will lose all of their deposit.</li><li>Instead of sending bets from B-book clients to market, the broker might actively bet against them and take the winning side of the trade.</li><li>Traders should find a spread-betting company that doesn't trade against its clients. Instead, the company makes its money by matching positions among clients and generating revenue from the spread.</li><li>Another way spread betting firms make money is when clients pay holding fees to carry a position overnight.</li></ul></div></div></div> <span class="heading-toc" id="toc-basics-of-spread-betting"></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"> Basics of Spread Betting </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Spread betting is a lot like gambling in that an investor speculates which way security prices will move. Rather than buying or selling (or owning) the asset, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investor</a> will try to guess whether its price will move up or down during a certain period of time, based on the buy and sell prices offered by a broker. As an investor, you make your bet on whether you think the price will rise or fall. The more it moves, the more profitable it is for the investor and, therefore, for the spread betting company. </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"> One thing to keep in mind: financial spread betting is illegal in the United States. It is, however, legal in the United Kingdom.<span class="ql-inline-citation" data-cite="6"></span> In the U.S., it should be noted that the derivatives markets effectively allow people to take the same risks, through various option strategies on optionable underlying securities. While perhaps a little more complex, the net intent is the same: a directional bet. Since spreads are historically narrow, these types of bets might have broader appeal to experienced investors. </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-revenue-from-the-spread"></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"> Revenue From the Spread </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> First and foremost, spread-betting companies make <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revenue.asp" rel="noopener noreferrer">revenue</a> through the spreads they charge clients to trade. In addition to the usual market spread, the broker typically adds a small margin, meaning a stock normally quoted at $100 to buy and $101 to sell, may be quoted at $99 to sell and $102 to buy in a spread bet. </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 buy price is always higher than the sell price, ensuring the broker makes a profit from the spread, whether the client wins or loses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-the-a-book-and-the-b-book"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> The A Book and the B Book </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Brokers categorize clients into two separate categories, or their A book and their B book. Traders who have a track record of losing money are placed into the broker's B book. Bets from B-book clients are not sent to the market. Instead, the company actively bets against them. In this scenario, the broker stands to win when the client loses, and vice versa. Since studies show that 82% of traders lose their deposits, this model has proven to be extremely profitable.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> There is, however, some risk involved with backing B-book clients. Spread-betting companies have risk limits, and if too many clients bet in one direction, these limits are breached. Brokers must then hedge their bets to restore risk to an acceptable level. Brokers avoid <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp" rel="noopener noreferrer">hedging</a> B-book clients unless absolutely necessary, because they are effectively paying for another spread, therefore increasing bottom line costs. </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-book clients are a similarly dependable stream of revenue and provide opportunities to capture commissions. They trade enough that risk is substantially lower than B-book clients, and they often enjoy a relationship in which they are trusted to expose the market (and not the broker) to risk. Such clients are often charged a premium on the standard spread, or a specially negotiated fee. </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, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ig-review-4587903" rel="noopener noreferrer">IG Group</a>, a spread betting company based in the United Kingdom, says it doesn't profit off the backs of its clients—especially those who are unsuccessful in their trades. According to its website, the firm says its clients mainly offset each others' positions, so when one client buys one lot of an asset, another one sells another lot, which covers both sides. Since there is no exposure to either client's profit or loss, IG says it makes its money off that spread.<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> <span class="heading-toc" id="toc-associated-trading-costs"></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"> Associated Trading Costs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Spread-betting companies allow their clients to continue trading throughout the global trading day, Monday to Friday, from the time the Asian session opens to the time the New York session closes. The flipside is that spread-betting companies typically charge a holding fee to carry a position overnight. </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"> Beginners often get distracted by an attractive spread and miss these ongoing trading costs, which in time are likely to erode profits. It is therefore in the best interests of the broker to keep clients holding positions as long as possible, as they stand to generate more revenue from associated fees. </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-regulatory-environment"></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"> Regulatory Environment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Spread-betting companies are subject to strict regulations worldwide. The European Securities and Markets Authority (ESMA), for example, passed and enforced regulations that limit certain types of financial betting. In 2018, ESMA upheld a ban on the sale of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/binary-option.asp" rel="noopener noreferrer">binary options</a> to retail customers, which may change some investors' interest in spread-betting companies.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-finding-the-right-broker"></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"> Finding the Right Broker </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Spread-betting companies obviously make a lot of money, but how can a beginner get involved? The first step is choosing the right broker, sometimes a misstep for overeager traders who often squander their initial deposits. The markets may move against a trader, but more often than not, it is the choice of broker that determines overall success. </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"> Does the client bet on commodities or interest rates? How important is customer support? Which broker has the lowest spreads? These are important concerns when considering which spread-betting company to choose. The other thing to consider, especially if you're new to the game, is a broker that offers a demo account. This allows you to practice how to spread bet without the stress of losing money. </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-spread-betting-companies"></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"> Spread Betting Companies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> There are a number of different companies that allow investors to open up accounts and begin spread betting. Here are a few: </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"> IG Group </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Founded in 1974 solely as a spread betting business, IG Group is based in the United Kingdom. The firm now provides investors with other services including online forex and share trading. IG Group also offers demo accounts to new clients. It claims to have more than 178,000 clients worldwide.<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_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"> Intertrader </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Intertrader was founded in 2009 and is part of Entain, a publicly traded sports betting and gaming company. Intertrader says it is a "100% market-neutral broker," meaning it never trades against its clients. Along with spread betting, the company offers forex and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contractfordifferences.asp" rel="noopener noreferrer">contract for difference</a> (CFD) trading. Intertrader promises new investors a risk-free spread betting environment with its demo account.<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_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"> ETX Capital </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> ETX Capital was founded in London in 1965. The firm's areas of specialty include spread betting, forex, options, commodity, equity, and bond trading. New investors can sign up for a demo account to practice their trading strategies before jumping in.<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_48-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Taking advantage of online spread-betting comparison resources, using price comparison tools and keeping a level head means that a trader can feasibly share in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wealth.asp" rel="noopener noreferrer">wealth</a> that spread-betting companies have created. But knowing how companies work and choosing the right one for you is crucial if you're going to succeed. Make sure you do your research before you commit to a platform. </p></div>

Many investors wonder how financial [spread betting](https://www.investopedia.com/articles/active-trading/082113/what-spread-betting.asp) companies in the U.K. make money when they don't charge brokerage fees on bets placed. Below we look at how spread betting companies generate revenue, whether they make money from spreads (or whether they profit by trading against their clients), and what investors should look for when choosing a broker. ### Key Takeaways * Some brokers categorize clients into two categories: A-book clients who are mostly successful and B-book clients who typically will lose all of their deposit. * Instead of sending bets from B-book clients to market, the broker might actively bet against them and take the winning side of the trade. * Traders should find a spread-betting company that doesn't trade against its clients. Instead, the company makes its money by matching positions among clients and generating revenue from the spread. * Another way spread betting firms make money is when clients pay holding fees to carry a position overnight. ## Basics of Spread Betting Spread betting is a lot like gambling in that an investor speculates which way security prices will move. Rather than buying or selling (or owning) the asset, the [investor](https://www.investopedia.com/terms/i/investor.asp) will try to guess whether its price will move up or down during a certain period of time, based on the buy and sell prices offered by a broker. As an investor, you make your bet on whether you think the price will rise or fall. The more it moves, the more profitable it is for the investor and, therefore, for the spread betting company. One thing to keep in mind: financial spread betting is illegal in the United States. It is, however, legal in the United Kingdom. In the U.S., it should be noted that the derivatives markets effectively allow people to take the same risks, through various option strategies on optionable underlying securities. While perhaps a little more complex, the net intent is the same: a directional bet. Since spreads are historically narrow, these types of bets might have broader appeal to experienced investors. ## Revenue From the Spread First and foremost, spread-betting companies make [revenue](https://www.investopedia.com/terms/r/revenue.asp) through the spreads they charge clients to trade. In addition to the usual market spread, the broker typically adds a small margin, meaning a stock normally quoted at $100 to buy and $101 to sell, may be quoted at $99 to sell and $102 to buy in a spread bet. The buy price is always higher than the sell price, ensuring the broker makes a profit from the spread, whether the client wins or loses. ## The A Book and the B Book Brokers categorize clients into two separate categories, or their A book and their B book. Traders who have a track record of losing money are placed into the broker's B book. Bets from B-book clients are not sent to the market. Instead, the company actively bets against them. In this scenario, the broker stands to win when the client loses, and vice versa. Since studies show that 82% of traders lose their deposits, this model has proven to be extremely profitable. There is, however, some risk involved with backing B-book clients. Spread-betting companies have risk limits, and if too many clients bet in one direction, these limits are breached. Brokers must then hedge their bets to restore risk to an acceptable level. Brokers avoid [hedging](https://www.investopedia.com/terms/h/hedge.asp) B-book clients unless absolutely necessary, because they are effectively paying for another spread, therefore increasing bottom line costs. A-book clients are a similarly dependable stream of revenue and provide opportunities to capture commissions. They trade enough that risk is substantially lower than B-book clients, and they often enjoy a relationship in which they are trusted to expose the market (and not the broker) to risk. Such clients are often charged a premium on the standard spread, or a specially negotiated fee. However, [IG Group](https://www.investopedia.com/ig-review-4587903), a spread betting company based in the United Kingdom, says it doesn't profit off the backs of its clients—especially those who are unsuccessful in their trades. According to its website, the firm says its clients mainly offset each others' positions, so when one client buys one lot of an asset, another one sells another lot, which covers both sides. Since there is no exposure to either client's profit or loss, IG says it makes its money off that spread. ## Associated Trading Costs Spread-betting companies allow their clients to continue trading throughout the global trading day, Monday to Friday, from the time the Asian session opens to the time the New York session closes. The flipside is that spread-betting companies typically charge a holding fee to carry a position overnight. Beginners often get distracted by an attractive spread and miss these ongoing trading costs, which in time are likely to erode profits. It is therefore in the best interests of the broker to keep clients holding positions as long as possible, as they stand to generate more revenue from associated fees. ## Regulatory Environment Spread-betting companies are subject to strict regulations worldwide. The European Securities and Markets Authority (ESMA), for example, passed and enforced regulations that limit certain types of financial betting. In 2018, ESMA upheld a ban on the sale of [binary options](https://www.investopedia.com/terms/b/binary-option.asp) to retail customers, which may change some investors' interest in spread-betting companies. ## Finding the Right Broker Spread-betting companies obviously make a lot of money, but how can a beginner get involved? The first step is choosing the right broker, sometimes a misstep for overeager traders who often squander their initial deposits. The markets may move against a trader, but more often than not, it is the choice of broker that determines overall success. Does the client bet on commodities or interest rates? How important is customer support? Which broker has the lowest spreads? These are important concerns when considering which spread-betting company to choose. The other thing to consider, especially if you're new to the game, is a broker that offers a demo account. This allows you to practice how to spread bet without the stress of losing money. ## Spread Betting Companies There are a number of different companies that allow investors to open up accounts and begin spread betting. Here are a few: ### IG Group Founded in 1974 solely as a spread betting business, IG Group is based in the United Kingdom. The firm now provides investors with other services including online forex and share trading. IG Group also offers demo accounts to new clients. It claims to have more than 178,000 clients worldwide. ### Intertrader Intertrader was founded in 2009 and is part of Entain, a publicly traded sports betting and gaming company. Intertrader says it is a "100% market-neutral broker," meaning it never trades against its clients. Along with spread betting, the company offers forex and [contract for difference](https://www.investopedia.com/terms/c/contractfordifferences.asp) (CFD) trading. Intertrader promises new investors a risk-free spread betting environment with its demo account. ### ETX Capital ETX Capital was founded in London in 1965. The firm's areas of specialty include spread betting, forex, options, commodity, equity, and bond trading. New investors can sign up for a demo account to practice their trading strategies before jumping in. ## The Bottom Line Taking advantage of online spread-betting comparison resources, using price comparison tools and keeping a level head means that a trader can feasibly share in the [wealth](https://www.investopedia.com/terms/w/wealth.asp) that spread-betting companies have created. But knowing how companies work and choosing the right one for you is crucial if you're going to succeed. Make sure you do your research before you commit to a platform.

Many investors wonder how financial spread betting companies in the U.K. make money when they don't charge brokerage fees on bets placed. Below we look at how spread betting companies generate revenue, whether they make money from spreads (or whether they profit by trading against their clients), and what investors should look for when choosing a broker. Key Takeaways Some brokers categorize clients into two categories: A-book clients who are mostly successful and B-book clients who typically will lose all of their deposit.Instead of sending bets from B-book clients to market, the broker might actively bet against them and take the winning side of the trade.Traders should find a spread-betting company that doesn't trade against its clients. Instead, the company makes its money by matching positions among clients and generating revenue from the spread.Another way spread betting firms make money is when clients pay holding fees to carry a position overnight. Basics of Spread Betting Spread betting is a lot like gambling in that an investor speculates which way security prices will move. Rather than buying or selling (or owning) the asset, the investor will try to guess whether its price will move up or down during a certain period of time, based on the buy and sell prices offered by a broker. As an investor, you make your bet on whether you think the price will rise or fall. The more it moves, the more profitable it is for the investor and, therefore, for the spread betting company. One thing to keep in mind: financial spread betting is illegal in the United States. It is, however, legal in the United Kingdom. In the U.S., it should be noted that the derivatives markets effectively allow people to take the same risks, through various option strategies on optionable underlying securities. While perhaps a little more complex, the net intent is the same: a directional bet. Since spreads are historically narrow, these types of bets might have broader appeal to experienced investors. Revenue From the Spread First and foremost, spread-betting companies make revenue through the spreads they charge clients to trade. In addition to the usual market spread, the broker typically adds a small margin, meaning a stock normally quoted at $100 to buy and $101 to sell, may be quoted at $99 to sell and $102 to buy in a spread bet. The buy price is always higher than the sell price, ensuring the broker makes a profit from the spread, whether the client wins or loses. The A Book and the B Book Brokers categorize clients into two separate categories, or their A book and their B book. Traders who have a track record of losing money are placed into the broker's B book. Bets from B-book clients are not sent to the market. Instead, the company actively bets against them. In this scenario, the broker stands to win when the client loses, and vice versa. Since studies show that 82% of traders lose their deposits, this model has proven to be extremely profitable. There is, however, some risk involved with backing B-book clients. Spread-betting companies have risk limits, and if too many clients bet in one direction, these limits are breached. Brokers must then hedge their bets to restore risk to an acceptable level. Brokers avoid hedging B-book clients unless absolutely necessary, because they are effectively paying for another spread, therefore increasing bottom line costs. A-book clients are a similarly dependable stream of revenue and provide opportunities to capture commissions. They trade enough that risk is substantially lower than B-book clients, and they often enjoy a relationship in which they are trusted to expose the market (and not the broker) to risk. Such clients are often charged a premium on the standard spread, or a specially negotiated fee. However, IG Group, a spread betting company based in the United Kingdom, says it doesn't profit off the backs of its clients—especially those who are unsuccessful in their trades. According to its website, the firm says its clients mainly offset each others' positions, so when one client buys one lot of an asset, another one sells another lot, which covers both sides. Since there is no exposure to either client's profit or loss, IG says it makes its money off that spread. Associated Trading Costs Spread-betting companies allow their clients to continue trading throughout the global trading day, Monday to Friday, from the time the Asian session opens to the time the New York session closes. The flipside is that spread-betting companies typically charge a holding fee to carry a position overnight. Beginners often get distracted by an attractive spread and miss these ongoing trading costs, which in time are likely to erode profits. It is therefore in the best interests of the broker to keep clients holding positions as long as possible, as they stand to generate more revenue from associated fees. Regulatory Environment Spread-betting companies are subject to strict regulations worldwide. The European Securities and Markets Authority (ESMA), for example, passed and enforced regulations that limit certain types of financial betting. In 2018, ESMA upheld a ban on the sale of binary options to retail customers, which may change some investors' interest in spread-betting companies. Finding the Right Broker Spread-betting companies obviously make a lot of money, but how can a beginner get involved? The first step is choosing the right broker, sometimes a misstep for overeager traders who often squander their initial deposits. The markets may move against a trader, but more often than not, it is the choice of broker that determines overall success. Does the client bet on commodities or interest rates? How important is customer support? Which broker has the lowest spreads? These are important concerns when considering which spread-betting company to choose. The other thing to consider, especially if you're new to the game, is a broker that offers a demo account. This allows you to practice how to spread bet without the stress of losing money. Spread Betting Companies There are a number of different companies that allow investors to open up accounts and begin spread betting. Here are a few: IG Group Founded in 1974 solely as a spread betting business, IG Group is based in the United Kingdom. The firm now provides investors with other services including online forex and share trading. IG Group also offers demo accounts to new clients. It claims to have more than 178,000 clients worldwide. Intertrader Intertrader was founded in 2009 and is part of Entain, a publicly traded sports betting and gaming company. Intertrader says it is a "100% market-neutral broker," meaning it never trades against its clients. Along with spread betting, the company offers forex and contract for difference (CFD) trading. Intertrader promises new investors a risk-free spread betting environment with its demo account. ETX Capital ETX Capital was founded in London in 1965. The firm's areas of specialty include spread betting, forex, options, commodity, equity, and bond trading. New investors can sign up for a demo account to practice their trading strategies before jumping in. The Bottom Line Taking advantage of online spread-betting comparison resources, using price comparison tools and keeping a level head means that a trader can feasibly share in the wealth that spread-betting companies have created. But knowing how companies work and choosing the right one for you is crucial if you're going to succeed. Make sure you do your research before you commit to a platform.

https://www.investopedia.com/the-express-podcast-episode-160-8384272

Searching for Signs of Hope Amid the Selloff

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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=MERE9228506005" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Searching for Signs of Hope Amid the Selloff"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <strong>Subscribe Now</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197" rel="nofollow">Apple Podcasts</a> / <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9" rel="nofollow">Spotify</a> / <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver">Google Podcasts</a> / <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://player.fm/series/2836180">PlayerFM</a> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.nbprivatewealth.com/en/who-we-are/shannon-saccocia" rel="nofollow">Shannon Saccocia</a>, chief investment officer for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.nbprivatewealth.com/" rel="nofollow">NB Private Wealth</a>, climbs back aboard <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-investopedia-express-podcast-5215636">The Express</a> to put the recent selloff into perspective, and to help us identify the signals to watch for that will turn the market around. Plus, it's been a cruel autumn for corporate earnings as investors have no patience for missed expectations. The thrill may be gone from the stock market for now, but history tells us that its best two months start this week. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> <strong><em>Correction—Nov. 2, 2023:</em> </strong>This article has been corrected with the proper spelling of Shannon Saccocia, chief investment officer for NB Private Wealth. </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) [Shannon Saccocia](https://www.nbprivatewealth.com/en/who-we-are/shannon-saccocia), chief investment officer for [NB Private Wealth](https://www.nbprivatewealth.com/), climbs back aboard [The Express](https://www.investopedia.com/the-investopedia-express-podcast-5215636) to put the recent selloff into perspective, and to help us identify the signals to watch for that will turn the market around. Plus, it's been a cruel autumn for corporate earnings as investors have no patience for missed expectations. The thrill may be gone from the stock market for now, but history tells us that its best two months start this week. ***Correction—Nov. 2, 2023:*** This article has been corrected with the proper spelling of Shannon Saccocia, chief investment officer for NB Private Wealth. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Subscribe Now: Apple Podcasts / Spotify / Google Podcasts / PlayerFM Shannon Saccocia, chief investment officer for NB Private Wealth, climbs back aboard The Express to put the recent selloff into perspective, and to help us identify the signals to watch for that will turn the market around. Plus, it's been a cruel autumn for corporate earnings as investors have no patience for missed expectations. The thrill may be gone from the stock market for now, but history tells us that its best two months start this week. Correction—Nov. 2, 2023: This article has been corrected with the proper spelling of Shannon Saccocia, chief investment officer for NB Private Wealth. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Aggressive Growth Fund: Examples of Mutual Fund Class

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-an-aggressive-growth-fund"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is an Aggressive Growth Fund? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An aggressive growth fund is a mutual fund that seeks <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgain.asp">capital gains</a> by investing in the shares of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growthstock.asp">growth</a> company stocks. Investments held in these funds are companies that demonstrate high growth potential, but also carry greater risk. As such, aggressive growth funds seek to provide above-average market returns; however, their underlying investments are often volatile causing high share price <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>An aggressive growth fund invests in companies that have high growth potential, including newer companies and those in hot sectors of the economy.</li><li>As a result, these funds are actively managed to achieve above-average returns when markets are rising.</li><li>These stocks, however, are also quite a bit riskier than other stocks and so these funds may underperform in down markets and experience greater volatility overall.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-aggressive-growth-funds"></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 Aggressive Growth Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Aggressive growth funds are identified in the market as offering above average returns for investors willing to take some additional investment risk. They are expected to outperform standard growth funds by investing more heavily in companies they identify with aggressive growth prospects. </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"> Aggressive growth funds invest in growth stocks with relatively more aggressive projections for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revenue.asp">revenue</a> and earnings than the standard growth stock universe. Because aggressive growth stock funds are investing based on forward-looking assumptions and multiple growth phases, they can have higher comparable risk. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> These funds typically do not fall into a standard category grouping reported by mutual fund research providers. They will typically be found in the growth fund category with fund names such as aggressive growth fund, capital appreciation fund, or capital gain fund. Their main focus is to invest for superior capital gains. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Since these funds typically are associated with high risk and high return it is important for investors to closely examine risk metrics of the funds. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beta.asp">Beta</a>, Sharpe Ratio, and standard deviation are three risk metrics that are often reported by a fund company to help investors understand the fund’s risks. Comparing the risk metrics to a benchmark is typically best when seeking to understand fund risks. The Russell 3000 Growth Index is a good market index benchmark for investors when considering aggressive growth funds. </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"> Aggressive growth funds offer some of the highest <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">return</a> potential in the equity markets, also with some of the highest risks. Some aggressive growth funds may integrate alternative investing strategies that utilize derivatives. Investors should do thorough due diligence on these funds to understand their investments and investment strategies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-example-of-an-aggressive-growth-fund"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Example of an Aggressive Growth Fund </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.leggmason.com/en-us/products/mutual-funds/clearbridge-aggressive-growth-fund.html">ClearBridge Aggressive Growth Fund</a> (Ticker: SHRAX) is one example of an aggressive growth fund available for both retail and institutional investors. As of March 2022, the Fund holds $5.7 billion in assets and had a year-to-date return of -8.7% versus a return of -9.25% for its benchmark Russell 3000 Growth Index. The fund has a beta of 0.68, its Sharpe Ratio is -0.44 and its standard deviation is 14.07 - indicating a higher than average level of risk. Due to its active management style, it has an expense ratio of 1.11%. </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-conservative-growth"></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"> Conservative Growth </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> In contrast to aggressive growth, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conservativegrowth.asp">conservative growth</a> is an alternative investment strategy that aims to grow invested capital over the long term. These funds typically target long-term investors who place high importance on wealth preservation but would also like to take advantage of some of the market’s high growth opportunities. </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"> Conservative growth funds usually allocate a high percentage of the fund to fixed income while investing the remaining allocation in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growthstock.asp">growth</a> or aggressive growth stocks. </p></div>

## What Is an Aggressive Growth Fund? An aggressive growth fund is a mutual fund that seeks [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) by investing in the shares of [growth](https://www.investopedia.com/terms/g/growthstock.asp) company stocks. Investments held in these funds are companies that demonstrate high growth potential, but also carry greater risk. As such, aggressive growth funds seek to provide above-average market returns; however, their underlying investments are often volatile causing high share price [volatility](https://www.investopedia.com/terms/v/volatility.asp). ### Key Takeaways * An aggressive growth fund invests in companies that have high growth potential, including newer companies and those in hot sectors of the economy. * As a result, these funds are actively managed to achieve above-average returns when markets are rising. * These stocks, however, are also quite a bit riskier than other stocks and so these funds may underperform in down markets and experience greater volatility overall. ## Understanding Aggressive Growth Funds Aggressive growth funds are identified in the market as offering above average returns for investors willing to take some additional investment risk. They are expected to outperform standard growth funds by investing more heavily in companies they identify with aggressive growth prospects. Aggressive growth funds invest in growth stocks with relatively more aggressive projections for [revenue](https://www.investopedia.com/terms/r/revenue.asp) and earnings than the standard growth stock universe. Because aggressive growth stock funds are investing based on forward-looking assumptions and multiple growth phases, they can have higher comparable risk. These funds typically do not fall into a standard category grouping reported by mutual fund research providers. They will typically be found in the growth fund category with fund names such as aggressive growth fund, capital appreciation fund, or capital gain fund. Their main focus is to invest for superior capital gains. Since these funds typically are associated with high risk and high return it is important for investors to closely examine risk metrics of the funds. [Beta](https://www.investopedia.com/terms/b/beta.asp), Sharpe Ratio, and standard deviation are three risk metrics that are often reported by a fund company to help investors understand the fund’s risks. Comparing the risk metrics to a benchmark is typically best when seeking to understand fund risks. The Russell 3000 Growth Index is a good market index benchmark for investors when considering aggressive growth funds. Aggressive growth funds offer some of the highest [return](https://www.investopedia.com/terms/r/return.asp) potential in the equity markets, also with some of the highest risks. Some aggressive growth funds may integrate alternative investing strategies that utilize derivatives. Investors should do thorough due diligence on these funds to understand their investments and investment strategies. ## Example of an Aggressive Growth Fund The [ClearBridge Aggressive Growth Fund](https://www.leggmason.com/en-us/products/mutual-funds/clearbridge-aggressive-growth-fund.html) (Ticker: SHRAX) is one example of an aggressive growth fund available for both retail and institutional investors. As of March 2022, the Fund holds $5.7 billion in assets and had a year-to-date return of -8.7% versus a return of -9.25% for its benchmark Russell 3000 Growth Index. The fund has a beta of 0.68, its Sharpe Ratio is -0.44 and its standard deviation is 14.07 - indicating a higher than average level of risk. Due to its active management style, it has an expense ratio of 1.11%. ## Conservative Growth In contrast to aggressive growth, [conservative growth](https://www.investopedia.com/terms/c/conservativegrowth.asp) is an alternative investment strategy that aims to grow invested capital over the long term. These funds typically target long-term investors who place high importance on wealth preservation but would also like to take advantage of some of the market’s high growth opportunities. Conservative growth funds usually allocate a high percentage of the fund to fixed income while investing the remaining allocation in [growth](https://www.investopedia.com/terms/g/growthstock.asp) or aggressive growth stocks.

What Is an Aggressive Growth Fund? An aggressive growth fund is a mutual fund that seeks capital gains by investing in the shares of growth company stocks. Investments held in these funds are companies that demonstrate high growth potential, but also carry greater risk. As such, aggressive growth funds seek to provide above-average market returns; however, their underlying investments are often volatile causing high share price volatility. Key Takeaways An aggressive growth fund invests in companies that have high growth potential, including newer companies and those in hot sectors of the economy.As a result, these funds are actively managed to achieve above-average returns when markets are rising.These stocks, however, are also quite a bit riskier than other stocks and so these funds may underperform in down markets and experience greater volatility overall. Understanding Aggressive Growth Funds Aggressive growth funds are identified in the market as offering above average returns for investors willing to take some additional investment risk. They are expected to outperform standard growth funds by investing more heavily in companies they identify with aggressive growth prospects. Aggressive growth funds invest in growth stocks with relatively more aggressive projections for revenue and earnings than the standard growth stock universe. Because aggressive growth stock funds are investing based on forward-looking assumptions and multiple growth phases, they can have higher comparable risk. These funds typically do not fall into a standard category grouping reported by mutual fund research providers. They will typically be found in the growth fund category with fund names such as aggressive growth fund, capital appreciation fund, or capital gain fund. Their main focus is to invest for superior capital gains. Since these funds typically are associated with high risk and high return it is important for investors to closely examine risk metrics of the funds. Beta, Sharpe Ratio, and standard deviation are three risk metrics that are often reported by a fund company to help investors understand the fund’s risks. Comparing the risk metrics to a benchmark is typically best when seeking to understand fund risks. The Russell 3000 Growth Index is a good market index benchmark for investors when considering aggressive growth funds. Aggressive growth funds offer some of the highest return potential in the equity markets, also with some of the highest risks. Some aggressive growth funds may integrate alternative investing strategies that utilize derivatives. Investors should do thorough due diligence on these funds to understand their investments and investment strategies. Example of an Aggressive Growth Fund The ClearBridge Aggressive Growth Fund (Ticker: SHRAX) is one example of an aggressive growth fund available for both retail and institutional investors. As of March 2022, the Fund holds $5.7 billion in assets and had a year-to-date return of -8.7% versus a return of -9.25% for its benchmark Russell 3000 Growth Index. The fund has a beta of 0.68, its Sharpe Ratio is -0.44 and its standard deviation is 14.07 - indicating a higher than average level of risk. Due to its active management style, it has an expense ratio of 1.11%. Conservative Growth In contrast to aggressive growth, conservative growth is an alternative investment strategy that aims to grow invested capital over the long term. These funds typically target long-term investors who place high importance on wealth preservation but would also like to take advantage of some of the market’s high growth opportunities. Conservative growth funds usually allocate a high percentage of the fund to fixed income while investing the remaining allocation in growth or aggressive growth stocks.

https://www.investopedia.com/cheap-growth-stocks-april-2024-8628710

5 Growth Stocks Under $50 for April 2024

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Growth stocks showed more gains during the first quarter of 2024 with the group's benchmark, the SPDR Portfolio S&amp;P 500 Growth ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPYG">SPYG</a>), up by another 14.84%. </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 minerals sector outperformed this time around, with mining companies, such as Coeur and Harmony, coming to life. Insurance firm Hippo Holdings, semiconductor maker Semtech, and healthcare technology company Staar Surgical all saw gains in their stock prices and outperformed the benchmark <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">ETF</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"> The data below are current as of April 8, 2024. </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>Growth stocks are companies with the potential for above-average price appreciation because of possibly increased revenues and earnings.</li><li>Investors are less likely to be paid dividends, as growth companies tend to reinvest earnings back into the business.</li><li>Growth stocks typically come with the chance of greater volatility than value stocks. It's a trade-off; pursuing high returns means accepting the risk of many ups and downs in price.</li></ul></div></div></div> <span class="heading-toc" id="toc-coeur-mining-inc-cde"></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=CDE" rel="nocaes">Coeur Mining, Inc. (CDE)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <li>Sector/Industry: Non-Energy Minerals / Precious Metals</li><li>Price: $4.80</li><li>Market Cap: $1.86 billion</li><li>Year-to-date total return: 37.50%</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"> The stock started 2024 at $3 and traded at $4.80 on April 8—a 37.50% gain, making this Canadian miner one of the top-performing stocks among those trading for less than $50. It participated in the outperformance of the precious metals sector as a whole, as fears of greater inflation took hold amid <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-high-march-inflation-reading-means-for-you-8629759">doubts that the Fed would cut interest rates</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> With a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketcapitalization.asp">market capitalization</a> of $1.86 billion, Coeur's earnings this year are up by 86%, following a drop of 2.67% over the past five years.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-hippo-holdings-hipo"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HIPO" rel="nocaes">Hippo Holdings (HIPO)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li>Sector/Industry: Finance/Insurance Brokers/Services</li><li>Price: $25.39</li><li>Market Cap: $544.56 million</li><li>Year-to-date total return: 64%</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Hippo Holdings began the year at $9 and traded at $25.39 on April 8, a remarkable gain of 64%. The insurance company specializes in homeowners' property and casualty policies and just authorized a $50 million <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sharerepurchase.asp">stock repurchase</a> program, detailed in their recent SEC filings.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> On March 6, Hippo beat analyst expectations of earnings and revenues, leading to a spike in the stock price. This year’s earnings are up by 67%. </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-harmony-gold-mining-hmy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HMY" rel="nocaes">Harmony Gold Mining (HMY)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <li>Sector/Industry: Non-Energy Minerals / Precious Metals</li><li>Price: $8.91</li><li>Market Cap: $5.65 billion</li><li>Year-to-date total return: 24.50%<strong><br/></strong></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"> Harmony Gold Mining rose from $6 at the beginning of the year to $8.91 on April 8, an increase of 24.5%, amid the rising price of the precious metals mined by the company.<span class="ql-inline-citation" data-cite="10"></span> With inflation fears resurfacing, money managers are seeking the so-called safe haven of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/08/gold-strategies.asp">gold equities</a>. This South Africa-based miner has a market cap of $5.65 billion and is showing a 76% increase in earnings this year.<br/> </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-semtech-corp-smtc"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMTC" rel="nocaes">Semtech Corp. (SMTC)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <li>Sector/Industry: Electronic Technology / Semiconductors</li><li>Price: $35</li><li>Market Cap: $2.19 billion</li><li>Year-to-date total return: 40%</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Semtech's price increased from $21 in January to $35 on April 8. That’s a quick 40% gain in just over three months. The company's earnings are up by 370% this year. In business since 1960 with corporate headquarters in Camarillo, Calif., Semtech has a market capitalization of $2.19 billion. The stock is a Russell 2000 component and a holding of the iShares Russell 2000 exchange-traded fund. </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-staar-surgical-staa"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=STAA" rel="nocaes">Staar Surgical (STAA)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <li>Sector/Industry: Health Technology / Medical Specialties</li><li>Price: $48</li><li>Market Cap: $2.42 billion</li><li>Year-to-date total return: 39.58%</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"> <br>Staar Surgical's stock price moved rose from $29 in January to $48 by April 8—a gain of 39.58% after the company announced positive preliminary net sales for the first quarter of 2024.<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_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The California-based company designs and manufactures implantable lenses for the eyes. This quarter marked the highest quarterly sales of those lenses in the U.S. since Staar obtained U.S. FDA approval for the lenses in March 2022. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-how-we-selected-these-growth-stocks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> How We Selected These Growth Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> We <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/010616/5-characteristics-good-growth-stocks.asp">selected these growth stocks</a> based on their stock price appreciation from the beginning of the year until April 8, 2024. We only listed companies that are trading under $50 per share and are listed on the Nasdaq or the New York Stock Exchange (NYSE).<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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growthinvesting.asp">Growth stocks</a> are companies that focus on revenue growth over other metrics. They typically use capital gained from operations to reinvest into the company rather than giving investors dividend payments, as most <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/professionals/072415/value-or-growth-stocks-which-best.asp">value companies</a> will focus on. Because of the increased attention growth companies put towards growing revenue, these stocks can be more volatile than other similar companies. </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"> <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_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> <em>As of the date this article was written, the author does not own any of the above stocks.</em> </p></div>

Growth stocks showed more gains during the first quarter of 2024 with the group's benchmark, the SPDR Portfolio S&P 500 Growth ETF ([SPYG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPYG)), up by another 14.84%. The minerals sector outperformed this time around, with mining companies, such as Coeur and Harmony, coming to life. Insurance firm Hippo Holdings, semiconductor maker Semtech, and healthcare technology company Staar Surgical all saw gains in their stock prices and outperformed the benchmark [ETF](https://www.investopedia.com/terms/e/etf.asp). The data below are current as of April 8, 2024. ### Key Takeaways * Growth stocks are companies with the potential for above-average price appreciation because of possibly increased revenues and earnings. * Investors are less likely to be paid dividends, as growth companies tend to reinvest earnings back into the business. * Growth stocks typically come with the chance of greater volatility than value stocks. It's a trade-off; pursuing high returns means accepting the risk of many ups and downs in price. ## [Coeur Mining, Inc. (CDE)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CDE) * Sector/Industry: Non-Energy Minerals / Precious Metals * Price: $4.80 * Market Cap: $1.86 billion * Year-to-date total return: 37.50% The stock started 2024 at $3 and traded at $4.80 on April 8—a 37.50% gain, making this Canadian miner one of the top-performing stocks among those trading for less than $50. It participated in the outperformance of the precious metals sector as a whole, as fears of greater inflation took hold amid [doubts that the Fed would cut interest rates](https://www.investopedia.com/what-high-march-inflation-reading-means-for-you-8629759). With a [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp) of $1.86 billion, Coeur's earnings this year are up by 86%, following a drop of 2.67% over the past five years. ## [Hippo Holdings (HIPO)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HIPO) * Sector/Industry: Finance/Insurance Brokers/Services * Price: $25.39 * Market Cap: $544.56 million * Year-to-date total return: 64% Hippo Holdings began the year at $9 and traded at $25.39 on April 8, a remarkable gain of 64%. The insurance company specializes in homeowners' property and casualty policies and just authorized a $50 million [stock repurchase](https://www.investopedia.com/terms/s/sharerepurchase.asp) program, detailed in their recent SEC filings. On March 6, Hippo beat analyst expectations of earnings and revenues, leading to a spike in the stock price. This year’s earnings are up by 67%. ## [Harmony Gold Mining (HMY)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HMY) * Sector/Industry: Non-Energy Minerals / Precious Metals * Price: $8.91 * Market Cap: $5.65 billion * Year-to-date total return: 24.50% Harmony Gold Mining rose from $6 at the beginning of the year to $8.91 on April 8, an increase of 24.5%, amid the rising price of the precious metals mined by the company. With inflation fears resurfacing, money managers are seeking the so-called safe haven of [gold equities](https://www.investopedia.com/articles/basics/08/gold-strategies.asp). This South Africa-based miner has a market cap of $5.65 billion and is showing a 76% increase in earnings this year. ## [Semtech Corp. (SMTC)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMTC) * Sector/Industry: Electronic Technology / Semiconductors * Price: $35 * Market Cap: $2.19 billion * Year-to-date total return: 40% Semtech's price increased from $21 in January to $35 on April 8. That’s a quick 40% gain in just over three months. The company's earnings are up by 370% this year. In business since 1960 with corporate headquarters in Camarillo, Calif., Semtech has a market capitalization of $2.19 billion. The stock is a Russell 2000 component and a holding of the iShares Russell 2000 exchange-traded fund. ## [Staar Surgical (STAA)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=STAA) * Sector/Industry: Health Technology / Medical Specialties * Price: $48 * Market Cap: $2.42 billion * Year-to-date total return: 39.58% Staar Surgical's stock price moved rose from $29 in January to $48 by April 8—a gain of 39.58% after the company announced positive preliminary net sales for the first quarter of 2024. The California-based company designs and manufactures implantable lenses for the eyes. This quarter marked the highest quarterly sales of those lenses in the U.S. since Staar obtained U.S. FDA approval for the lenses in March 2022. ## How We Selected These Growth Stocks We [selected these growth stocks](https://www.investopedia.com/articles/investing/010616/5-characteristics-good-growth-stocks.asp) based on their stock price appreciation from the beginning of the year until April 8, 2024. We only listed companies that are trading under $50 per share and are listed on the Nasdaq or the New York Stock Exchange (NYSE). [Growth stocks](https://www.investopedia.com/terms/g/growthinvesting.asp) are companies that focus on revenue growth over other metrics. They typically use capital gained from operations to reinvest into the company rather than giving investors dividend payments, as most [value companies](https://www.investopedia.com/articles/professionals/072415/value-or-growth-stocks-which-best.asp) will focus on. Because of the increased attention growth companies put towards growing revenue, these stocks can be more volatile than other similar companies. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.* *As of the date this article was written, the author does not own any of the above stocks.*

Growth stocks showed more gains during the first quarter of 2024 with the group's benchmark, the SPDR Portfolio S&P 500 Growth ETF (SPYG), up by another 14.84%. The minerals sector outperformed this time around, with mining companies, such as Coeur and Harmony, coming to life. Insurance firm Hippo Holdings, semiconductor maker Semtech, and healthcare technology company Staar Surgical all saw gains in their stock prices and outperformed the benchmark ETF. The data below are current as of April 8, 2024. Key Takeaways Growth stocks are companies with the potential for above-average price appreciation because of possibly increased revenues and earnings.Investors are less likely to be paid dividends, as growth companies tend to reinvest earnings back into the business.Growth stocks typically come with the chance of greater volatility than value stocks. It's a trade-off; pursuing high returns means accepting the risk of many ups and downs in price. Coeur Mining, Inc. (CDE) Sector/Industry: Non-Energy Minerals / Precious MetalsPrice: $4.80Market Cap: $1.86 billionYear-to-date total return: 37.50% The stock started 2024 at $3 and traded at $4.80 on April 8—a 37.50% gain, making this Canadian miner one of the top-performing stocks among those trading for less than $50. It participated in the outperformance of the precious metals sector as a whole, as fears of greater inflation took hold amid doubts that the Fed would cut interest rates. With a market capitalization of $1.86 billion, Coeur's earnings this year are up by 86%, following a drop of 2.67% over the past five years. Hippo Holdings (HIPO) Sector/Industry: Finance/Insurance Brokers/ServicesPrice: $25.39Market Cap: $544.56 millionYear-to-date total return: 64% Hippo Holdings began the year at $9 and traded at $25.39 on April 8, a remarkable gain of 64%. The insurance company specializes in homeowners' property and casualty policies and just authorized a $50 million stock repurchase program, detailed in their recent SEC filings. On March 6, Hippo beat analyst expectations of earnings and revenues, leading to a spike in the stock price. This year’s earnings are up by 67%. Harmony Gold Mining (HMY) Sector/Industry: Non-Energy Minerals / Precious MetalsPrice: $8.91Market Cap: $5.65 billionYear-to-date total return: 24.50% Harmony Gold Mining rose from $6 at the beginning of the year to $8.91 on April 8, an increase of 24.5%, amid the rising price of the precious metals mined by the company. With inflation fears resurfacing, money managers are seeking the so-called safe haven of gold equities. This South Africa-based miner has a market cap of $5.65 billion and is showing a 76% increase in earnings this year. Semtech Corp. (SMTC) Sector/Industry: Electronic Technology / SemiconductorsPrice: $35Market Cap: $2.19 billionYear-to-date total return: 40% Semtech's price increased from $21 in January to $35 on April 8. That’s a quick 40% gain in just over three months. The company's earnings are up by 370% this year. In business since 1960 with corporate headquarters in Camarillo, Calif., Semtech has a market capitalization of $2.19 billion. The stock is a Russell 2000 component and a holding of the iShares Russell 2000 exchange-traded fund. Staar Surgical (STAA) Sector/Industry: Health Technology / Medical SpecialtiesPrice: $48Market Cap: $2.42 billionYear-to-date total return: 39.58% Staar Surgical's stock price moved rose from $29 in January to $48 by April 8—a gain of 39.58% after the company announced positive preliminary net sales for the first quarter of 2024. The California-based company designs and manufactures implantable lenses for the eyes. This quarter marked the highest quarterly sales of those lenses in the U.S. since Staar obtained U.S. FDA approval for the lenses in March 2022. How We Selected These Growth Stocks We selected these growth stocks based on their stock price appreciation from the beginning of the year until April 8, 2024. We only listed companies that are trading under $50 per share and are listed on the Nasdaq or the New York Stock Exchange (NYSE). Growth stocks are companies that focus on revenue growth over other metrics. They typically use capital gained from operations to reinvest into the company rather than giving investors dividend payments, as most value companies will focus on. Because of the increased attention growth companies put towards growing revenue, these stocks can be more volatile than other similar companies. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own any of the above stocks.

https://www.investopedia.com/student-loan-advice-5193970

Student Loan Advice From a Personal and Family Finance Specialist

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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/best-student-loans-4775346">Student loan providers</a> are the groups or organizations that finance a student’s education on the condition that they will be repaid at a later date. Approximately 45 million Americans held federal student loan debt as of August 2022.<span class="ql-inline-citation" data-cite="14"></span> These make up the vast majority of student loans.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Private loans can make up the difference when federal aid fails to fully cover the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/062515/college-tuition-vs-investing-it-worth-it.asp">cost of tuition</a> but they have their own unique requirements. According to our expert, they are best utilized after all non-private options have been explored first. </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"> Investopedia spoke exclusively with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ndsu.edu/hdfs/people/carriejohnson/">Carrie Johnson</a>, Accredited Financial Counselor (AFC®) and associate professor at North Dakota State University, on the topic of student loans, including the various types, the differences among providers, and some common misconceptions about them. Our edited conversation follows. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <span class="heading-toc" id="toc-how-to-apply-for-a-student-loan"></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 Apply for a Student Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <strong>Investopedia: </strong>What is the FAFSA, and does it matter how early you file for it? What’s the difference between the FAFSA and the CSS Profile? </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"> <strong>Johnson:</strong> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp">Free Application for Federal Student Aid (FAFSA)</a> is the form that families complete that makes them eligible for all federal student aid. The FAFSA collects student income and asset information, and if the student is a dependent, also collects the parents’ income and assets.<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_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The information allows for a calculation called the Expected Family Contribution (EFC). The EFC is used by the institution the student will be attending to determine what types (grants, work-study, loans) and amount of federal student aid that student is eligible for. </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 FAFSA collects the prior-prior year of income tax information. For example, for the school year 2021–2022, 2019 tax information is used. That way, families do not need to complete the FAFSA by the school’s priority date just to make corrections later. Each institution has a priority date. Some types of aid are awarded based on this date. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> For example, a school may set a date on which only those who qualify and file the FAFSA prior to that date will receive the Supplemental Education Opportunity Grant (SEOG). This grant is a federal grant, but since each school that offers it can decide how it is awarded, the priority date is usually one of those criteria. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> As stated before, the FAFSA is used to determine eligibility for federal student aid. The CSS Profile is used by some institutions to determine a student’s nonfederal student <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-does-financial-aid-work-4782003">financial aid</a>. While the FAFSA is through the Department of Education, the CSS Profile is not, and it is only required by about 400 institutions.<span class="ql-inline-citation" data-cite="8"></span> The CSS Profile also costs money to complete each year. </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_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>The prior-prior year rule means that you must submit tax information from two years prior.<span class="ql-inline-citation" data-cite="15"></span></p></div></div></div> <span class="heading-toc" id="toc-understanding-student-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"> Understanding Student Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <strong>Investopedia:</strong> Student loans are infamous for their high cost over time. Why do you think this industry still remains the primary avenue of financing higher education for so many people? </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>Johnson:</strong> According to the National Center for Education Statistics, the average yearly cost of attendance for a four-year public institution was $20,598—the cost is even higher at private <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/not-for-profit.asp">nonprofit</a> and for-profit institutions. That does include undergraduate tuition, fees, room, and board. </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"> However, if you multiply that by four, you are looking at a total cost of $82,392 to obtain an undergraduate degree (if you finish in four years). Many families do not have that amount of money set aside to pay out of pocket, so student loans are used as a way to fund education. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <strong>Investopedia:</strong> How do loans differ for undergraduates and graduate students? Do you need to take out a new loan every year? </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"> <strong>Johnson:</strong> I will start with the question related to taking out a new loan every year—the answer is yes. If you are using federal student loans, you will need to complete a new Free Application for Federal Student Aid each year as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> For federal loans, undergraduate and graduate student loans do differ in a few ways. First of all, the amount the student is eligible for is different. Each year, students are eligible for a maximum amount of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal-direct-student-loan-program.asp">Direct Student Loans</a> based on their grade level. For example, first-year dependent students are eligible for $5,500 total, while a graduate student can receive up to $20,500 per year.<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_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Graduate students are only eligible for unsubsidized Direct Loans. This means that interest begins accruing as soon as the loan is disbursed. Undergraduate students are eligible to receive subsidized Direct Loans (0% interest while at least a half-time student) if the information used from their FAFSA determines the student has financial need.<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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Graduate students also have an added opportunity to borrow federal loans in the form of a Direct PLUS Loan for graduate students, called a grad PLUS. Graduate students can fund up to their cost of attendance with federal student loans, while undergraduate students are limited in the amount of federal loans unless their parent takes out a Direct parent PLUS loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <strong>Investopedia:</strong> What will the differences be, if any, should a student take out a loan in their own name or if their parents take out the loan on their behalf? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <strong>Johnson:</strong> A student loan in a student's name is their responsibility to pay back. For federal loans, these loans do not require a cosigner. If a student needs additional funding by borrowing a private student loan (a student loan from a bank, credit union, etc.), then they will most likely need a cosigner. If the borrower does not pay back the loan, it is the cosigner's responsibility to do so. Some lenders do offer a cosigner release after so many on-time payments. </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"> If a parent takes a parent loan, it is 100% their responsibility to pay back the loan. Even if the parent borrows with a federal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/plus-loan.asp">parent PLUS loan</a>, this loan is in the parent's name and cannot be transferred to the student. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <strong>Investopedia:</strong> How does student loan debt differ from other kinds of debt? What does it mean if a student loan is subsidized or unsubsidized? </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"> <strong>Johnson: </strong>Unlike some other forms of debt, like credit cards and unsecured loans, student loan debt is considered "good debt." Yes, there is good debt and bad debt! Since you are financing an education and building your human capital—which can lead to a better career opportunity and potentially earn a higher income—it is looked at differently by creditors. </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"> Student loan debt is more difficult to get discharged in bankruptcy. However, in recent months, there have been more cases in which this has not been the case. </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"> Subsidized student loans are loans that do not accrue interest while a borrower is enrolled at least half-time. Interest on unsubsidized student loans starts to accrue as soon as the loan is disbursed (released to the borrower). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> <strong>Investopedia: </strong>What are the differences between student loans, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/government-grant.asp">grants</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-find-scholarships-4782490">scholarships</a>? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> <strong>Johnson: </strong>Student loans must be repaid. Sometimes they are called self-help financial aid, while <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/professionals/071913/scholarships-and-grants-future-financial-advisors.asp">grants and scholarships</a> are considered gift aid because they do not need to be paid back. Grants are typically awarded based on financial need, and scholarships are usually merit-based (some can be based on other factors such as athletics or hobbies and interests). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-finding-the-right-student-loan-provider"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> Finding the Right Student Loan Provider </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <strong>Investopedia: </strong>What are the differences between federal and private student loan providers? In which circumstances would one be better than the other? </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"> <strong>Johnson: </strong>Federal student loans are those guaranteed by the Department of Education. The amount and type (unsubsidized versus subsidized) is based on the borrower’s financial need and grade level. Borrowers are then assigned a student loan servicer, whom they will work with after they leave school or drop below half-time to repay the loan. Interest rates are fixed and set by the federal government annually. </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"> A private student loan is through 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>, company, state agency, or school that offers student loans. Fees and interest are set by each institution, so they vary widely. Interest is often variable instead of fixed, which means the rate can change drastically throughout the life of the loan. It is important for borrowers to do their homework and compare fees and rates before deciding which loan to use. Private student loans usually will require a co-signer. </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"> Federal student loans have many repayment benefits. For example, there are forgiveness options for certain occupations or in the event of a disability. If a borrower is struggling to make payments, there are options to suspend payments for a period of time. Private student loans do not offer these benefits, and in many cases, if a borrower passes away, their co-signer is then responsible for the remainder of the loan balance. </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"> It is best to exhaust your federal student loan options before applying for a private student loan. </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"> <strong>Investopedia:</strong> What are some things people should look for when shopping for private student loan providers? Are rates more advantageous in one situation than another? </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"> <strong>Johnson:</strong> When shopping around for private student loans, a few items should be considered. Interest rates and origination fees are the two biggest financial-related items to compare. You may also want a loan that offers a co-signer release after so many on-time payments. Or, you may want a loan with a fixed interest rate versus a variable interest rate. The most important thing is to read all of the loan information and make an informed decision. </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"> <strong>Investopedia: </strong>Are there any circumstances where it might make sense to not take out a student loan? </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"> <strong>Johnson: </strong>Absolutely. If a student has enough scholarships—and/or grants and money in a savings account of some type—it would not make sense to take out a student loan. Also, if a student is offered a larger amount than needed on their award letter, they can choose to take a portion of the loan and decline the rest. </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-help-for-paying-off-your-loans"></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"> Help for Paying off Your Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> <strong>Investopedia: </strong>What resources are available for anyone struggling with repaying their student loans? </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"> <strong>Johnson: </strong>The first step when struggling to repay any form of debt is to contact the lender or servicer immediately. Don’t ignore the problem; it will not go away. For federal student loans, the borrower can apply for a deferment or forbearance. These allow for monthly payments to be temporarily postponed or reduced. </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"> <strong>Investopedia: </strong>Should a student consolidate their loans after graduation? Can student loans be forgiven? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> <strong>Johnson: </strong>Student loan consolidation can be a great tool to put all student loans borrowed during college into one loan. However, this needs to be done with some thought as to not jeopardize forgiveness opportunities or repayment benefits. By consolidating your loan, all of your loans will be paid off, and one new loan will be created. This means that all of the loan terms will change. </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"> First of all, federal student loans and private student loans should never be consolidated into one loan. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/direct-consolidation-loan.asp">Direct Consolidation Loan</a> does not allow for private loans to be consolidated with it. So, to do this, a borrower would need to use a private consolidation student loan, which would turn the federal loan into a private loan with a new lender. If you want to consolidate your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/younginvestors/09/private-or-federal-student-loans.asp">private student loans and your federal student loans</a>, you will want to end up with two different consolidation loans. </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"> Federal <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 loans can be forgiven</a>, canceled, and discharged in a number of situations (Public Service Loan Forgiveness, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-forgiveness-for-teachers-4772528">Teacher Loan Forgiveness</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/perkins-loan.asp">Perkins Loan</a> Cancellation, and Discharge, Total and Permanent Disability Discharge, etc.). Each one of these “programs” has different criteria, which the borrower must meet. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> For example, there is Public Service Loan Forgiveness (PSLF). This is only available for Direct Loans (including Direct Consolidation Loans) for borrowers who are on an income-driven repayment plan, work for a qualifying employer, and have made 120 on-time payments while working full time.<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_90-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_91-0"><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_92-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">Changes to Public Service Loan Forgiveness [PSLF] Program</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p><br/>On Oct. 6, 2021, the Department of Education announced temporary changes to the Public Service Loan Forgiveness (PSLF) program due to the coronavirus pandemic.<span class="ql-inline-citation" data-cite="11"></span><br/><br/>Borrowers are now eligible to receive credit for past payments regardless if payments were made on time or for the full amounts. Past payments ruled ineligible under the previous PSLF may count toward the 120 payment total.<span class="ql-inline-citation" data-cite="11"></span> Previously denied PSLF applications for any errors will also be reviewed, allowing borrowers the ability to have their PSLF determination reconsidered.<span class="ql-inline-citation" data-cite="12"></span><br/><br/>Borrowers can receive credit for past payments regardless of the payment plan or loan program. However, all loans must be federal direct student loans or <em>consolidated into a direct loan</em> program by Oct. 31, 2022.<span class="ql-inline-citation" data-cite="11"></span><br/><br/>To qualify for PSLF, borrowers must have worked full-time for a qualifying employer when prior payments were made, and those employers include the government, a 501(c)(3) not-for-profit, or other not-for-profit organization that provides a qualifying service. Borrowers should submit a PSLF form by Oct. 31, 2022.<span class="ql-inline-citation" data-cite="11"></span><br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> <strong>Investopedia: </strong>Is there a regulatory agency for student loan providers? Where should students go if they are having problems with their provider? </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"> <strong>Johnson: </strong>The U.S. Department of Education Ombudsman Group is dedicated to helping resolve disputes related to federal student aid programs. For private student loans, a complaint can be submitted to the Consumer Financial Protection Bureau Private Education Loan Ombudsman. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <span class="heading-toc" id="toc-closing-thoughts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_97-0"> <span class="mntl-sc-block-heading__text"> Closing Thoughts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_98-0"> <strong>Investopedia: </strong>What are some of the common misunderstandings people have about student loans? </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"> <strong>Johnson: </strong>I have heard a lot of misunderstandings about student loans throughout my career. Some of the more common ones are as follows. </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"> “I don’t qualify for financial aid because my parents make too much money,” is probably the one I have heard most. That simply is not true. Income will not prevent you from qualifying for federal student loans; eligibility may just be limited to unsubsidized Direct Loans. </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"> “I made a mistake on my FAFSA, so I was chosen for verification.” Just because you are chosen for verification, it does not mean you did anything incorrect. However, a certain number of files are chosen for verification each year, and if you are one of the lucky chosen ones, you will need to provide the required documentation to your school, or you will not be eligible for federal student aid. </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"> “My parents are not helping me pay for college, so I am independent.” A student is considered dependent unless they meet very specific criteria. In general, if you are an undergraduate student under the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-debt-by-age-5200927">age</a> of 24 and are unmarried and do not have children, you will be considered dependent for financial aid purposes. There are a few other situations, which would change your dependency status, too. </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"> “My Expected Family Contribution is XXXX; I don’t have that much money to pay for school.” The EFC does not represent an actual dollar amount but is just a number used to calculate how much financial aid you are eligible to receive. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_110-0"> <strong>Investopedia: </strong>What is your recommendation for anyone thinking about taking out a student loan? What should people know about student loans that we didn’t ask? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_111-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_112-0"> <strong>Johnson: </strong>It is important to know what you are getting into when taking out a student loan. Do as much homework as you possibly can. Ask questions! It is so easy to go through the motions just to make sure you have funding available 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>. But being an informed consumer is essential because <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-debt-too-much-8576649">these loans will affect your future for many years</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_113-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_114-0"> If you are a parent helping your child through the process, involve them every step of the way. This is probably the first debt to be incurred in their lives. They need to know the seriousness of taking on debt. It is true that most student loans do not need to be repaid until after a borrower leaves school, but if the borrower is not paying attention to the amount being borrowed every year, it can be a complete shock to them when they graduate and see the price tag later. </p></div>

[Student loan providers](https://www.investopedia.com/best-student-loans-4775346) are the groups or organizations that finance a student’s education on the condition that they will be repaid at a later date. Approximately 45 million Americans held federal student loan debt as of August 2022. These make up the vast majority of student loans. Private loans can make up the difference when federal aid fails to fully cover the [cost of tuition](https://www.investopedia.com/articles/personal-finance/062515/college-tuition-vs-investing-it-worth-it.asp) but they have their own unique requirements. According to our expert, they are best utilized after all non-private options have been explored first. Investopedia spoke exclusively with [Carrie Johnson](https://www.ndsu.edu/hdfs/people/carriejohnson/), Accredited Financial Counselor (AFC®) and associate professor at North Dakota State University, on the topic of student loans, including the various types, the differences among providers, and some common misconceptions about them. Our edited conversation follows. ## How to Apply for a Student Loan **Investopedia:** What is the FAFSA, and does it matter how early you file for it? What’s the difference between the FAFSA and the CSS Profile? **Johnson:** The [Free Application for Federal Student Aid (FAFSA)](https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp) is the form that families complete that makes them eligible for all federal student aid. The FAFSA collects student income and asset information, and if the student is a dependent, also collects the parents’ income and assets. The information allows for a calculation called the Expected Family Contribution (EFC). The EFC is used by the institution the student will be attending to determine what types (grants, work-study, loans) and amount of federal student aid that student is eligible for. The FAFSA collects the prior-prior year of income tax information. For example, for the school year 2021–2022, 2019 tax information is used. That way, families do not need to complete the FAFSA by the school’s priority date just to make corrections later. Each institution has a priority date. Some types of aid are awarded based on this date. For example, a school may set a date on which only those who qualify and file the FAFSA prior to that date will receive the Supplemental Education Opportunity Grant (SEOG). This grant is a federal grant, but since each school that offers it can decide how it is awarded, the priority date is usually one of those criteria. As stated before, the FAFSA is used to determine eligibility for federal student aid. The CSS Profile is used by some institutions to determine a student’s nonfederal student [financial aid](https://www.investopedia.com/how-does-financial-aid-work-4782003). While the FAFSA is through the Department of Education, the CSS Profile is not, and it is only required by about 400 institutions. The CSS Profile also costs money to complete each year. ### The prior-prior year rule means that you must submit tax information from two years prior. ## Understanding Student Loans **Investopedia:** Student loans are infamous for their high cost over time. Why do you think this industry still remains the primary avenue of financing higher education for so many people? **Johnson:** According to the National Center for Education Statistics, the average yearly cost of attendance for a four-year public institution was $20,598—the cost is even higher at private [nonprofit](https://www.investopedia.com/terms/n/not-for-profit.asp) and for-profit institutions. That does include undergraduate tuition, fees, room, and board. However, if you multiply that by four, you are looking at a total cost of $82,392 to obtain an undergraduate degree (if you finish in four years). Many families do not have that amount of money set aside to pay out of pocket, so student loans are used as a way to fund education. **Investopedia:** How do loans differ for undergraduates and graduate students? Do you need to take out a new loan every year? **Johnson:** I will start with the question related to taking out a new loan every year—the answer is yes. If you are using federal student loans, you will need to complete a new Free Application for Federal Student Aid each year as well. For federal loans, undergraduate and graduate student loans do differ in a few ways. First of all, the amount the student is eligible for is different. Each year, students are eligible for a maximum amount of [Direct Student Loans](https://www.investopedia.com/terms/f/federal-direct-student-loan-program.asp) based on their grade level. For example, first-year dependent students are eligible for $5,500 total, while a graduate student can receive up to $20,500 per year. Graduate students are only eligible for unsubsidized Direct Loans. This means that interest begins accruing as soon as the loan is disbursed. Undergraduate students are eligible to receive subsidized Direct Loans (0% interest while at least a half-time student) if the information used from their FAFSA determines the student has financial need. Graduate students also have an added opportunity to borrow federal loans in the form of a Direct PLUS Loan for graduate students, called a grad PLUS. Graduate students can fund up to their cost of attendance with federal student loans, while undergraduate students are limited in the amount of federal loans unless their parent takes out a Direct parent PLUS loan. **Investopedia:** What will the differences be, if any, should a student take out a loan in their own name or if their parents take out the loan on their behalf? **Johnson:** A student loan in a student's name is their responsibility to pay back. For federal loans, these loans do not require a cosigner. If a student needs additional funding by borrowing a private student loan (a student loan from a bank, credit union, etc.), then they will most likely need a cosigner. If the borrower does not pay back the loan, it is the cosigner's responsibility to do so. Some lenders do offer a cosigner release after so many on-time payments. If a parent takes a parent loan, it is 100% their responsibility to pay back the loan. Even if the parent borrows with a federal [parent PLUS loan](https://www.investopedia.com/terms/p/plus-loan.asp), this loan is in the parent's name and cannot be transferred to the student. **Investopedia:** How does student loan debt differ from other kinds of debt? What does it mean if a student loan is subsidized or unsubsidized? **Johnson:** Unlike some other forms of debt, like credit cards and unsecured loans, student loan debt is considered "good debt." Yes, there is good debt and bad debt! Since you are financing an education and building your human capital—which can lead to a better career opportunity and potentially earn a higher income—it is looked at differently by creditors. Student loan debt is more difficult to get discharged in bankruptcy. However, in recent months, there have been more cases in which this has not been the case. Subsidized student loans are loans that do not accrue interest while a borrower is enrolled at least half-time. Interest on unsubsidized student loans starts to accrue as soon as the loan is disbursed (released to the borrower). **Investopedia:** What are the differences between student loans, [grants](https://www.investopedia.com/terms/g/government-grant.asp), and [scholarships](https://www.investopedia.com/how-to-find-scholarships-4782490)? **Johnson:** Student loans must be repaid. Sometimes they are called self-help financial aid, while [grants and scholarships](https://www.investopedia.com/articles/professionals/071913/scholarships-and-grants-future-financial-advisors.asp) are considered gift aid because they do not need to be paid back. Grants are typically awarded based on financial need, and scholarships are usually merit-based (some can be based on other factors such as athletics or hobbies and interests). ## Finding the Right Student Loan Provider **Investopedia:** What are the differences between federal and private student loan providers? In which circumstances would one be better than the other? **Johnson:** Federal student loans are those guaranteed by the Department of Education. The amount and type (unsubsidized versus subsidized) is based on the borrower’s financial need and grade level. Borrowers are then assigned a student loan servicer, whom they will work with after they leave school or drop below half-time to repay the loan. Interest rates are fixed and set by the federal government annually. A private student loan is through a [financial institution](https://www.investopedia.com/terms/f/financialinstitution.asp), company, state agency, or school that offers student loans. Fees and interest are set by each institution, so they vary widely. Interest is often variable instead of fixed, which means the rate can change drastically throughout the life of the loan. It is important for borrowers to do their homework and compare fees and rates before deciding which loan to use. Private student loans usually will require a co-signer. Federal student loans have many repayment benefits. For example, there are forgiveness options for certain occupations or in the event of a disability. If a borrower is struggling to make payments, there are options to suspend payments for a period of time. Private student loans do not offer these benefits, and in many cases, if a borrower passes away, their co-signer is then responsible for the remainder of the loan balance. It is best to exhaust your federal student loan options before applying for a private student loan. **Investopedia:** What are some things people should look for when shopping for private student loan providers? Are rates more advantageous in one situation than another? **Johnson:** When shopping around for private student loans, a few items should be considered. Interest rates and origination fees are the two biggest financial-related items to compare. You may also want a loan that offers a co-signer release after so many on-time payments. Or, you may want a loan with a fixed interest rate versus a variable interest rate. The most important thing is to read all of the loan information and make an informed decision. **Investopedia:** Are there any circumstances where it might make sense to not take out a student loan? **Johnson:** Absolutely. If a student has enough scholarships—and/or grants and money in a savings account of some type—it would not make sense to take out a student loan. Also, if a student is offered a larger amount than needed on their award letter, they can choose to take a portion of the loan and decline the rest. ## Help for Paying off Your Loans **Investopedia:** What resources are available for anyone struggling with repaying their student loans? **Johnson:** The first step when struggling to repay any form of debt is to contact the lender or servicer immediately. Don’t ignore the problem; it will not go away. For federal student loans, the borrower can apply for a deferment or forbearance. These allow for monthly payments to be temporarily postponed or reduced. **Investopedia:** Should a student consolidate their loans after graduation? Can student loans be forgiven? **Johnson:** Student loan consolidation can be a great tool to put all student loans borrowed during college into one loan. However, this needs to be done with some thought as to not jeopardize forgiveness opportunities or repayment benefits. By consolidating your loan, all of your loans will be paid off, and one new loan will be created. This means that all of the loan terms will change. First of all, federal student loans and private student loans should never be consolidated into one loan. A [Direct Consolidation Loan](https://www.investopedia.com/terms/d/direct-consolidation-loan.asp) does not allow for private loans to be consolidated with it. So, to do this, a borrower would need to use a private consolidation student loan, which would turn the federal loan into a private loan with a new lender. If you want to consolidate your [private student loans and your federal student loans](https://www.investopedia.com/articles/younginvestors/09/private-or-federal-student-loans.asp), you will want to end up with two different consolidation loans. Federal [student loans can be forgiven](https://www.investopedia.com/terms/s/student-loan-forgiveness.asp), canceled, and discharged in a number of situations (Public Service Loan Forgiveness, [Teacher Loan Forgiveness](https://www.investopedia.com/student-loan-forgiveness-for-teachers-4772528), [Perkins Loan](https://www.investopedia.com/terms/p/perkins-loan.asp) Cancellation, and Discharge, Total and Permanent Disability Discharge, etc.). Each one of these “programs” has different criteria, which the borrower must meet. For example, there is Public Service Loan Forgiveness (PSLF). This is only available for Direct Loans (including Direct Consolidation Loans) for borrowers who are on an income-driven repayment plan, work for a qualifying employer, and have made 120 on-time payments while working full time. ### Changes to Public Service Loan Forgiveness [PSLF] Program On Oct. 6, 2021, the Department of Education announced temporary changes to the Public Service Loan Forgiveness (PSLF) program due to the coronavirus pandemic. Borrowers are now eligible to receive credit for past payments regardless if payments were made on time or for the full amounts. Past payments ruled ineligible under the previous PSLF may count toward the 120 payment total. Previously denied PSLF applications for any errors will also be reviewed, allowing borrowers the ability to have their PSLF determination reconsidered. Borrowers can receive credit for past payments regardless of the payment plan or loan program. However, all loans must be federal direct student loans or *consolidated into a direct loan* program by Oct. 31, 2022. To qualify for PSLF, borrowers must have worked full-time for a qualifying employer when prior payments were made, and those employers include the government, a 501(c)(3) not-for-profit, or other not-for-profit organization that provides a qualifying service. Borrowers should submit a PSLF form by Oct. 31, 2022. **Investopedia:** Is there a regulatory agency for student loan providers? Where should students go if they are having problems with their provider? **Johnson:** The U.S. Department of Education Ombudsman Group is dedicated to helping resolve disputes related to federal student aid programs. For private student loans, a complaint can be submitted to the Consumer Financial Protection Bureau Private Education Loan Ombudsman. ## Closing Thoughts **Investopedia:** What are some of the common misunderstandings people have about student loans? **Johnson:** I have heard a lot of misunderstandings about student loans throughout my career. Some of the more common ones are as follows. “I don’t qualify for financial aid because my parents make too much money,” is probably the one I have heard most. That simply is not true. Income will not prevent you from qualifying for federal student loans; eligibility may just be limited to unsubsidized Direct Loans. “I made a mistake on my FAFSA, so I was chosen for verification.” Just because you are chosen for verification, it does not mean you did anything incorrect. However, a certain number of files are chosen for verification each year, and if you are one of the lucky chosen ones, you will need to provide the required documentation to your school, or you will not be eligible for federal student aid. “My parents are not helping me pay for college, so I am independent.” A student is considered dependent unless they meet very specific criteria. In general, if you are an undergraduate student under the [age](https://www.investopedia.com/student-loan-debt-by-age-5200927) of 24 and are unmarried and do not have children, you will be considered dependent for financial aid purposes. There are a few other situations, which would change your dependency status, too. “My Expected Family Contribution is XXXX; I don’t have that much money to pay for school.” The EFC does not represent an actual dollar amount but is just a number used to calculate how much financial aid you are eligible to receive. **Investopedia:** What is your recommendation for anyone thinking about taking out a student loan? What should people know about student loans that we didn’t ask? **Johnson:** It is important to know what you are getting into when taking out a student loan. Do as much homework as you possibly can. Ask questions! It is so easy to go through the motions just to make sure you have funding available to [pay for college](https://www.investopedia.com/paying-for-college-as-an-lgbtq-student-5176574). But being an informed consumer is essential because [these loans will affect your future for many years](https://www.investopedia.com/student-loan-debt-too-much-8576649). If you are a parent helping your child through the process, involve them every step of the way. This is probably the first debt to be incurred in their lives. They need to know the seriousness of taking on debt. It is true that most student loans do not need to be repaid until after a borrower leaves school, but if the borrower is not paying attention to the amount being borrowed every year, it can be a complete shock to them when they graduate and see the price tag later.

Student loan providers are the groups or organizations that finance a student’s education on the condition that they will be repaid at a later date. Approximately 45 million Americans held federal student loan debt as of August 2022. These make up the vast majority of student loans. Private loans can make up the difference when federal aid fails to fully cover the cost of tuition but they have their own unique requirements. According to our expert, they are best utilized after all non-private options have been explored first. Investopedia spoke exclusively with Carrie Johnson, Accredited Financial Counselor (AFC®) and associate professor at North Dakota State University, on the topic of student loans, including the various types, the differences among providers, and some common misconceptions about them. Our edited conversation follows. How to Apply for a Student Loan Investopedia: What is the FAFSA, and does it matter how early you file for it? What’s the difference between the FAFSA and the CSS Profile? Johnson: The Free Application for Federal Student Aid (FAFSA) is the form that families complete that makes them eligible for all federal student aid. The FAFSA collects student income and asset information, and if the student is a dependent, also collects the parents’ income and assets. The information allows for a calculation called the Expected Family Contribution (EFC). The EFC is used by the institution the student will be attending to determine what types (grants, work-study, loans) and amount of federal student aid that student is eligible for. The FAFSA collects the prior-prior year of income tax information. For example, for the school year 2021–2022, 2019 tax information is used. That way, families do not need to complete the FAFSA by the school’s priority date just to make corrections later. Each institution has a priority date. Some types of aid are awarded based on this date. For example, a school may set a date on which only those who qualify and file the FAFSA prior to that date will receive the Supplemental Education Opportunity Grant (SEOG). This grant is a federal grant, but since each school that offers it can decide how it is awarded, the priority date is usually one of those criteria. As stated before, the FAFSA is used to determine eligibility for federal student aid. The CSS Profile is used by some institutions to determine a student’s nonfederal student financial aid. While the FAFSA is through the Department of Education, the CSS Profile is not, and it is only required by about 400 institutions. The CSS Profile also costs money to complete each year. The prior-prior year rule means that you must submit tax information from two years prior. Understanding Student Loans Investopedia: Student loans are infamous for their high cost over time. Why do you think this industry still remains the primary avenue of financing higher education for so many people? Johnson: According to the National Center for Education Statistics, the average yearly cost of attendance for a four-year public institution was $20,598—the cost is even higher at private nonprofit and for-profit institutions. That does include undergraduate tuition, fees, room, and board. However, if you multiply that by four, you are looking at a total cost of $82,392 to obtain an undergraduate degree (if you finish in four years). Many families do not have that amount of money set aside to pay out of pocket, so student loans are used as a way to fund education. Investopedia: How do loans differ for undergraduates and graduate students? Do you need to take out a new loan every year? Johnson: I will start with the question related to taking out a new loan every year—the answer is yes. If you are using federal student loans, you will need to complete a new Free Application for Federal Student Aid each year as well. For federal loans, undergraduate and graduate student loans do differ in a few ways. First of all, the amount the student is eligible for is different. Each year, students are eligible for a maximum amount of Direct Student Loans based on their grade level. For example, first-year dependent students are eligible for $5,500 total, while a graduate student can receive up to $20,500 per year. Graduate students are only eligible for unsubsidized Direct Loans. This means that interest begins accruing as soon as the loan is disbursed. Undergraduate students are eligible to receive subsidized Direct Loans (0% interest while at least a half-time student) if the information used from their FAFSA determines the student has financial need. Graduate students also have an added opportunity to borrow federal loans in the form of a Direct PLUS Loan for graduate students, called a grad PLUS. Graduate students can fund up to their cost of attendance with federal student loans, while undergraduate students are limited in the amount of federal loans unless their parent takes out a Direct parent PLUS loan. Investopedia: What will the differences be, if any, should a student take out a loan in their own name or if their parents take out the loan on their behalf? Johnson: A student loan in a student's name is their responsibility to pay back. For federal loans, these loans do not require a cosigner. If a student needs additional funding by borrowing a private student loan (a student loan from a bank, credit union, etc.), then they will most likely need a cosigner. If the borrower does not pay back the loan, it is the cosigner's responsibility to do so. Some lenders do offer a cosigner release after so many on-time payments. If a parent takes a parent loan, it is 100% their responsibility to pay back the loan. Even if the parent borrows with a federal parent PLUS loan, this loan is in the parent's name and cannot be transferred to the student. Investopedia: How does student loan debt differ from other kinds of debt? What does it mean if a student loan is subsidized or unsubsidized? Johnson: Unlike some other forms of debt, like credit cards and unsecured loans, student loan debt is considered "good debt." Yes, there is good debt and bad debt! Since you are financing an education and building your human capital—which can lead to a better career opportunity and potentially earn a higher income—it is looked at differently by creditors. Student loan debt is more difficult to get discharged in bankruptcy. However, in recent months, there have been more cases in which this has not been the case. Subsidized student loans are loans that do not accrue interest while a borrower is enrolled at least half-time. Interest on unsubsidized student loans starts to accrue as soon as the loan is disbursed (released to the borrower). Investopedia: What are the differences between student loans, grants, and scholarships? Johnson: Student loans must be repaid. Sometimes they are called self-help financial aid, while grants and scholarships are considered gift aid because they do not need to be paid back. Grants are typically awarded based on financial need, and scholarships are usually merit-based (some can be based on other factors such as athletics or hobbies and interests). Finding the Right Student Loan Provider Investopedia: What are the differences between federal and private student loan providers? In which circumstances would one be better than the other? Johnson: Federal student loans are those guaranteed by the Department of Education. The amount and type (unsubsidized versus subsidized) is based on the borrower’s financial need and grade level. Borrowers are then assigned a student loan servicer, whom they will work with after they leave school or drop below half-time to repay the loan. Interest rates are fixed and set by the federal government annually. A private student loan is through a financial institution, company, state agency, or school that offers student loans. Fees and interest are set by each institution, so they vary widely. Interest is often variable instead of fixed, which means the rate can change drastically throughout the life of the loan. It is important for borrowers to do their homework and compare fees and rates before deciding which loan to use. Private student loans usually will require a co-signer. Federal student loans have many repayment benefits. For example, there are forgiveness options for certain occupations or in the event of a disability. If a borrower is struggling to make payments, there are options to suspend payments for a period of time. Private student loans do not offer these benefits, and in many cases, if a borrower passes away, their co-signer is then responsible for the remainder of the loan balance. It is best to exhaust your federal student loan options before applying for a private student loan. Investopedia: What are some things people should look for when shopping for private student loan providers? Are rates more advantageous in one situation than another? Johnson: When shopping around for private student loans, a few items should be considered. Interest rates and origination fees are the two biggest financial-related items to compare. You may also want a loan that offers a co-signer release after so many on-time payments. Or, you may want a loan with a fixed interest rate versus a variable interest rate. The most important thing is to read all of the loan information and make an informed decision. Investopedia: Are there any circumstances where it might make sense to not take out a student loan? Johnson: Absolutely. If a student has enough scholarships—and/or grants and money in a savings account of some type—it would not make sense to take out a student loan. Also, if a student is offered a larger amount than needed on their award letter, they can choose to take a portion of the loan and decline the rest. Help for Paying off Your Loans Investopedia: What resources are available for anyone struggling with repaying their student loans? Johnson: The first step when struggling to repay any form of debt is to contact the lender or servicer immediately. Don’t ignore the problem; it will not go away. For federal student loans, the borrower can apply for a deferment or forbearance. These allow for monthly payments to be temporarily postponed or reduced. Investopedia: Should a student consolidate their loans after graduation? Can student loans be forgiven? Johnson: Student loan consolidation can be a great tool to put all student loans borrowed during college into one loan. However, this needs to be done with some thought as to not jeopardize forgiveness opportunities or repayment benefits. By consolidating your loan, all of your loans will be paid off, and one new loan will be created. This means that all of the loan terms will change. First of all, federal student loans and private student loans should never be consolidated into one loan. A Direct Consolidation Loan does not allow for private loans to be consolidated with it. So, to do this, a borrower would need to use a private consolidation student loan, which would turn the federal loan into a private loan with a new lender. If you want to consolidate your private student loans and your federal student loans, you will want to end up with two different consolidation loans. Federal student loans can be forgiven, canceled, and discharged in a number of situations (Public Service Loan Forgiveness, Teacher Loan Forgiveness, Perkins Loan Cancellation, and Discharge, Total and Permanent Disability Discharge, etc.). Each one of these “programs” has different criteria, which the borrower must meet. For example, there is Public Service Loan Forgiveness (PSLF). This is only available for Direct Loans (including Direct Consolidation Loans) for borrowers who are on an income-driven repayment plan, work for a qualifying employer, and have made 120 on-time payments while working full time. Changes to Public Service Loan Forgiveness [PSLF] Program On Oct. 6, 2021, the Department of Education announced temporary changes to the Public Service Loan Forgiveness (PSLF) program due to the coronavirus pandemic.Borrowers are now eligible to receive credit for past payments regardless if payments were made on time or for the full amounts. Past payments ruled ineligible under the previous PSLF may count toward the 120 payment total. Previously denied PSLF applications for any errors will also be reviewed, allowing borrowers the ability to have their PSLF determination reconsidered.Borrowers can receive credit for past payments regardless of the payment plan or loan program. However, all loans must be federal direct student loans or consolidated into a direct loan program by Oct. 31, 2022.To qualify for PSLF, borrowers must have worked full-time for a qualifying employer when prior payments were made, and those employers include the government, a 501(c)(3) not-for-profit, or other not-for-profit organization that provides a qualifying service. Borrowers should submit a PSLF form by Oct. 31, 2022. Investopedia: Is there a regulatory agency for student loan providers? Where should students go if they are having problems with their provider? Johnson: The U.S. Department of Education Ombudsman Group is dedicated to helping resolve disputes related to federal student aid programs. For private student loans, a complaint can be submitted to the Consumer Financial Protection Bureau Private Education Loan Ombudsman. Closing Thoughts Investopedia: What are some of the common misunderstandings people have about student loans? Johnson: I have heard a lot of misunderstandings about student loans throughout my career. Some of the more common ones are as follows. “I don’t qualify for financial aid because my parents make too much money,” is probably the one I have heard most. That simply is not true. Income will not prevent you from qualifying for federal student loans; eligibility may just be limited to unsubsidized Direct Loans. “I made a mistake on my FAFSA, so I was chosen for verification.” Just because you are chosen for verification, it does not mean you did anything incorrect. However, a certain number of files are chosen for verification each year, and if you are one of the lucky chosen ones, you will need to provide the required documentation to your school, or you will not be eligible for federal student aid. “My parents are not helping me pay for college, so I am independent.” A student is considered dependent unless they meet very specific criteria. In general, if you are an undergraduate student under the age of 24 and are unmarried and do not have children, you will be considered dependent for financial aid purposes. There are a few other situations, which would change your dependency status, too. “My Expected Family Contribution is XXXX; I don’t have that much money to pay for school.” The EFC does not represent an actual dollar amount but is just a number used to calculate how much financial aid you are eligible to receive. Investopedia: What is your recommendation for anyone thinking about taking out a student loan? What should people know about student loans that we didn’t ask? Johnson: It is important to know what you are getting into when taking out a student loan. Do as much homework as you possibly can. Ask questions! It is so easy to go through the motions just to make sure you have funding available to pay for college. But being an informed consumer is essential because these loans will affect your future for many years. If you are a parent helping your child through the process, involve them every step of the way. This is probably the first debt to be incurred in their lives. They need to know the seriousness of taking on debt. It is true that most student loans do not need to be repaid until after a borrower leaves school, but if the borrower is not paying attention to the amount being borrowed every year, it can be a complete shock to them when they graduate and see the price tag later.

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

Regulated Investment Company (RIC): Definition, Examples, Taxes

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-regulated-investment-company-ric"></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 Regulated Investment Company (RIC) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A regulated investment company (RIC) can be any one of several investment entities. For example, it may take the form of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual fund</a> or exchange-traded fund (ETF), a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reit.asp">real estate investment trust</a> (REIT), or a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/uit.asp">unit investment trust</a> (UIT). Whichever form the RIC assumes, the structure must be deemed eligible by the Internal Revenue Service (IRS) to pass through taxes for capital gains, dividends, or interest earned to the individual investors. </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 regulated investment company is qualified to pass-through income under Regulation M of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">IRS</a>, with the specific regulations for qualifying as an RIC delineated in U.S. code, title 26, sections 851 through 855, 860, and 4982. </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-regulated-investment-company-ric-basics"></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"> Regulated Investment Company (RIC) Basics </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The purpose of utilizing pass-through or flow-through income is to avoid a double-taxation scenario as would be the case if both the investment company and its investors paid tax on company generated income and profits. The concept of pass-through income is also referred to as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conduittheory.asp">conduit theory</a>, as the investment company is functioning as a conduit for passing on capital gains, dividends and interest to individual shareholders. </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-note" 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 no-title" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>Regulated investment companies do not pay taxes on their earnings.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Without the regulated investment company allowance, both the investment company and its investors would have to pay taxes on the company's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reit.asp">capital gains</a> or earnings. With pass-through income, the company is not required to pay corporate income taxes on profits passed through to the shareholders. The only income tax imposed is on individual shareholders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-requirements-to-qualify-as-an-ric"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Requirements to Qualify as an RIC </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> To qualify as a regulated investment company the business has to meet specific perimeters. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <li>Exist as a corporation, or other entity, which would ordinarily have taxes assessed as a corporation.</li> <li>Be registered as an investment company with the Securities and Exchange Commission (SEC).</li> <li>Elect to be deemed as an RIC by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentcompanyact.asp">Investment Company Act of 1940</a> as long as its income source and diversification of assets meets specified requirements.</li> </ol> <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"> Additionally, an RIC must derive a minimum of 90% of its income from capital gains, interest or dividends earned on investments. Further, an RIC must distribute a minimum of 90% of its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/uit.asp">net investment income</a> in the form of interest, dividends or capital gains to its shareholders. </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"> Should the RIC not distribute this share of income, it may be subject to an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentcompany.asp">excise tax</a> by the IRS. The RIC would also have to issue an IRS <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/form-2439.asp">Form 2439 to shareholders</a> stating that the capital gains are being retained. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Finally, to qualify as a regulated investment company, at least 50% of a company's total assets must be in the form of cash, cash equivalents or securities. No more than 25% of the company’s total assets may be invested in securities of a single issuer unless the investments are government securities or the securities of other RICs. </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-whatyouneedtoknow" 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">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 regulated investment company can be any type of investment entity including mutual funds, ETFs, and REITS.</li><li>An RIC must derive a minimum of 90% of its income from capital gains, interest, or dividends earned on investments.</li><li>To qualify, at least 50% of a company's total assets must be in the form of cash, cash equivalents, or securities. </li><li>President Obama signed the Regulated Investment Company Modernization Act of 2010 into law Dec. 22, 2010.</li></ul></div></div></div> <span class="heading-toc" id="toc-real-world-example"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> Real World Example </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> President Obama signed the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.congress.gov/bill/111th-congress/house-bill/4337">Regulated Investment Company Modernization Act of 2010</a> into law Dec. 22, 2010. It made changes to the rules governing the tax treatment of regulated investment companies (RICs), including open-end mutual funds, closed-end funds, and most exchange-traded funds. The last update to the rules governing RICs was the Tax Reform Act of 1986. </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 primary reason for the 2010 RIC Modernization Act was due to vast changes in the mutual fund industry in the 25 years between 1986 and 2010. Further, many of the tax rules applicable to RICs became obsolete, created administrative burdens or caused uncertainty. </p></div>

## What Is a Regulated Investment Company (RIC) A regulated investment company (RIC) can be any one of several investment entities. For example, it may take the form of a [mutual fund](https://www.investopedia.com/terms/m/mutualfund.asp) or exchange-traded fund (ETF), a [real estate investment trust](https://www.investopedia.com/terms/r/reit.asp) (REIT), or a [unit investment trust](https://www.investopedia.com/terms/u/uit.asp) (UIT). Whichever form the RIC assumes, the structure must be deemed eligible by the Internal Revenue Service (IRS) to pass through taxes for capital gains, dividends, or interest earned to the individual investors. A regulated investment company is qualified to pass-through income under Regulation M of the [IRS](https://www.investopedia.com/terms/i/irs.asp), with the specific regulations for qualifying as an RIC delineated in U.S. code, title 26, sections 851 through 855, 860, and 4982. ## Regulated Investment Company (RIC) Basics The purpose of utilizing pass-through or flow-through income is to avoid a double-taxation scenario as would be the case if both the investment company and its investors paid tax on company generated income and profits. The concept of pass-through income is also referred to as the [conduit theory](https://www.investopedia.com/terms/c/conduittheory.asp), as the investment company is functioning as a conduit for passing on capital gains, dividends and interest to individual shareholders. ### Regulated investment companies do not pay taxes on their earnings. Without the regulated investment company allowance, both the investment company and its investors would have to pay taxes on the company's [capital gains](https://www.investopedia.com/terms/r/reit.asp) or earnings. With pass-through income, the company is not required to pay corporate income taxes on profits passed through to the shareholders. The only income tax imposed is on individual shareholders. ## Requirements to Qualify as an RIC To qualify as a regulated investment company the business has to meet specific perimeters. 1. Exist as a corporation, or other entity, which would ordinarily have taxes assessed as a corporation. 2. Be registered as an investment company with the Securities and Exchange Commission (SEC). 3. Elect to be deemed as an RIC by the [Investment Company Act of 1940](https://www.investopedia.com/terms/i/investmentcompanyact.asp) as long as its income source and diversification of assets meets specified requirements. Additionally, an RIC must derive a minimum of 90% of its income from capital gains, interest or dividends earned on investments. Further, an RIC must distribute a minimum of 90% of its [net investment income](https://www.investopedia.com/terms/u/uit.asp) in the form of interest, dividends or capital gains to its shareholders. Should the RIC not distribute this share of income, it may be subject to an [excise tax](https://www.investopedia.com/terms/i/investmentcompany.asp) by the IRS. The RIC would also have to issue an IRS [Form 2439 to shareholders](https://www.investopedia.com/terms/f/form-2439.asp) stating that the capital gains are being retained. Finally, to qualify as a regulated investment company, at least 50% of a company's total assets must be in the form of cash, cash equivalents or securities. No more than 25% of the company’s total assets may be invested in securities of a single issuer unless the investments are government securities or the securities of other RICs. ### Key Takeaways * A regulated investment company can be any type of investment entity including mutual funds, ETFs, and REITS. * An RIC must derive a minimum of 90% of its income from capital gains, interest, or dividends earned on investments. * To qualify, at least 50% of a company's total assets must be in the form of cash, cash equivalents, or securities. * President Obama signed the Regulated Investment Company Modernization Act of 2010 into law Dec. 22, 2010. ## Real World Example President Obama signed the [Regulated Investment Company Modernization Act of 2010](https://www.congress.gov/bill/111th-congress/house-bill/4337) into law Dec. 22, 2010. It made changes to the rules governing the tax treatment of regulated investment companies (RICs), including open-end mutual funds, closed-end funds, and most exchange-traded funds. The last update to the rules governing RICs was the Tax Reform Act of 1986. The primary reason for the 2010 RIC Modernization Act was due to vast changes in the mutual fund industry in the 25 years between 1986 and 2010. Further, many of the tax rules applicable to RICs became obsolete, created administrative burdens or caused uncertainty.

What Is a Regulated Investment Company (RIC) A regulated investment company (RIC) can be any one of several investment entities. For example, it may take the form of a mutual fund or exchange-traded fund (ETF), a real estate investment trust (REIT), or a unit investment trust (UIT). Whichever form the RIC assumes, the structure must be deemed eligible by the Internal Revenue Service (IRS) to pass through taxes for capital gains, dividends, or interest earned to the individual investors. A regulated investment company is qualified to pass-through income under Regulation M of the IRS, with the specific regulations for qualifying as an RIC delineated in U.S. code, title 26, sections 851 through 855, 860, and 4982. Regulated Investment Company (RIC) Basics The purpose of utilizing pass-through or flow-through income is to avoid a double-taxation scenario as would be the case if both the investment company and its investors paid tax on company generated income and profits. The concept of pass-through income is also referred to as the conduit theory, as the investment company is functioning as a conduit for passing on capital gains, dividends and interest to individual shareholders. Regulated investment companies do not pay taxes on their earnings. Without the regulated investment company allowance, both the investment company and its investors would have to pay taxes on the company's capital gains or earnings. With pass-through income, the company is not required to pay corporate income taxes on profits passed through to the shareholders. The only income tax imposed is on individual shareholders. Requirements to Qualify as an RIC To qualify as a regulated investment company the business has to meet specific perimeters. Exist as a corporation, or other entity, which would ordinarily have taxes assessed as a corporation. Be registered as an investment company with the Securities and Exchange Commission (SEC). Elect to be deemed as an RIC by the Investment Company Act of 1940 as long as its income source and diversification of assets meets specified requirements. Additionally, an RIC must derive a minimum of 90% of its income from capital gains, interest or dividends earned on investments. Further, an RIC must distribute a minimum of 90% of its net investment income in the form of interest, dividends or capital gains to its shareholders. Should the RIC not distribute this share of income, it may be subject to an excise tax by the IRS. The RIC would also have to issue an IRS Form 2439 to shareholders stating that the capital gains are being retained. Finally, to qualify as a regulated investment company, at least 50% of a company's total assets must be in the form of cash, cash equivalents or securities. No more than 25% of the company’s total assets may be invested in securities of a single issuer unless the investments are government securities or the securities of other RICs. Key Takeaways A regulated investment company can be any type of investment entity including mutual funds, ETFs, and REITS.An RIC must derive a minimum of 90% of its income from capital gains, interest, or dividends earned on investments.To qualify, at least 50% of a company's total assets must be in the form of cash, cash equivalents, or securities. President Obama signed the Regulated Investment Company Modernization Act of 2010 into law Dec. 22, 2010. Real World Example President Obama signed the Regulated Investment Company Modernization Act of 2010 into law Dec. 22, 2010. It made changes to the rules governing the tax treatment of regulated investment companies (RICs), including open-end mutual funds, closed-end funds, and most exchange-traded funds. The last update to the rules governing RICs was the Tax Reform Act of 1986. The primary reason for the 2010 RIC Modernization Act was due to vast changes in the mutual fund industry in the 25 years between 1986 and 2010. Further, many of the tax rules applicable to RICs became obsolete, created administrative burdens or caused uncertainty.

https://www.investopedia.com/retail-investors-are-underperforming-the-market-5118497

Retail Investors are Underperforming the Market

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Although day traders and retail investors have pushed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wallstreetbets-slang-and-memes-5111311">meme stocks</a> like GameStop (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=gme">GME</a>) and AMC Entertainment (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amc">AMC</a>) to record heights, data shows that the average retail investor has underperformed the market over the past month. </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"> Since mid-February, the average retail investor has underperformed the S&amp;P 500 by 11%, according to VandaTrack, a data provider of investor positioning and flow metrics. VandaTrack suggested this could be the reason why fewer people are investing their $1,400 stimulus checks into stocks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> JPMorgan said Tuesday that 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> is driving less retail activity than the last round of payments.<span class="ql-inline-citation" data-cite="1"></span> The investments that are being made focus on traditional assets like cash equity, exchange traded funds (ETFs), and small caps, versus more speculative areas like tech stocks and Bitcoin, JPMorgan said.   </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"> VandaTrack said this follows a similar trend to what happened in September after the average retail investor lost nearly 14% when tech stocks plunged following the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stocksplit.asp">stock splits</a> of Apple (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl">AAPL</a>) and Tesla (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsla">TSLA</a>), two of the most popular and widely held stocks by investors of all sizes. At the time, retail equity purchases steadily declined before picking up pace after the U.S. election, when purchases returned to all-time highs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <figure class="comp mntl-sc-block finance-sc-block-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:70.6%;"> <img alt="VandaTrack chart 1" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/S56zyfTp3kf7GP1rI-GjnFhoFJY=/1214x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.36AM-10dc1e6953fd4564b23a1bc279dab98f.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/w4bMXciD8v5GhgD5PCGOTyEwDsY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.36AM-10dc1e6953fd4564b23a1bc279dab98f.png" data-srcset="https://www.investopedia.com/thmb/v_k5ltf5HMRpIGEdRuWdE6u9ASY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.36AM-10dc1e6953fd4564b23a1bc279dab98f.png 750w" data-tracking-container="true" height="858" id="mntl-sc-block-image_1-0" width="1214"/> <noscript> <img alt="VandaTrack chart 1" class="img--noscript universal-image__image" height="858" sizes="750px" src="https://www.investopedia.com/thmb/w4bMXciD8v5GhgD5PCGOTyEwDsY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.36AM-10dc1e6953fd4564b23a1bc279dab98f.png" srcset="https://www.investopedia.com/thmb/v_k5ltf5HMRpIGEdRuWdE6u9ASY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.36AM-10dc1e6953fd4564b23a1bc279dab98f.png 750w" width="1214"/> </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">Chart courtesy VandaTrack, Bloomberg.</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> “The last time retail investors suffered a drawdown of this magnitude, their appetite to buy risk assets dropped dramatically in the following months,” VandaTrack said. “We fear retail investors may have entered a similar healing process, nullifying the impact of stimulus checks.” </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:63.4%;"> <img alt="VandaTrack chart 2" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/VRoqJXnkponj04lGhCLnMkrnjLY=/1230x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.46AM-f078cb1d389c44669ec32f816cbfea9a.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/ZtbFowmX5qg0B8nS94jukfUn5PA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.46AM-f078cb1d389c44669ec32f816cbfea9a.png" data-srcset="https://www.investopedia.com/thmb/0VuB2huxERxYTlOHIsJ7dbOvwao=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.46AM-f078cb1d389c44669ec32f816cbfea9a.png 750w" data-tracking-container="true" height="780" id="mntl-sc-block-image_2-0" width="1230"/> <noscript> <img alt="VandaTrack chart 2" class="img--noscript universal-image__image" height="780" sizes="750px" src="https://www.investopedia.com/thmb/ZtbFowmX5qg0B8nS94jukfUn5PA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.46AM-f078cb1d389c44669ec32f816cbfea9a.png" srcset="https://www.investopedia.com/thmb/0VuB2huxERxYTlOHIsJ7dbOvwao=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.46AM-f078cb1d389c44669ec32f816cbfea9a.png 750w" width="1230"/> </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">Chart courtesy VandaTrack, Bloomberg.</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> On March 25, net purchases of U.S. stocks by retail investors equaled $24.65 billion, down from a peak of $29.75 billion on Feb. 5. Regardless, levels are still at all-time highs. </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/ARR1X/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="retail net purchases"></iframe> <cite class="comp mntl-sc-block-iframe__caption mntl-text-block" id="mntl-sc-block-iframe__caption_1-0"></cite></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Over the past year, market trading volumes have increased significantly amid the pandemic as retail investors entered the market in swarms and prompted a trading frenzy that drove several stocks higher. Many investors used trading apps like Robinhood as well as utilized message boards like Reddit’s WallStreetBets. </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"> Robinhood reportedly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/robinhood-reportedly-filed-confidentially-for-ipo-5118086">filed</a> confidentially for an initial public offering with the Securities and Exchange Commission (SEC) earlier this week. The company was reportedly valued at $12 billion in Sept. 2020, with that figure rising to about $40 billion in February. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Stocks like Palantir Technologies (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=pltr">PLTR</a>), Nio (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=nio">NIO</a>), and Walt Disney (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=dis">DIS</a>) have been losing hype with retail investors, according to SwaggyStocks, which tracks comment volume on WallStreetBets.<span class="ql-inline-citation" data-cite="2"></span> Meanwhile, more investors have been focusing on GameStop, AMC, and Corsair Gaming (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=crsr">CRSR</a>). </p></div>

Although day traders and retail investors have pushed [meme stocks](https://www.investopedia.com/wallstreetbets-slang-and-memes-5111311) like GameStop ([GME](https://www.investopedia.com/markets/quote?tvwidgetsymbol=gme)) and AMC Entertainment ([AMC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amc)) to record heights, data shows that the average retail investor has underperformed the market over the past month. Since mid-February, the average retail investor has underperformed the S&P 500 by 11%, according to VandaTrack, a data provider of investor positioning and flow metrics. VandaTrack suggested this could be the reason why fewer people are investing their $1,400 stimulus checks into stocks. JPMorgan said Tuesday that the [American Rescue Plan](https://www.investopedia.com/american-rescue-plan-definition-5095694) is driving less retail activity than the last round of payments. The investments that are being made focus on traditional assets like cash equity, exchange traded funds (ETFs), and small caps, versus more speculative areas like tech stocks and Bitcoin, JPMorgan said.   VandaTrack said this follows a similar trend to what happened in September after the average retail investor lost nearly 14% when tech stocks plunged following the [stock splits](https://www.investopedia.com/terms/s/stocksplit.asp) of Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl)) and Tesla ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsla)), two of the most popular and widely held stocks by investors of all sizes. At the time, retail equity purchases steadily declined before picking up pace after the U.S. election, when purchases returned to all-time highs. ![VandaTrack chart 1]() :max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.36AM-10dc1e6953fd4564b23a1bc279dab98f.png) Chart courtesy VandaTrack, Bloomberg. “The last time retail investors suffered a drawdown of this magnitude, their appetite to buy risk assets dropped dramatically in the following months,” VandaTrack said. “We fear retail investors may have entered a similar healing process, nullifying the impact of stimulus checks.” ![VandaTrack chart 2]() :max_bytes(150000):strip_icc()/ScreenShot2021-03-26at10.53.46AM-f078cb1d389c44669ec32f816cbfea9a.png) Chart courtesy VandaTrack, Bloomberg. On March 25, net purchases of U.S. stocks by retail investors equaled $24.65 billion, down from a peak of $29.75 billion on Feb. 5. Regardless, levels are still at all-time highs. Over the past year, market trading volumes have increased significantly amid the pandemic as retail investors entered the market in swarms and prompted a trading frenzy that drove several stocks higher. Many investors used trading apps like Robinhood as well as utilized message boards like Reddit’s WallStreetBets. Robinhood reportedly [filed](https://www.investopedia.com/robinhood-reportedly-filed-confidentially-for-ipo-5118086) confidentially for an initial public offering with the Securities and Exchange Commission (SEC) earlier this week. The company was reportedly valued at $12 billion in Sept. 2020, with that figure rising to about $40 billion in February. Stocks like Palantir Technologies ([PLTR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=pltr)), Nio ([NIO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nio)), and Walt Disney ([DIS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=dis)) have been losing hype with retail investors, according to SwaggyStocks, which tracks comment volume on WallStreetBets. Meanwhile, more investors have been focusing on GameStop, AMC, and Corsair Gaming ([CRSR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=crsr)).

Although day traders and retail investors have pushed meme stocks like GameStop (GME) and AMC Entertainment (AMC) to record heights, data shows that the average retail investor has underperformed the market over the past month. Since mid-February, the average retail investor has underperformed the S&P 500 by 11%, according to VandaTrack, a data provider of investor positioning and flow metrics. VandaTrack suggested this could be the reason why fewer people are investing their $1,400 stimulus checks into stocks. JPMorgan said Tuesday that the American Rescue Plan is driving less retail activity than the last round of payments. The investments that are being made focus on traditional assets like cash equity, exchange traded funds (ETFs), and small caps, versus more speculative areas like tech stocks and Bitcoin, JPMorgan said.   VandaTrack said this follows a similar trend to what happened in September after the average retail investor lost nearly 14% when tech stocks plunged following the stock splits of Apple (AAPL) and Tesla (TSLA), two of the most popular and widely held stocks by investors of all sizes. At the time, retail equity purchases steadily declined before picking up pace after the U.S. election, when purchases returned to all-time highs. Chart courtesy VandaTrack, Bloomberg. “The last time retail investors suffered a drawdown of this magnitude, their appetite to buy risk assets dropped dramatically in the following months,” VandaTrack said. “We fear retail investors may have entered a similar healing process, nullifying the impact of stimulus checks.” Chart courtesy VandaTrack, Bloomberg. On March 25, net purchases of U.S. stocks by retail investors equaled $24.65 billion, down from a peak of $29.75 billion on Feb. 5. Regardless, levels are still at all-time highs. Over the past year, market trading volumes have increased significantly amid the pandemic as retail investors entered the market in swarms and prompted a trading frenzy that drove several stocks higher. Many investors used trading apps like Robinhood as well as utilized message boards like Reddit’s WallStreetBets. Robinhood reportedly filed confidentially for an initial public offering with the Securities and Exchange Commission (SEC) earlier this week. The company was reportedly valued at $12 billion in Sept. 2020, with that figure rising to about $40 billion in February. Stocks like Palantir Technologies (PLTR), Nio (NIO), and Walt Disney (DIS) have been losing hype with retail investors, according to SwaggyStocks, which tracks comment volume on WallStreetBets. Meanwhile, more investors have been focusing on GameStop, AMC, and Corsair Gaming (CRSR).

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

Green Fund: What it is, How it Works, 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-a-green-fund"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Green Fund? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A green fund is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual fund</a> or another investment vehicle that will only invest in companies that are deemed socially conscious or directly promote environmental responsibility. A green fund can come in the form of a focused <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentvehicle.asp">investment vehicle</a> for companies engaged in environmentally supportive businesses, such as alternative energy, green transport, water and waste management, and sustainable living. </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>Green funds are mutual funds or other types of investment vehicles that promote socially and environmentally conscious policies and business practices.</li><li>Green funds might invest in companies engaged in green transportation, alternative energy, and sustainable living.</li><li>Green investing began in earnest in the 1990s after environmental disasters like the Exxon Valdez oil spill gained worldwide attention.</li><li>$50 billion were invested in green funds in 2020, more than double the inflows of the previous year.</li><li>There is some evidence that green funds can match the profits of traditional funds, but it is not conclusive.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-green-funds"></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 Green Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Green funds are investment funds whose portfolio is largely based on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp">Environmental, Social, and Governance (ESG)</a> criteria. A green fund's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentstrategy.asp">investment strategy</a> can be based on some of the following characteristics: </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>Choosing companies that look for ways to reduce energy consumption and support environmental issues</li><li>Selecting companies that value relationship building with employees, customers, and the community (concerns include gender inclusion, fair labor practices, and human rights)</li><li>Paying attention to how a company is governed, the level of transparency, and whether or not they have a diverse board<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_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Based on performance, it is not yet clear whether green funds and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sri.asp">socially responsible investing (SRI)</a> can consistently create better returns for investors, but they do represent a proactive step toward environmental consciousness, which many investors see as valuable. </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-history-of-green-funds"></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"> History of Green Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Some have cited <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/green-investing.asp">green investing</a> as having begun in earnest during the 1990s, a period where investors were more seriously taking into account the harm businesses or the pressure entire industries were putting on the environment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> In the wake of headline-grabbing events like the Exxon Valdez oil spill and protracted fights over logging rights in the Pacific Northwest, a set of investors began to focus their attention and resources on those businesses that were better at managing their environmental impact than more traditional enterprises. </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 some investors, these businesses were not only operating in a more ethical manner but also had a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/competitive_advantage.asp">competitive advantage</a> over companies who were ill-equipped to reduce their impact on the environment. Others saw an ethical obligation to invest in technologies and businesses that could contribute to building a sustainable society through <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/renewable_resource.asp">renewable energy sources</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Following the Exxon Valdez oil spill of 1989, Congress passed the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/oil-pollution-act-of-1990.asp">Oil Pollution Act (OPA) of 1990</a>, which strengthened the powers of the Environmental Protection Agency (EPA) to prevent future oil spills and to punish polluters.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="9"></span></p></div></div></div> <span class="heading-toc" id="toc-types-of-green-funds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Types of Green Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Green funds invest in areas such as renewable energy, and buildings and efficiency sectors. The renewable energy sector is a broad one, including solar energy, wind, battery, and energy storage technologies, as well as the materials that help make those technologies possible. </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 buildings sector includes builders who use energy-efficient materials, making each building's carbon footprint smaller—whether they're being used for commercial, residential, or office use. </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"> Socially conscious investing has continued to gain in popularity, largely due to increased worldwide exposure to the issue of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/051514/preparing-your-portfolio-climate-change.asp">climate change</a>, as well as increased federal funding for alternative energy and other programs. Since 2009, the Green Transition Scoreboard, a project run by Ethical Markets Media, has tracked a cumulative $10.39 trillion invested in the green economy through the end of 2019.<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_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_3-0">$10.39 trillion</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The total investment in the green economy between 2009 and 2019.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-performance-of-green-funds"></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"> Performance of Green Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Money has poured into green funds as investors seek both socially responsible investments and returns from the uptick in green technologies such as wind and solar power. According to the Forum for Sustainable and Responsible Investment, there were $3.1 trillion in assets managed by registered investment companies with ESG criteria, such as mutual funds and index funds, in 2020.<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_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Despite sometimes <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/092415/how-mutual-fund-companies-make-money.asp">high fees</a>, the funds have also garnered relatively solid performance. According to Morningstar, sustainable funds in 2019 outperformed conventional funds, with 66% finishing in the top half of their categories and 35% finishing in the top quartile. The returns of only 16% of sustainable funds finished in the bottom quartile. In 2019, the number of sustainable funds grew to 303 open-end and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange traded fund (ETFs)</a>.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-are-green-funds-profitable"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Green Funds Profitable?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While profit is not the only goal for green investing, some studies have found that funds with ESG criteria are competitive with the returns of more traditional funds. A Morningstar analysis of 4,900 funds over ten years found that 58.8% of sustainable funds "have beaten their average surviving traditional peer." In the same analysis, sustainable funds delivered an average annual return of 6.9%, compared with 6.3% from more traditional funds.<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_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-much-money-is-invested-in-green-funds"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Money Is Invested in Green Funds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Estimates of the total portfolio value of green funds vary widely, due to the subjective meaning of the term. According to the Forum for Sustainable and Responsible Investment, there were $3.1 trillion in assets managed by registered investment companies with ESG criteria, such as mutual funds and index funds, in 2020.<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_39-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_40-0"><span class="heading-toc" id="toc-what-do-green-funds-invest-in"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Do Green Funds Invest in?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Broadly speaking, green funds seek to invest in businesses with positive environmental impacts, but there are several strategies to do so. Some green funds simply seek to create a portfolio of companies that do not rely on fossil fuels, deforestation, or other unsustainable business activities. Others actively seek to support companies engaged in new energy research, sustainable materials, or other technologies with environmental benefits.</p></div> </div></div>

## What Is a Green Fund? A green fund is a [mutual fund](https://www.investopedia.com/terms/m/mutualfund.asp) or another investment vehicle that will only invest in companies that are deemed socially conscious or directly promote environmental responsibility. A green fund can come in the form of a focused [investment vehicle](https://www.investopedia.com/terms/i/investmentvehicle.asp) for companies engaged in environmentally supportive businesses, such as alternative energy, green transport, water and waste management, and sustainable living. ### Key Takeaways * Green funds are mutual funds or other types of investment vehicles that promote socially and environmentally conscious policies and business practices. * Green funds might invest in companies engaged in green transportation, alternative energy, and sustainable living. * Green investing began in earnest in the 1990s after environmental disasters like the Exxon Valdez oil spill gained worldwide attention. * $50 billion were invested in green funds in 2020, more than double the inflows of the previous year. * There is some evidence that green funds can match the profits of traditional funds, but it is not conclusive. ## Understanding Green Funds Green funds are investment funds whose portfolio is largely based on [Environmental, Social, and Governance (ESG)](https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp) criteria. A green fund's [investment strategy](https://www.investopedia.com/terms/i/investmentstrategy.asp) can be based on some of the following characteristics: * Choosing companies that look for ways to reduce energy consumption and support environmental issues * Selecting companies that value relationship building with employees, customers, and the community (concerns include gender inclusion, fair labor practices, and human rights) * Paying attention to how a company is governed, the level of transparency, and whether or not they have a diverse board Based on performance, it is not yet clear whether green funds and [socially responsible investing (SRI)](https://www.investopedia.com/terms/s/sri.asp) can consistently create better returns for investors, but they do represent a proactive step toward environmental consciousness, which many investors see as valuable. ## History of Green Funds Some have cited [green investing](https://www.investopedia.com/terms/g/green-investing.asp) as having begun in earnest during the 1990s, a period where investors were more seriously taking into account the harm businesses or the pressure entire industries were putting on the environment. In the wake of headline-grabbing events like the Exxon Valdez oil spill and protracted fights over logging rights in the Pacific Northwest, a set of investors began to focus their attention and resources on those businesses that were better at managing their environmental impact than more traditional enterprises. For some investors, these businesses were not only operating in a more ethical manner but also had a [competitive advantage](https://www.investopedia.com/terms/c/competitive_advantage.asp) over companies who were ill-equipped to reduce their impact on the environment. Others saw an ethical obligation to invest in technologies and businesses that could contribute to building a sustainable society through [renewable energy sources](https://www.investopedia.com/terms/r/renewable_resource.asp). ### Following the Exxon Valdez oil spill of 1989, Congress passed the [Oil Pollution Act (OPA) of 1990](https://www.investopedia.com/terms/o/oil-pollution-act-of-1990.asp), which strengthened the powers of the Environmental Protection Agency (EPA) to prevent future oil spills and to punish polluters. ## Types of Green Funds Green funds invest in areas such as renewable energy, and buildings and efficiency sectors. The renewable energy sector is a broad one, including solar energy, wind, battery, and energy storage technologies, as well as the materials that help make those technologies possible. The buildings sector includes builders who use energy-efficient materials, making each building's carbon footprint smaller—whether they're being used for commercial, residential, or office use. Socially conscious investing has continued to gain in popularity, largely due to increased worldwide exposure to the issue of [climate change](https://www.investopedia.com/articles/investing/051514/preparing-your-portfolio-climate-change.asp), as well as increased federal funding for alternative energy and other programs. Since 2009, the Green Transition Scoreboard, a project run by Ethical Markets Media, has tracked a cumulative $10.39 trillion invested in the green economy through the end of 2019. ### $10.39 trillion The total investment in the green economy between 2009 and 2019. ## Performance of Green Funds Money has poured into green funds as investors seek both socially responsible investments and returns from the uptick in green technologies such as wind and solar power. According to the Forum for Sustainable and Responsible Investment, there were $3.1 trillion in assets managed by registered investment companies with ESG criteria, such as mutual funds and index funds, in 2020. Despite sometimes [high fees](https://www.investopedia.com/articles/investing/092415/how-mutual-fund-companies-make-money.asp), the funds have also garnered relatively solid performance. According to Morningstar, sustainable funds in 2019 outperformed conventional funds, with 66% finishing in the top half of their categories and 35% finishing in the top quartile. The returns of only 16% of sustainable funds finished in the bottom quartile. In 2019, the number of sustainable funds grew to 303 open-end and [exchange traded fund (ETFs)](https://www.investopedia.com/terms/e/etf.asp). ## Are Green Funds Profitable? While profit is not the only goal for green investing, some studies have found that funds with ESG criteria are competitive with the returns of more traditional funds. A Morningstar analysis of 4,900 funds over ten years found that 58.8% of sustainable funds "have beaten their average surviving traditional peer." In the same analysis, sustainable funds delivered an average annual return of 6.9%, compared with 6.3% from more traditional funds. ## How Much Money Is Invested in Green Funds? Estimates of the total portfolio value of green funds vary widely, due to the subjective meaning of the term. According to the Forum for Sustainable and Responsible Investment, there were $3.1 trillion in assets managed by registered investment companies with ESG criteria, such as mutual funds and index funds, in 2020. ## What Do Green Funds Invest in? Broadly speaking, green funds seek to invest in businesses with positive environmental impacts, but there are several strategies to do so. Some green funds simply seek to create a portfolio of companies that do not rely on fossil fuels, deforestation, or other unsustainable business activities. Others actively seek to support companies engaged in new energy research, sustainable materials, or other technologies with environmental benefits.

What Is a Green Fund? A green fund is a mutual fund or another investment vehicle that will only invest in companies that are deemed socially conscious or directly promote environmental responsibility. A green fund can come in the form of a focused investment vehicle for companies engaged in environmentally supportive businesses, such as alternative energy, green transport, water and waste management, and sustainable living. Key Takeaways Green funds are mutual funds or other types of investment vehicles that promote socially and environmentally conscious policies and business practices.Green funds might invest in companies engaged in green transportation, alternative energy, and sustainable living.Green investing began in earnest in the 1990s after environmental disasters like the Exxon Valdez oil spill gained worldwide attention.$50 billion were invested in green funds in 2020, more than double the inflows of the previous year.There is some evidence that green funds can match the profits of traditional funds, but it is not conclusive. Understanding Green Funds Green funds are investment funds whose portfolio is largely based on Environmental, Social, and Governance (ESG) criteria. A green fund's investment strategy can be based on some of the following characteristics: Choosing companies that look for ways to reduce energy consumption and support environmental issuesSelecting companies that value relationship building with employees, customers, and the community (concerns include gender inclusion, fair labor practices, and human rights)Paying attention to how a company is governed, the level of transparency, and whether or not they have a diverse board Based on performance, it is not yet clear whether green funds and socially responsible investing (SRI) can consistently create better returns for investors, but they do represent a proactive step toward environmental consciousness, which many investors see as valuable. History of Green Funds Some have cited green investing as having begun in earnest during the 1990s, a period where investors were more seriously taking into account the harm businesses or the pressure entire industries were putting on the environment. In the wake of headline-grabbing events like the Exxon Valdez oil spill and protracted fights over logging rights in the Pacific Northwest, a set of investors began to focus their attention and resources on those businesses that were better at managing their environmental impact than more traditional enterprises. For some investors, these businesses were not only operating in a more ethical manner but also had a competitive advantage over companies who were ill-equipped to reduce their impact on the environment. Others saw an ethical obligation to invest in technologies and businesses that could contribute to building a sustainable society through renewable energy sources. Following the Exxon Valdez oil spill of 1989, Congress passed the Oil Pollution Act (OPA) of 1990, which strengthened the powers of the Environmental Protection Agency (EPA) to prevent future oil spills and to punish polluters. Types of Green Funds Green funds invest in areas such as renewable energy, and buildings and efficiency sectors. The renewable energy sector is a broad one, including solar energy, wind, battery, and energy storage technologies, as well as the materials that help make those technologies possible. The buildings sector includes builders who use energy-efficient materials, making each building's carbon footprint smaller—whether they're being used for commercial, residential, or office use. Socially conscious investing has continued to gain in popularity, largely due to increased worldwide exposure to the issue of climate change, as well as increased federal funding for alternative energy and other programs. Since 2009, the Green Transition Scoreboard, a project run by Ethical Markets Media, has tracked a cumulative $10.39 trillion invested in the green economy through the end of 2019. $10.39 trillion The total investment in the green economy between 2009 and 2019. Performance of Green Funds Money has poured into green funds as investors seek both socially responsible investments and returns from the uptick in green technologies such as wind and solar power. According to the Forum for Sustainable and Responsible Investment, there were $3.1 trillion in assets managed by registered investment companies with ESG criteria, such as mutual funds and index funds, in 2020. Despite sometimes high fees, the funds have also garnered relatively solid performance. According to Morningstar, sustainable funds in 2019 outperformed conventional funds, with 66% finishing in the top half of their categories and 35% finishing in the top quartile. The returns of only 16% of sustainable funds finished in the bottom quartile. In 2019, the number of sustainable funds grew to 303 open-end and exchange traded fund (ETFs). Are Green Funds Profitable? While profit is not the only goal for green investing, some studies have found that funds with ESG criteria are competitive with the returns of more traditional funds. A Morningstar analysis of 4,900 funds over ten years found that 58.8% of sustainable funds "have beaten their average surviving traditional peer." In the same analysis, sustainable funds delivered an average annual return of 6.9%, compared with 6.3% from more traditional funds. How Much Money Is Invested in Green Funds? Estimates of the total portfolio value of green funds vary widely, due to the subjective meaning of the term. According to the Forum for Sustainable and Responsible Investment, there were $3.1 trillion in assets managed by registered investment companies with ESG criteria, such as mutual funds and index funds, in 2020. What Do Green Funds Invest in? Broadly speaking, green funds seek to invest in businesses with positive environmental impacts, but there are several strategies to do so. Some green funds simply seek to create a portfolio of companies that do not rely on fossil fuels, deforestation, or other unsustainable business activities. Others actively seek to support companies engaged in new energy research, sustainable materials, or other technologies with environmental benefits.

https://www.investopedia.com/what-todays-fed-news-tells-us-about-2024-savings-cd-rates-8641966

What Today's Fed News Tells Us About 2024 Savings and CD Rates

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><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>As expected, the Fed kept its benchmark interest rate steady today—its sixth consecutive hold after hiking the federal funds rate to a 22-year high in 2023.<br/></li> <li>The Fed acknowledged that recent progress on lowering inflation has stalled, and it will keep the federal funds rate where it is until it feels confident inflation is falling sustainably lower.</li> <li>Savings account and CD rates are directly driven by the fed funds rate, and 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 high-yield savings account rate</a> climbed to a record 5.55% three weeks ago.</li> <li>The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> surged to a historic peak last fall. Since then, they've drifted slightly lower but remain near 20-year highs, paying as much as 5.65% APY.</li> <li>Savings and CD rates will fall once the Fed signals it's ready to cut rates. But it appears a Fed rate decrease is likely several months away.</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 continues below these 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-the-fed-held-rates-steady-again"></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 Fed Held Rates Steady Again </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> As was almost universally expected, the Federal Reserve's rate-setting committee <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952">announced this afternoon</a> that it is maintaining the federal funds rate at its current level.<span class="ql-inline-citation" data-cite="15"></span> It's the sixth meeting in a row in which the central bank has held its benchmark rate steady, after last raising it in July.<span class="ql-inline-citation" data-cite="14"></span><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_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> To fight <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> that had reached a 40-year high, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve</a> implemented 11 rate increases—some of them massive—across 12 meetings between spring 2022 and summer 2023. Its rate-hike campaign raised the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> a cumulative 5.25 percentage points, taking it to its highest level since 2001.<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_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_12-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/zB4CB/2/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Fed funds rate since 2001"></iframe></div> <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 its official statement today, the Fed acknowledged that its progress in fighting inflation has been stymied in recent months, requiring the committee to keep interest rates high to cool the economy. Using the same language appearing in its March 20 statement, the central bank again indicated it would continue watching and waiting for more data before entertaining any rate-cut decisions. </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 Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent," the FOMC said in its statement.<span class="ql-inline-citation" data-cite="15"></span> The latest monthly reading of the Consumer Price Index (CPI-U) showed that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-heated-up-in-march-8629363">March inflation measured 3.5%</a>. </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-when-will-the-fed-lower-rates"></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"> When Will the Fed Lower Rates? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Today's written comments left out discussion of projected rate cuts. When asked about this during his press conference following the statement's release, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-may-1-8641676">longer than they originally expected</a> to lower the fed funds rates. </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"> “My colleagues and I today said that we didn’t see progress in the first quarter,” Powell said. “And I’ve said that it appears then that it’s going to take longer for us to reach that point of confidence. So I don’t know how long it will take. When we get that confidence, then rate cuts will be in scope.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> But Powell also indicated that, despite the uptick in recent inflation readings, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-may-1-8641676#toc-2024-05-01t191855036z">a rate hike is not expected</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"> "I think it's unlikely that the next policy rate move will be a hike,” Powell told reporters at Wednesday’s press conference. </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"> It's therefore likely the fed funds rate will stay where it is for some number of months, with great uncertainty on when exactly the Fed will implement a first cut. Following today's Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take three more meetings—until Sept. 18—for the first rate decrease to be announced, according to CME Group's FedWatch Tool.<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_28-0"></div> <span class="heading-toc" id="toc-how-the-feds-decision-impacts-savings-and-cd-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> How the Fed's Decision Impacts Savings and CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> The fed funds rate has a direct influence on the interest that banks and credit unions are willing to pay for savings, money market, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit (CD)</a> accounts. When the Fed's benchmark rate is high, interest rates for bank customers elevate as well. The reverse is true when the federal funds rate is low. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_32-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/zP58k/4/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="CD rates since Dec 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> In a rate-hold situation like we have now—and where the next development is expected to be a rate cut—some banks and <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> have been slightly lowering CD rates. That's because CDs offer you not just a rate today, but a future-rate guarantee: For the full number of months or years in the term you choose, the CD's rate will be locked. </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"> When it was still possible the Fed would raise its benchmark rate higher, banks and credit unions were willing to promise higher future rates. But with Fed rate cuts ultimately on the horizon, institutions don't want to get locked into paying CD rates they'll regret down the road. </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"> Savings account rates behave a bit differently since banks and credit unions are free to lower them at the drop of a hat. Unencumbered by the rate commitment that a CD includes, <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> rates tend to follow the trend of the fed funds rate for a longer time. </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"> You can see that's true right now. While CD rates hit a peak last fall, the leading savings account rate climbed to a new high just three weeks ago. You can now earn as much as 5.55% APY with the top-paying account, and it's possible savings account rates will stay high for the duration of the Fed's rate hold. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-guarantee-yourself-a-high-savings-or-cd-rate-while-you-can"></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"> Guarantee Yourself a High Savings or CD Rate While You Can </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> As we've said, high-yield saving accounts offer exceptionally high rates right now, and perhaps those will continue for several months. If retaining access to your funds is important, then putting your cash in one 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> is a very smart move right now. </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"> But while savings account rates can fall, a CD you open now will guarantee your rate for months or years into the future. Though not quite as high as a few months ago, 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> are still remarkable. You can lock in a rate ranging from 5.30% to 5.65% for short- and mid-term CDs (3 months to 2 years), or something in the mid-4.00% range to 5.00% on longer terms. Since these rates won't change until the CD matures, they're expected to significantly out-pay the rates you'll be able to earn on savings accounts and new CDs once the Fed begins lowering the fed funds rate. </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"> So, while CD rates may not be quite at the peaks they reached in the fall, they still offer an excellent rate guarantee into the future—making them a smart financial move for a portion of your savings. </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/Xoxbs/2/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Today's top CD rates vs. Fall 2023 peak vs. Jan 2022"></iframe></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 mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_52-0"><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_1-0" 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_54-0"><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_2-0" 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_56-0"><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_57-0"></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_58-0"> <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_59-0"> 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_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> 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 * As expected, the Fed kept its benchmark interest rate steady today—its sixth consecutive hold after hiking the federal funds rate to a 22-year high in 2023. * The Fed acknowledged that recent progress on lowering inflation has stalled, and it will keep the federal funds rate where it is until it feels confident inflation is falling sustainably lower. * Savings account and CD rates are directly driven by the fed funds rate, and the [top high-yield savings account rate](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) climbed to a record 5.55% three weeks ago. * The [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) surged to a historic peak last fall. Since then, they've drifted slightly lower but remain near 20-year highs, paying as much as 5.65% APY. * Savings and CD rates will fall once the Fed signals it's ready to cut rates. But it appears a Fed rate decrease is likely several months away. The full article continues below these offers from our partners. ## The Fed Held Rates Steady Again As was almost universally expected, the Federal Reserve's rate-setting committee [announced this afternoon](https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952) that it is maintaining the federal funds rate at its current level. It's the sixth meeting in a row in which the central bank has held its benchmark rate steady, after last raising it in July. To fight [inflation](https://www.investopedia.com/terms/i/inflation.asp) that had reached a 40-year high, the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) implemented 11 rate increases—some of them massive—across 12 meetings between spring 2022 and summer 2023. Its rate-hike campaign raised the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) a cumulative 5.25 percentage points, taking it to its highest level since 2001. In its official statement today, the Fed acknowledged that its progress in fighting inflation has been stymied in recent months, requiring the committee to keep interest rates high to cool the economy. Using the same language appearing in its March 20 statement, the central bank again indicated it would continue watching and waiting for more data before entertaining any rate-cut decisions. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent," the FOMC said in its statement. The latest monthly reading of the Consumer Price Index (CPI-U) showed that [March inflation measured 3.5%](https://www.investopedia.com/inflation-heated-up-in-march-8629363). ## When Will the Fed Lower Rates? Today's written comments left out discussion of projected rate cuts. When asked about this during his press conference following the statement's release, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take [longer than they originally expected](https://www.investopedia.com/us-economy-news-today-may-1-8641676) to lower the fed funds rates. “My colleagues and I today said that we didn’t see progress in the first quarter,” Powell said. “And I’ve said that it appears then that it’s going to take longer for us to reach that point of confidence. So I don’t know how long it will take. When we get that confidence, then rate cuts will be in scope.” But Powell also indicated that, despite the uptick in recent inflation readings, [a rate hike is not expected](https://www.investopedia.com/us-economy-news-today-may-1-8641676#toc-2024-05-01t191855036z). "I think it's unlikely that the next policy rate move will be a hike,” Powell told reporters at Wednesday’s press conference. It's therefore likely the fed funds rate will stay where it is for some number of months, with great uncertainty on when exactly the Fed will implement a first cut. Following today's Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take three more meetings—until Sept. 18—for the first rate decrease to be announced, according to CME Group's FedWatch Tool. ## How the Fed's Decision Impacts Savings and CD Rates The fed funds rate has a direct influence on the interest that banks and credit unions are willing to pay for savings, money market, and [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp) accounts. When the Fed's benchmark rate is high, interest rates for bank customers elevate as well. The reverse is true when the federal funds rate is low. In a rate-hold situation like we have now—and where the next development is expected to be a rate cut—some banks and [credit unions](https://www.investopedia.com/terms/c/creditunion.asp) have been slightly lowering CD rates. That's because CDs offer you not just a rate today, but a future-rate guarantee: For the full number of months or years in the term you choose, the CD's rate will be locked. When it was still possible the Fed would raise its benchmark rate higher, banks and credit unions were willing to promise higher future rates. But with Fed rate cuts ultimately on the horizon, institutions don't want to get locked into paying CD rates they'll regret down the road. Savings account rates behave a bit differently since banks and credit unions are free to lower them at the drop of a hat. Unencumbered by the rate commitment that a CD includes, [high-yield savings account](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp) rates tend to follow the trend of the fed funds rate for a longer time. You can see that's true right now. While CD rates hit a peak last fall, the leading savings account rate climbed to a new high just three weeks ago. You can now earn as much as 5.55% APY with the top-paying account, and it's possible savings account rates will stay high for the duration of the Fed's rate hold. ## Guarantee Yourself a High Savings or CD Rate While You Can As we've said, high-yield saving accounts offer exceptionally high rates right now, and perhaps those will continue for several months. If retaining access to your funds is important, then putting your cash in one of the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) is a very smart move right now. But while savings account rates can fall, a CD you open now will guarantee your rate for months or years into the future. Though not quite as high as a few months ago, the [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) are still remarkable. You can lock in a rate ranging from 5.30% to 5.65% for short- and mid-term CDs (3 months to 2 years), or something in the mid-4.00% range to 5.00% on longer terms. Since these rates won't change until the CD matures, they're expected to significantly out-pay the rates you'll be able to earn on savings accounts and new CDs once the Fed begins lowering the fed funds rate. So, while CD rates may not be quite at the peaks they reached in the fall, they still offer an excellent rate guarantee into the future—making them a smart financial move for a portion of your savings. [Best CD Rates for May 2024: Up to 5.51%](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 Money Market Account Rates for May 2024—Up to 5.35%](https://www.investopedia.com/best-money-market-accounts-5096917) ## 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 As expected, the Fed kept its benchmark interest rate steady today—its sixth consecutive hold after hiking the federal funds rate to a 22-year high in 2023. The Fed acknowledged that recent progress on lowering inflation has stalled, and it will keep the federal funds rate where it is until it feels confident inflation is falling sustainably lower. Savings account and CD rates are directly driven by the fed funds rate, and the top high-yield savings account rate climbed to a record 5.55% three weeks ago. The best CD rates surged to a historic peak last fall. Since then, they've drifted slightly lower but remain near 20-year highs, paying as much as 5.65% APY. Savings and CD rates will fall once the Fed signals it's ready to cut rates. But it appears a Fed rate decrease is likely several months away. The full article continues below these offers from our partners. The Fed Held Rates Steady Again As was almost universally expected, the Federal Reserve's rate-setting committee announced this afternoon that it is maintaining the federal funds rate at its current level. It's the sixth meeting in a row in which the central bank has held its benchmark rate steady, after last raising it in July. To fight inflation that had reached a 40-year high, the Federal Reserve implemented 11 rate increases—some of them massive—across 12 meetings between spring 2022 and summer 2023. Its rate-hike campaign raised the federal funds rate a cumulative 5.25 percentage points, taking it to its highest level since 2001. In its official statement today, the Fed acknowledged that its progress in fighting inflation has been stymied in recent months, requiring the committee to keep interest rates high to cool the economy. Using the same language appearing in its March 20 statement, the central bank again indicated it would continue watching and waiting for more data before entertaining any rate-cut decisions. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent," the FOMC said in its statement. The latest monthly reading of the Consumer Price Index (CPI-U) showed that March inflation measured 3.5%. When Will the Fed Lower Rates? Today's written comments left out discussion of projected rate cuts. When asked about this during his press conference following the statement's release, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take longer than they originally expected to lower the fed funds rates. “My colleagues and I today said that we didn’t see progress in the first quarter,” Powell said. “And I’ve said that it appears then that it’s going to take longer for us to reach that point of confidence. So I don’t know how long it will take. When we get that confidence, then rate cuts will be in scope.” But Powell also indicated that, despite the uptick in recent inflation readings, a rate hike is not expected. "I think it's unlikely that the next policy rate move will be a hike,” Powell told reporters at Wednesday’s press conference. It's therefore likely the fed funds rate will stay where it is for some number of months, with great uncertainty on when exactly the Fed will implement a first cut. Following today's Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take three more meetings—until Sept. 18—for the first rate decrease to be announced, according to CME Group's FedWatch Tool. How the Fed's Decision Impacts Savings and CD Rates The fed funds rate has a direct influence on the interest that banks and credit unions are willing to pay for savings, money market, and certificate of deposit (CD) accounts. When the Fed's benchmark rate is high, interest rates for bank customers elevate as well. The reverse is true when the federal funds rate is low. In a rate-hold situation like we have now—and where the next development is expected to be a rate cut—some banks and credit unions have been slightly lowering CD rates. That's because CDs offer you not just a rate today, but a future-rate guarantee: For the full number of months or years in the term you choose, the CD's rate will be locked. When it was still possible the Fed would raise its benchmark rate higher, banks and credit unions were willing to promise higher future rates. But with Fed rate cuts ultimately on the horizon, institutions don't want to get locked into paying CD rates they'll regret down the road. Savings account rates behave a bit differently since banks and credit unions are free to lower them at the drop of a hat. Unencumbered by the rate commitment that a CD includes, high-yield savings account rates tend to follow the trend of the fed funds rate for a longer time. You can see that's true right now. While CD rates hit a peak last fall, the leading savings account rate climbed to a new high just three weeks ago. You can now earn as much as 5.55% APY with the top-paying account, and it's possible savings account rates will stay high for the duration of the Fed's rate hold. Guarantee Yourself a High Savings or CD Rate While You Can As we've said, high-yield saving accounts offer exceptionally high rates right now, and perhaps those will continue for several months. If retaining access to your funds is important, then putting your cash in one of the best high-yield savings accounts is a very smart move right now. But while savings account rates can fall, a CD you open now will guarantee your rate for months or years into the future. Though not quite as high as a few months ago, the best CD rates are still remarkable. You can lock in a rate ranging from 5.30% to 5.65% for short- and mid-term CDs (3 months to 2 years), or something in the mid-4.00% range to 5.00% on longer terms. Since these rates won't change until the CD matures, they're expected to significantly out-pay the rates you'll be able to earn on savings accounts and new CDs once the Fed begins lowering the fed funds rate. So, while CD rates may not be quite at the peaks they reached in the fall, they still offer an excellent rate guarantee into the future—making them a smart financial move for a portion of your savings. Best CD Rates for May 2024: Up to 5.51% Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best Money Market Account Rates for May 2024—Up to 5.35% 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.

https://www.investopedia.com/terms/d/domini_400.asp

Msci Kld 400 Social Index: Meaning, Example, 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-the-msci-kld-400-social-index"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is the MSCI KLD 400 Social Index? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The MSCI KLD 400 Social Index is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalizationweightedindex.asp">market capitalization-weighted stock index</a> focusing on companies that maintain high <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp">environmental, social, and governance (ESG)</a> standards. It was founded by Amy Domini, one of the founders of KLD Research &amp; Analytics, which helps administer the index, and previously known as the Domini 400 Social Index.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> When the index was launched in May 1990, socially responsible investing (SRI) indexes were extremely rare, making the MSCI KLD 400 Social Index one of the first of its kind.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The MSCI KLD 400 Social Index is a capitalization-weighted stock index focused on companies with reputations for social and environmental responsibility.</li><li>It consists of large, mid and small-cap U.S. companies from the MSCI USA IMI Index with the highest ESG ratings.</li><li>Companies dealing in alcohol, tobacco, gambling, nuclear power, adult entertainment, and weapons technology are excluded from consideration.</li><li>Every quarter, the index is reviewed and companies risk being kicked out for others that score more favorably.</li><li>Over the past few years, the index has been dominated by large American technology companies.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-the-msci-kld-400-social-index-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How the MSCI KLD 400 Social Index Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The MSCI KLD 400 Social Index represents 400 publicly-traded companies that maintain high ESG ratings. As such, the index forms part of a broader universe of tools and investment products designed for investors who are concerned about the social and environmental impact of the assets they hold. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> In keeping with this philosophy, potential candidates for the MSCI KLD 400 Social Index will likely have exemplary records on issues such as the treatment of employees, the safety of their products, the environmental sustainability of their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/supplychain.asp">supply chains</a>, and their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporategovernance.asp">corporate governance</a> practices. Examples of businesses that are excluded from consideration include companies dealing in alcohol, tobacco, gambling, nuclear power, adult entertainment, and weapons technology.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Any large, mid, or small-cap company in the MSCI USA IMI Index, barring those belonging to one of the excluded sectors, is eligible for inclusion. Companies in that particular index are graded based on their ESG and the highest-ranked ones make the MSCI KLD 400 Social Index. Companies that are deleted from the MSCI USA IMI Index or fail to maintain the requisite ESG ratings will be replaced by other companies that score more favorably, based on an ongoing review that takes place every quarter.<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"> New entrants must have an MSCI ESG Rating above 'BB' and a MSCI ESG Controversies Score greater than 2 to stand a chance.<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> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_18-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The selection universe for the MSCI KLD 400 Social Index are large, mid, and small-cap companies in the MSCI USA IMI Index. </p></div></div></div> <span class="heading-toc" id="toc-real-world-example-of-the-msci-kld-400-social-index"></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"> Real World Example of the MSCI KLD 400 Social Index </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> As of March 31, 2023, the MSCI KLD 400 Social Index was primarily invested in large American technology companies such as Microsoft, NVIDIA, Alphabet, Tesla, and Visa. The largest individual holding was in Microsoft, which alone had a 10.60% weighting in the index.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Microsoft’s prominence in the MSCI KLD 400 Social Index is relatively unsurprising, considering the high ESG ratings that it has maintained in recent years. Microsoft is considered a leader in ESG issues, having maintained a “AAA” rating since 2016—the highest rating available from MSCI.<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_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The MSCI KLD 400 Social Index returned roughly 12% on an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/annualized-total-return.asp">annualized basis</a> in the ten years to Mar. 31, 2023. That's a slightly better return than the MSCI USA Index, which is its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> and the universe from which it picks the most ESG-friendly stocks.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <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-did-kld-get-acquired-by-msci"></span> <h2 class="mntl-sc-block-questionandanswer__question">Did KLD get acquired by MSCI?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>MSCI acquired RiskMetrics in 2010 in a bid to add ESG risk to its indexes. With that deal, came KLD, which was acquired by RiskMetrics the prior year.<span class="ql-inline-citation" data-cite="7"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-can-i-invest-in-the-msci-kld-400-social-index"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I invest in the MSCI KLD 400 Social Index?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, there are ways to invest in this index and generate similar returns, minus fees. iShares, for example, has an exchange-traded fund (ETF) that specifically mirrors the MSCI KLD 400 Social Index.<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_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-who-founded-the-msci-kld-400-social-index"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Founded the MSCI KLD 400 Social Index?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The MSCI KLD 400 Social Index was founded by Amy Domini, one of the founders of KLD Research &amp; Analytics. Previously it was known as the Domini 400 Social Index.<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_31-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The MSCI KLD 400 Social Index is one of many indexes used to gauge the performance of companies that maintain high environmental, social, and governance (ESG) standards. It was one of the first to take an interest in this type of thing and is essentially made up of the 400 highest ESG-rated stocks from the MSCI USA IMI Index, a broad index covering big, medium, and small-sized U.S. publicly traded companies. </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"> MSCI periodically analyzes the ESG characteristic of eligible stocks and reviews the index’s constituents every quarter. Because its capitalization-weighted, big companies with a higher market cap receive a higher weighting. Over the past few years, its largest holdings have been big U.S. tech companies, led by Microsoft. </p></div>

## What Is the MSCI KLD 400 Social Index? The MSCI KLD 400 Social Index is a [market capitalization-weighted stock index](https://www.investopedia.com/terms/c/capitalizationweightedindex.asp) focusing on companies that maintain high [environmental, social, and governance (ESG)](https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp) standards. It was founded by Amy Domini, one of the founders of KLD Research & Analytics, which helps administer the index, and previously known as the Domini 400 Social Index. When the index was launched in May 1990, socially responsible investing (SRI) indexes were extremely rare, making the MSCI KLD 400 Social Index one of the first of its kind. ### Key Takeaways * The MSCI KLD 400 Social Index is a capitalization-weighted stock index focused on companies with reputations for social and environmental responsibility. * It consists of large, mid and small-cap U.S. companies from the MSCI USA IMI Index with the highest ESG ratings. * Companies dealing in alcohol, tobacco, gambling, nuclear power, adult entertainment, and weapons technology are excluded from consideration. * Every quarter, the index is reviewed and companies risk being kicked out for others that score more favorably. * Over the past few years, the index has been dominated by large American technology companies. ## How the MSCI KLD 400 Social Index Works The MSCI KLD 400 Social Index represents 400 publicly-traded companies that maintain high ESG ratings. As such, the index forms part of a broader universe of tools and investment products designed for investors who are concerned about the social and environmental impact of the assets they hold. In keeping with this philosophy, potential candidates for the MSCI KLD 400 Social Index will likely have exemplary records on issues such as the treatment of employees, the safety of their products, the environmental sustainability of their [supply chains](https://www.investopedia.com/terms/s/supplychain.asp), and their [corporate governance](https://www.investopedia.com/terms/c/corporategovernance.asp) practices. Examples of businesses that are excluded from consideration include companies dealing in alcohol, tobacco, gambling, nuclear power, adult entertainment, and weapons technology. Any large, mid, or small-cap company in the MSCI USA IMI Index, barring those belonging to one of the excluded sectors, is eligible for inclusion. Companies in that particular index are graded based on their ESG and the highest-ranked ones make the MSCI KLD 400 Social Index. Companies that are deleted from the MSCI USA IMI Index or fail to maintain the requisite ESG ratings will be replaced by other companies that score more favorably, based on an ongoing review that takes place every quarter. New entrants must have an MSCI ESG Rating above 'BB' and a MSCI ESG Controversies Score greater than 2 to stand a chance. ### The selection universe for the MSCI KLD 400 Social Index are large, mid, and small-cap companies in the MSCI USA IMI Index.  ## Real World Example of the MSCI KLD 400 Social Index As of March 31, 2023, the MSCI KLD 400 Social Index was primarily invested in large American technology companies such as Microsoft, NVIDIA, Alphabet, Tesla, and Visa. The largest individual holding was in Microsoft, which alone had a 10.60% weighting in the index. Microsoft’s prominence in the MSCI KLD 400 Social Index is relatively unsurprising, considering the high ESG ratings that it has maintained in recent years. Microsoft is considered a leader in ESG issues, having maintained a “AAA” rating since 2016—the highest rating available from MSCI. The MSCI KLD 400 Social Index returned roughly 12% on an [annualized basis](https://www.investopedia.com/terms/a/annualized-total-return.asp) in the ten years to Mar. 31, 2023. That's a slightly better return than the MSCI USA Index, which is its [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) and the universe from which it picks the most ESG-friendly stocks. ## Did KLD get acquired by MSCI? MSCI acquired RiskMetrics in 2010 in a bid to add ESG risk to its indexes. With that deal, came KLD, which was acquired by RiskMetrics the prior year. ## Can I invest in the MSCI KLD 400 Social Index? Yes, there are ways to invest in this index and generate similar returns, minus fees. iShares, for example, has an exchange-traded fund (ETF) that specifically mirrors the MSCI KLD 400 Social Index. ## Who Founded the MSCI KLD 400 Social Index? The MSCI KLD 400 Social Index was founded by Amy Domini, one of the founders of KLD Research & Analytics. Previously it was known as the Domini 400 Social Index. ## The Bottom Line The MSCI KLD 400 Social Index is one of many indexes used to gauge the performance of companies that maintain high environmental, social, and governance (ESG) standards. It was one of the first to take an interest in this type of thing and is essentially made up of the 400 highest ESG-rated stocks from the MSCI USA IMI Index, a broad index covering big, medium, and small-sized U.S. publicly traded companies. MSCI periodically analyzes the ESG characteristic of eligible stocks and reviews the index’s constituents every quarter. Because its capitalization-weighted, big companies with a higher market cap receive a higher weighting. Over the past few years, its largest holdings have been big U.S. tech companies, led by Microsoft.

What Is the MSCI KLD 400 Social Index? The MSCI KLD 400 Social Index is a market capitalization-weighted stock index focusing on companies that maintain high environmental, social, and governance (ESG) standards. It was founded by Amy Domini, one of the founders of KLD Research & Analytics, which helps administer the index, and previously known as the Domini 400 Social Index. When the index was launched in May 1990, socially responsible investing (SRI) indexes were extremely rare, making the MSCI KLD 400 Social Index one of the first of its kind. Key Takeaways The MSCI KLD 400 Social Index is a capitalization-weighted stock index focused on companies with reputations for social and environmental responsibility.It consists of large, mid and small-cap U.S. companies from the MSCI USA IMI Index with the highest ESG ratings.Companies dealing in alcohol, tobacco, gambling, nuclear power, adult entertainment, and weapons technology are excluded from consideration.Every quarter, the index is reviewed and companies risk being kicked out for others that score more favorably.Over the past few years, the index has been dominated by large American technology companies. How the MSCI KLD 400 Social Index Works The MSCI KLD 400 Social Index represents 400 publicly-traded companies that maintain high ESG ratings. As such, the index forms part of a broader universe of tools and investment products designed for investors who are concerned about the social and environmental impact of the assets they hold. In keeping with this philosophy, potential candidates for the MSCI KLD 400 Social Index will likely have exemplary records on issues such as the treatment of employees, the safety of their products, the environmental sustainability of their supply chains, and their corporate governance practices. Examples of businesses that are excluded from consideration include companies dealing in alcohol, tobacco, gambling, nuclear power, adult entertainment, and weapons technology. Any large, mid, or small-cap company in the MSCI USA IMI Index, barring those belonging to one of the excluded sectors, is eligible for inclusion. Companies in that particular index are graded based on their ESG and the highest-ranked ones make the MSCI KLD 400 Social Index. Companies that are deleted from the MSCI USA IMI Index or fail to maintain the requisite ESG ratings will be replaced by other companies that score more favorably, based on an ongoing review that takes place every quarter. New entrants must have an MSCI ESG Rating above 'BB' and a MSCI ESG Controversies Score greater than 2 to stand a chance. The selection universe for the MSCI KLD 400 Social Index are large, mid, and small-cap companies in the MSCI USA IMI Index.  Real World Example of the MSCI KLD 400 Social Index As of March 31, 2023, the MSCI KLD 400 Social Index was primarily invested in large American technology companies such as Microsoft, NVIDIA, Alphabet, Tesla, and Visa. The largest individual holding was in Microsoft, which alone had a 10.60% weighting in the index. Microsoft’s prominence in the MSCI KLD 400 Social Index is relatively unsurprising, considering the high ESG ratings that it has maintained in recent years. Microsoft is considered a leader in ESG issues, having maintained a “AAA” rating since 2016—the highest rating available from MSCI. The MSCI KLD 400 Social Index returned roughly 12% on an annualized basis in the ten years to Mar. 31, 2023. That's a slightly better return than the MSCI USA Index, which is its benchmark and the universe from which it picks the most ESG-friendly stocks. Did KLD get acquired by MSCI? MSCI acquired RiskMetrics in 2010 in a bid to add ESG risk to its indexes. With that deal, came KLD, which was acquired by RiskMetrics the prior year. Can I invest in the MSCI KLD 400 Social Index? Yes, there are ways to invest in this index and generate similar returns, minus fees. iShares, for example, has an exchange-traded fund (ETF) that specifically mirrors the MSCI KLD 400 Social Index. Who Founded the MSCI KLD 400 Social Index? The MSCI KLD 400 Social Index was founded by Amy Domini, one of the founders of KLD Research & Analytics. Previously it was known as the Domini 400 Social Index. The Bottom Line The MSCI KLD 400 Social Index is one of many indexes used to gauge the performance of companies that maintain high environmental, social, and governance (ESG) standards. It was one of the first to take an interest in this type of thing and is essentially made up of the 400 highest ESG-rated stocks from the MSCI USA IMI Index, a broad index covering big, medium, and small-sized U.S. publicly traded companies. MSCI periodically analyzes the ESG characteristic of eligible stocks and reviews the index’s constituents every quarter. Because its capitalization-weighted, big companies with a higher market cap receive a higher weighting. Over the past few years, its largest holdings have been big U.S. tech companies, led by Microsoft.

https://www.investopedia.com/top-cds-today-march-22-2024-leading-rate-still-5-55-for-standard-cds-8613277

Top CDs Today, March 22, 2024: Leading Rate Still 5.55% for Standard 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 national leader for standard CDs remains <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Newtek Bank</a>, with a 5.55% APY yield available for a 6-month term.</li> <li>Other yields above 5.00% include 5.42% from <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.totaldirectbank.com/personal/cds&amp;lender=TotalDirectBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">TotalDirectBank</a> for 3 months and 5.40% from <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.applefcu.org/rates&amp;lender=Apple%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Apple Federal Credit Union</a> for 12 months.</li> <li>The best jumbo CD is still 5.65% APY for a 17-month term, offered by Hughes Federal Credit Union; the minimum deposit is $99,000.</li> <li>Two days ago, the Federal Reserve announced its fifth consecutive interest-rate hold as it waits for inflation to get more firmly under control.<br/></li> <li>The <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> have generally been inching lower for the past few months. But they'll likely start falling faster once the Fed appears ready to make a rate cut.</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_5-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <span class="heading-toc" id="toc-rates-for-standard-cds-hold-steady"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Rates for Standard CDs Hold Steady </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The leading rates on standard 3-month to 5-year CDs remained the same today. The best non-jumbo rate is still offered by <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Newtek Bank</a>: 5.55% for a 6-month term, with a minimum deposit of $2,500. It's the overall leader in our daily ranking of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best nationwide CDs</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Longer-term standard CDs aren't as good right now, but they can guarantee a rate for years to come. <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.pelicanstatecu.com/rates&amp;lender=Pelican%20State%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Pelican State Credit Union</a> currently offers the best 4-year CD, at 4.80% with a minimum deposit of just $500. The best 5-year CD, at 4.60% from <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human</a>, requires a minimum of $500 as well.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_12-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/F9S0n/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Ranges of the Top 15 CD rates by term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_14-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Terms</b></td> <td><b>Yesterday's Top National Rate</b></td> <td><b>Today's Top National Rate</b></td> <td><b>Day's Change </b>(percentage points)</td> <td><b>Top Rate Provider</b></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-month-cd-rates-5272288" rel="noopener noreferrer">3 months</a></td> <td>5.42% APY</td> <td>5.42% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.totaldirectbank.com/personal/cds&amp;lender=TotalDirectBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">TotalDirectBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267" rel="noopener noreferrer">6 months</a></td> <td>5.55% APY</td> <td>5.55% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Newtek Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650" rel="noopener noreferrer">1 year</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td>5 institutions</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348" rel="noopener noreferrer">18 months</a></td> <td>5.35% APY</td> <td>5.35% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://forteracu.com/banking/personal/savings/certificates/fixed-rate-share-certificate&amp;lender=Fortera%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Fortera Credit Union</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&amp;lender=XCEL%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">2 years</a></td> <td>5.20% APY</td> <td>5.20% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938" rel="noopener noreferrer">3 years</a></td> <td>5.00% APY</td> <td>5.00% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&amp;lender=DollarSavingsDirect&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">DollarSavingsDirect</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473" rel="noopener noreferrer">4 years</a></td> <td>4.80% APY</td> <td>4.80% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.pelicanstatecu.com/rates&amp;lender=Pelican%20State%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Pelican State Credit Union</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&amp;lender=Lafayette%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">5 years</a></td> <td>4.60% APY</td> <td>4.60% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Credit Human</a></td> </tr> </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_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. Today that count is down to seven. </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"> But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great earning opportunity, especially if future interest rates fall. </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"> Also keep in mind that snagging the absolute <em>highest</em> APY isn't the only way to win with today's CDs. At the moment, you can only get that 5.55% rate on a 6-month term. But since CD rates could fall significantly in 2024 and 2025, locking in a slightly lower rate soon that's guaranteed far into the future can be a smart move.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_22-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/coQ1r/2/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Today's CD rates vs. the fall peak vs. Jan 2022"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-todays-top-bank-credit-union-and-jumbo-cd-rates"></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"> Today's Top Bank, Credit Union, and Jumbo CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The best jumbo CD rate today is still 5.65% APY. It's available from Hughes Federal Credit Union for a 17-month term, with a deposit of at least $99,000. The top jumbo rates for 6-month and 1-year terms fell slightly—the leading 6-month rate is now 5.49% by My eBanc, and the leading 1-year rate is now 5.50% by the State Bank of Texas. </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"> As always, 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 every term but two 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_28-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_29-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Term</b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-cd-rates-4801462" rel="noopener noreferrer">Today's Top National Bank Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214" rel="noopener noreferrer">Today's Top National Credit Union Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766" rel="noopener noreferrer">Today's Top National Jumbo Rate</a></b></td> </tr> <tr> <td>3 months</td> <td>5.42% 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>5.05% APY</td> <td>5.35% APY</td> <td>5.65% APY*</td> </tr> <tr> <td>2 years</td> <td>4.91% APY</td> <td>5.20% APY*</td> <td>5.05% 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>4.80% APY*</td> <td>4.52% APY</td> </tr> <tr> <td>5 years</td> <td>4.55% APY</td> <td>4.60% APY*</td> <td>4.42% 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_30-0"></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_31-0"> <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_32-0"> The Federal Reserve announced Wednesday that it is <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">maintaining rates at their current level</a>, the fifth meeting in a row it's done so.<span class="ql-inline-citation" data-cite="32"></span> To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising 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> to its highest level in 22 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> This in turn created 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 continued rising to a peak this fall, reaching their highest levels in two decades. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_36-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/2ZiL7/1/" 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_37-0"></div> <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/i/inflation.asp">Inflation</a> has since been cooling, allowing the Fed to stop raising interest rates. But it's now in wait-and-see mode, looking for evidence that inflation has fallen enough to justify lowering the federal funds rate. According to the Fed's statement yesterday, that 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_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> "The Committee does not expect it will be appropriate to reduce the (fed funds rate) until it has gained greater confidence that inflation is moving sustainably toward 2 percent", the central bank said in the statement, using language identical to its previous statement in January.<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_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Additionally, in his post-announcement press conference, Fed Chair <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/jerome-powell-5210572">Jerome Powell</a> similarly echoed sentiments he's relayed before: "Inflation has eased substantially while the labor market has remained strong. And that is very good news. But inflation is still too high. Ongoing progress in bringing it down is not assured, and the path forward is uncertain."<span class="ql-inline-citation" data-cite="44"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Still, the Fed signaled this week that it expects to reduce its benchmark rate more than once this year. In a quarterly release, the Fed issued its latest "<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 indicates how many rate cuts each Fed member expects we'll see by the end of 2024. The median prediction from yesterday's dot plot is three rate cuts by year-end, for a total rate reduction of 0.75 percentage points.<span class="ql-inline-citation" data-cite="41"></span> That's the same median projection as seen in the December dot plot. </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"> Financial markets currently agree, betting on at least three rate decreases this calendar year, according to the CME Group's FedWatch Tool. A strong majority of traders believe the first cut will arrive in June.<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_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Of course, what markets predict today and what the Fed ultimately does may or may not align. But given an assumption of a reduced fed funds rate sometime this year, CD rates are likely to continue drifting lower. Then once it appears a Fed rate decrease is actually forthcoming, CD rate declines will likely accelerate. </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 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> </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 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-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_55-0"><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_57-0"><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_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_59-0"><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_60-0"><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 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_61-0"> <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_62-0"> 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_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>.<br/> </p></div>

### Key Takeaways * The national leader for standard CDs remains [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), with a 5.55% APY yield available for a 6-month term. * Other yields above 5.00% include 5.42% from [TotalDirectBank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.totaldirectbank.com/personal/cds&lender=TotalDirectBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) for 3 months and 5.40% from [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) for 12 months. * The best jumbo CD is still 5.65% APY for a 17-month term, offered by Hughes Federal Credit Union; the minimum deposit is $99,000. * Two days ago, the Federal Reserve announced its fifth consecutive interest-rate hold as it waits for inflation to get more firmly under control. * The [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) have generally been inching lower for the past few months. But they'll likely start falling faster once the Fed appears ready to make a rate cut. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. ## Rates for Standard CDs Hold Steady The leading rates on standard 3-month to 5-year CDs remained the same today. The best non-jumbo rate is still offered 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): 5.55% for a 6-month term, with a minimum deposit of $2,500. It's the overall leader in our daily ranking of the [best nationwide CDs](https://www.investopedia.com/best-cd-rates-4770214). Longer-term standard CDs aren't as good right now, but they can guarantee a rate for years to come. [Pelican State Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.pelicanstatecu.com/rates&lender=Pelican%20State%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) currently offers the best 4-year CD, at 4.80% with a minimum deposit of just $500. The best 5-year CD, at 4.60% from [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), requires a minimum of $500 as well. | **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://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 | 5 institutions | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.35% APY | 5.35% APY | No change | [Fortera Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://forteracu.com/banking/personal/savings/certificates/fixed-rate-share-certificate&lender=Fortera%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [2 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.20% APY | 5.20% 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) | 4.80% APY | 4.80% APY | No change | [Pelican State Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.pelicanstatecu.com/rates&lender=Pelican%20State%20Credit%20Union&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) | 4.60% APY | 4.60% 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. It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. Today that count is down to seven. But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great earning opportunity, especially if future interest rates fall. Also keep in mind that snagging the absolute *highest* APY isn't the only way to win with today's CDs. At the moment, you can only get that 5.55% rate on a 6-month term. But since CD rates could fall significantly in 2024 and 2025, locking in a slightly lower rate soon that's guaranteed far into the future can be a smart move. ## Today's Top Bank, Credit Union, and Jumbo CD Rates The best jumbo CD rate today is still 5.65% APY. It's available from Hughes Federal Credit Union for a 17-month term, with a deposit of at least $99,000. The top jumbo rates for 6-month and 1-year terms fell slightly—the leading 6-month rate is now 5.49% by My eBanc, and the leading 1-year rate is now 5.50% by the State Bank of Texas. As always, 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 every term but two 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 | 5.05% APY | 5.35% APY | 5.65% APY\* | | 2 years | 4.91% APY | 5.20% APY\* | 5.05% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.55% APY | 4.80% APY\* | 4.52% APY | | 5 years | 4.55% APY | 4.60% APY\* | 4.42% 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? The Federal Reserve announced Wednesday that it is [maintaining rates at their current level](https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723), the fifth meeting in a row it's done so. To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) to its highest level in 22 years. This in turn created 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 continued rising to a peak this fall, reaching their highest levels in two decades. [Inflation](https://www.investopedia.com/terms/i/inflation.asp) has since been cooling, allowing the Fed to stop raising interest rates. But it's now in wait-and-see mode, looking for evidence that inflation has fallen enough to justify lowering the federal funds rate. According to the Fed's statement yesterday, that first rate cut could still be a ways off. "The Committee does not expect it will be appropriate to reduce the (fed funds rate) until it has gained greater confidence that inflation is moving sustainably toward 2 percent", the central bank said in the statement, using language identical to its previous statement in January. Additionally, in his post-announcement press conference, Fed Chair [Jerome Powell](https://www.investopedia.com/jerome-powell-5210572) similarly echoed sentiments he's relayed before: "Inflation has eased substantially while the labor market has remained strong. And that is very good news. But inflation is still too high. Ongoing progress in bringing it down is not assured, and the path forward is uncertain." Still, the Fed signaled this week that it expects to reduce its benchmark rate more than once this year. In a quarterly release, the Fed issued its latest "[dot plot](https://www.investopedia.com/dot-plot-4581755)" forecast, which indicates how many rate cuts each Fed member expects we'll see by the end of 2024. The median prediction from yesterday's dot plot is three rate cuts by year-end, for a total rate reduction of 0.75 percentage points. That's the same median projection as seen in the December dot plot. Financial markets currently agree, betting on at least three rate decreases this calendar year, according to the CME Group's FedWatch Tool. A strong majority of traders believe the first cut will arrive in June. Of course, what markets predict today and what the Fed ultimately does may or may not align. But given an assumption of a reduced fed funds rate sometime this year, CD rates are likely to continue drifting lower. Then once it appears a Fed rate decrease is actually forthcoming, CD rate declines will likely accelerate. 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 national leader for standard CDs remains Newtek Bank, with a 5.55% APY yield available for a 6-month term. Other yields above 5.00% include 5.42% from TotalDirectBank for 3 months and 5.40% from Apple Federal Credit Union for 12 months. The best jumbo CD is still 5.65% APY for a 17-month term, offered by Hughes Federal Credit Union; the minimum deposit is $99,000. Two days ago, the Federal Reserve announced its fifth consecutive interest-rate hold as it waits for inflation to get more firmly under control. The best CD rates have generally been inching lower for the past few months. But they'll likely start falling faster once the Fed appears ready to make a rate cut. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. Rates for Standard CDs Hold Steady The leading rates on standard 3-month to 5-year CDs remained the same today. The best non-jumbo rate is still offered by Newtek Bank: 5.55% for a 6-month term, with a minimum deposit of $2,500. It's the overall leader in our daily ranking of the best nationwide CDs. Longer-term standard CDs aren't as good right now, but they can guarantee a rate for years to come. Pelican State Credit Union currently offers the best 4-year CD, at 4.80% with a minimum deposit of just $500. The best 5-year CD, at 4.60% from Credit Human, requires a minimum of $500 as well. CD Terms Yesterday's Top National Rate Today's Top National Rate Day's Change (percentage points) Top Rate Provider 3 months 5.42% APY 5.42% APY No change TotalDirectBank 6 months 5.55% APY 5.55% APY No change Newtek Bank 1 year 5.40% APY 5.40% APY No change 5 institutions 18 months 5.35% APY 5.35% APY No change Fortera Credit Union 2 years 5.20% APY 5.20% APY No change Credit Human 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect 4 years 4.80% APY 4.80% APY No change Pelican State Credit Union 5 years 4.60% APY 4.60% 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. It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. Today that count is down to seven. But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great earning opportunity, especially if future interest rates fall. Also keep in mind that snagging the absolute highest APY isn't the only way to win with today's CDs. At the moment, you can only get that 5.55% rate on a 6-month term. But since CD rates could fall significantly in 2024 and 2025, locking in a slightly lower rate soon that's guaranteed far into the future can be a smart move. Today's Top Bank, Credit Union, and Jumbo CD Rates The best jumbo CD rate today is still 5.65% APY. It's available from Hughes Federal Credit Union for a 17-month term, with a deposit of at least $99,000. The top jumbo rates for 6-month and 1-year terms fell slightly—the leading 6-month rate is now 5.49% by My eBanc, and the leading 1-year rate is now 5.50% by the State Bank of Texas. As always, 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 every term but two 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 5.05% APY 5.35% APY 5.65% APY* 2 years 4.91% APY 5.20% APY* 5.05% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.55% APY 4.80% APY* 4.52% APY 5 years 4.55% APY 4.60% APY* 4.42% 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? The Federal Reserve announced Wednesday that it is maintaining rates at their current level, the fifth meeting in a row it's done so. To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising the federal funds rate to its highest level in 22 years. This in turn created 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 continued rising to a peak this fall, reaching their highest levels in two decades. Inflation has since been cooling, allowing the Fed to stop raising interest rates. But it's now in wait-and-see mode, looking for evidence that inflation has fallen enough to justify lowering the federal funds rate. According to the Fed's statement yesterday, that first rate cut could still be a ways off. "The Committee does not expect it will be appropriate to reduce the (fed funds rate) until it has gained greater confidence that inflation is moving sustainably toward 2 percent", the central bank said in the statement, using language identical to its previous statement in January. Additionally, in his post-announcement press conference, Fed Chair Jerome Powell similarly echoed sentiments he's relayed before: "Inflation has eased substantially while the labor market has remained strong. And that is very good news. But inflation is still too high. Ongoing progress in bringing it down is not assured, and the path forward is uncertain." Still, the Fed signaled this week that it expects to reduce its benchmark rate more than once this year. In a quarterly release, the Fed issued its latest "dot plot" forecast, which indicates how many rate cuts each Fed member expects we'll see by the end of 2024. The median prediction from yesterday's dot plot is three rate cuts by year-end, for a total rate reduction of 0.75 percentage points. That's the same median projection as seen in the December dot plot. Financial markets currently agree, betting on at least three rate decreases this calendar year, according to the CME Group's FedWatch Tool. A strong majority of traders believe the first cut will arrive in June. Of course, what markets predict today and what the Fed ultimately does may or may not align. But given an assumption of a reduced fed funds rate sometime this year, CD rates are likely to continue drifting lower. Then once it appears a Fed rate decrease is actually forthcoming, CD rate declines will likely accelerate. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

https://www.investopedia.com/what-is-a-boat-loan-7975515

What Is a Boat Loan?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Boats are a major purchase. The price will vary depending on the type of boat, the size and whether it is new or used. The average 20-foot boat brand new could cost $40,000 to $60,000.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Many people who decide to buy a boat will explore financing options. </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-a-boat-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> What Is a Boat Loan? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Boat loans are a type of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-5076027">personal loan</a> for borrowers who want to purchase a boat. Several different types of lenders offer boat loans.<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"> These loans are similar to auto loans. Some lenders offer boat-specific loans, but many offer personal loans that can be used for many purposes, including the purchase of a boat. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A boat loan is a type of personal loan that borrowers can use for the purchase of a marine vessel.</li><li>Borrowers can explore boat loan options at banks, credit unions, online lenders, and marine lenders.</li><li>A boat loan can break the total cost into more manageable monthly payments, but potentially high interest rates could make the overall cost of the loan expensive.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-boat-loan-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> How a Boat Loan Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Boat loans are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/072316/how-installment-loans-work.asp">installment loans</a>, which means you will repay the amount borrowed in monthly amounts with interest. Typical considerations include: </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>The amount you can borrow</strong>: The total amount that you borrow will depend on the boat you want to purchase and your lender's discretion.</li><li><strong>Interest rate</strong>: Your interest rate will be fixed or variable. The rate will be determined by factors like the loan term, the type of boat, your creditworthiness, and market conditions.</li><li><strong>Repayment terms</strong>: Repayment terms will vary, but you can expect to find terms of 10 to 15 years.<span class="ql-inline-citation" data-cite="2"></span> Some lenders have repayment terms of up to 20 years. Unsecured loans typically have longer repayment periods than secured loans.</li><li><strong>Down payment</strong>: Some lenders will require that you pay a percentage of the total loan amount in the form of a down payment. Down payments typically range from 10% to 30%.<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_16-0"></div> <span class="heading-toc" id="toc-types-of-boat-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Types of Boat Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Borrowers can compare different types of boat loans to determine their best option. </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"> Secured </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Boat loans can be secured. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secured-loans-5076025">Secured loans</a> require collateral. In most cases, the boat you purchase will serve as the collateral. If you are unable to make your loan payments, your lender could take the boat.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Lenders may offer secured loans to people who have poor credit. </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"> Unsecured </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredloan.asp">Unsecured loans </a>do not require collateral. Lenders will decide to offer an unsecured loan based on the borrower's creditworthiness. This type of boat loan may come with a higher interest rate because it is riskier for the lender.<br/> </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"> Home Equity Loan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeequityloan.asp">home equity loan</a>, also referred to as a second mortgage, enables homeowners to borrow against the equity they have in their homes. This is a type of secured loan; your home serves as collateral. </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"> Home equity loans tend to have low interest rates, but if you are unable to repay the loan, you risk losing your home. </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"> Personal Loan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Boat loans are a type of personal loan, but you can also consider a general personal loan to finance your purchase. Personal loans can be used to cover a wide variety of expenses, including a boat. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The interest rates and terms of personal loans can vary significantly. </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-note" 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 with-title" id="mntl-sc-block-callout-heading_2-0">What Is a Vessel Loan?</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Boat loans may also be referred to vessel loans. Vessel loans can also be used to finance purchases of commercial watercrafts.<span class="ql-inline-citation" data-cite="5"></span></p></div></div></div> <span class="heading-toc" id="toc-where-to-get-a-boat-loan"></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 to Get a Boat Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Several different types of lenders offer new and used boat loans.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_43-0"> <span class="mntl-sc-block-subheading__text"> Banks </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Some banks offer boat loans. For example, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-boat-loans-5085089#toc-best-for-large-loans-bank-of-the-west">Bank of the West</a> offers loans up to $5 million. Interest rates start at 8.99%, and its loan terms range from five to 20 years. </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"> Credit unions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Credit unions are nonprofit, member-owned institutions, and some offer boat financing. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mountain-america-credit-union-personal-loans-review-8391160">Mountain America Credit Union </a>has interest rates starting at 8.74% and loan terms of up to 15 years. </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"> Online lenders </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Many online lenders specialize in personal loans, which can make them a good option for boat loans. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lightstream-personal-loans-review-4800841">LightStream</a> offers loans up to $100,000. If you have excellent credit and sign up for autopay, you could qualify for an interest rate as low as 6.99%. The lender has loan terms of two years to 12 years. </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"> Marine dealerships </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> You may be able to apply for a loan through a marine dealership that sells boats. Some dealerships partner with boat loan companies to give customers access to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dealer-financing.asp">dealer financing </a>options.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <span class="heading-toc" id="toc-what-to-consider-before-applying-for-a-boat-loan"></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 to Consider Before Applying for a Boat Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Before you apply for a boat loan, consider: </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><strong>Your credit score</strong>: 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> will play an important role in determining the interest rates and terms that lenders offer. If you have poor credit, you may only qualify for a secured loan or a loan with a high interest rate. Boat loan credit requirements will vary depending on the lender.</li> <li><strong>Your ability to repay the loan</strong>: <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/is-there-a-boat-loan-calculator-7976199">A boat loan calculator</a> can help you figure out the total cost of the loan. Will you be able to afford the monthly payments? If you can't, you could risk damaging your credit and losing the boat.</li> <li><strong>Total cost of ownership</strong>: The purchase price of a boat is not the only cost to consider. You also have expenses like gas, maintenance, taxes, and storage.<br/></li> </ul> <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-how-to-apply-for-a-boat-loan"></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"> How to Apply for a Boat Loan </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> <li><strong>Choose a lender</strong>. Find a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-boat-loans-5085089">lender</a> that fits your needs.</li> <li><strong>Gather the necessary information</strong>. The lender will want to know details about the type of boat you plan to purchase, as well as personal information on your income, assets, and debt.</li> <li><strong>Apply</strong>. Some lenders have an online application process. Other lenders, such as banks and credit unions, may require you to apply in person.<br/></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-pros-and-cons-of-financing-a-boat"></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"> Pros and Cons of Financing a Boat </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"> Pros </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> <li><strong>Access to funds</strong>: A boat loan can give you access to the funds you need to buy your dream boat. </li><li><strong>Flexibility</strong>: With a multitude of lenders offering boat loans, you can shop around to find flexible terms that meet your needs.<br/></li> </ul> <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"> Cons </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> <li><strong>Risk</strong>: A loan is a financial obligation. If you cannot repay it, you could damage your credit. In the case of a secured loan, you could lose your boat. </li> <li><strong>Depreciation</strong>: Boats <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/depreciation.asp">depreciate </a>over time. It is possible that the boat will become less valuable than what you owe your lender. </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_70-0"><span class="heading-toc" id="toc-what-is-the-average-interest-rate-on-a-boat-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Average Interest Rate on a Boat Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-good-interest-rate-for-a-boat-loan-8303037">The interest rate on a boat loan</a> is affected by market conditions, your creditworthiness, and the individual lender. As of September 2023, borrowers with excellent credit could expect to find interest rates on a 20-year boat loan starting at approximately 8.24%.<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_71-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_72-0"><span class="heading-toc" id="toc-what-are-the-average-terms-for-a-boat-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Average Terms for a Boat Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You will find <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-long-are-boat-loans-7975687">a wide range of terms</a> for boat loans. Ten to 15 year terms are common.<span class="ql-inline-citation" data-cite="2"></span> You can also find terms for a couple of years or as long as 20 years.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_74-0"><span class="heading-toc" id="toc-where-is-the-easiest-place-to-get-a-boat-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Is the Easiest Place to Get a Boat Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many lenders offer boat loans. You can explore options offered by banks, credit unions, online lenders and marine finance companies. The application requirements and process will vary depending on the lender.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_76-0"><span class="heading-toc" id="toc-who-has-the-best-boat-loan-rates"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Has the Best Boat Loan Rates?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-boat-loans-5085089">best boat loans</a> will give you low rates, high maximums and flexible repayment terms. For example, LightStream offers fast funding, interest rates starting at 6.99%, and terms of 24 to 144 months.</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-are-super-yachts-financed"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Are Super Yachts Financed?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Super yachts are extravagant vessels that are significantly larger than standard private yachts. These yachts are purchased by multimillionaires and billionaires. Buyers can pay upfront. Alternatively, they can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/082015/can-i-afford-super-yacht.asp">explore leasing options or a marine mortgage</a>.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_80-0"> <span class="mntl-sc-block-subheading__text"> The Bottom Line </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> A boat loan can be a useful financing option if you have always dreamed of getting out on the water in your own boat. Like any other loan, it is important to consider all of your options and compare interest rates and loan terms before making a decision. </p></div>

Boats are a major purchase. The price will vary depending on the type of boat, the size and whether it is new or used. The average 20-foot boat brand new could cost $40,000 to $60,000. Many people who decide to buy a boat will explore financing options. ## What Is a Boat Loan? Boat loans are a type of [personal loan](https://www.investopedia.com/personal-loan-5076027) for borrowers who want to purchase a boat. Several different types of lenders offer boat loans. These loans are similar to auto loans. Some lenders offer boat-specific loans, but many offer personal loans that can be used for many purposes, including the purchase of a boat. ### Key Takeaways * A boat loan is a type of personal loan that borrowers can use for the purchase of a marine vessel. * Borrowers can explore boat loan options at banks, credit unions, online lenders, and marine lenders. * A boat loan can break the total cost into more manageable monthly payments, but potentially high interest rates could make the overall cost of the loan expensive. ## How a Boat Loan Works Boat loans are [installment loans](https://www.investopedia.com/articles/personal-finance/072316/how-installment-loans-work.asp), which means you will repay the amount borrowed in monthly amounts with interest. Typical considerations include: * **The amount you can borrow**: The total amount that you borrow will depend on the boat you want to purchase and your lender's discretion. * **Interest rate**: Your interest rate will be fixed or variable. The rate will be determined by factors like the loan term, the type of boat, your creditworthiness, and market conditions. * **Repayment terms**: Repayment terms will vary, but you can expect to find terms of 10 to 15 years. Some lenders have repayment terms of up to 20 years. Unsecured loans typically have longer repayment periods than secured loans. * **Down payment**: Some lenders will require that you pay a percentage of the total loan amount in the form of a down payment. Down payments typically range from 10% to 30%. ## Types of Boat Loans Borrowers can compare different types of boat loans to determine their best option. ### Secured Boat loans can be secured. [Secured loans](https://www.investopedia.com/secured-loans-5076025) require collateral. In most cases, the boat you purchase will serve as the collateral. If you are unable to make your loan payments, your lender could take the boat. Lenders may offer secured loans to people who have poor credit. ### Unsecured [Unsecured loans](https://www.investopedia.com/terms/u/unsecuredloan.asp) do not require collateral. Lenders will decide to offer an unsecured loan based on the borrower's creditworthiness. This type of boat loan may come with a higher interest rate because it is riskier for the lender. ### Home Equity Loan A [home equity loan](https://www.investopedia.com/terms/h/homeequityloan.asp), also referred to as a second mortgage, enables homeowners to borrow against the equity they have in their homes. This is a type of secured loan; your home serves as collateral. Home equity loans tend to have low interest rates, but if you are unable to repay the loan, you risk losing your home. ### Personal Loan Boat loans are a type of personal loan, but you can also consider a general personal loan to finance your purchase. Personal loans can be used to cover a wide variety of expenses, including a boat. The interest rates and terms of personal loans can vary significantly. ### What Is a Vessel Loan? Boat loans may also be referred to vessel loans. Vessel loans can also be used to finance purchases of commercial watercrafts. ## Where to Get a Boat Loan Several different types of lenders offer new and used boat loans. ### Banks Some banks offer boat loans. For example, [Bank of the West](https://www.investopedia.com/best-boat-loans-5085089#toc-best-for-large-loans-bank-of-the-west) offers loans up to $5 million. Interest rates start at 8.99%, and its loan terms range from five to 20 years. ### Credit unions Credit unions are nonprofit, member-owned institutions, and some offer boat financing. [Mountain America Credit Union](https://www.investopedia.com/mountain-america-credit-union-personal-loans-review-8391160) has interest rates starting at 8.74% and loan terms of up to 15 years. ### Online lenders Many online lenders specialize in personal loans, which can make them a good option for boat loans. [LightStream](https://www.investopedia.com/lightstream-personal-loans-review-4800841) offers loans up to $100,000. If you have excellent credit and sign up for autopay, you could qualify for an interest rate as low as 6.99%. The lender has loan terms of two years to 12 years. ### Marine dealerships You may be able to apply for a loan through a marine dealership that sells boats. Some dealerships partner with boat loan companies to give customers access to [dealer financing](https://www.investopedia.com/terms/d/dealer-financing.asp) options. ## What to Consider Before Applying for a Boat Loan Before you apply for a boat loan, consider: * **Your credit score**: Your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) will play an important role in determining the interest rates and terms that lenders offer. If you have poor credit, you may only qualify for a secured loan or a loan with a high interest rate. Boat loan credit requirements will vary depending on the lender. * **Your ability to repay the loan**: [A boat loan calculator](https://www.investopedia.com/is-there-a-boat-loan-calculator-7976199) can help you figure out the total cost of the loan. Will you be able to afford the monthly payments? If you can't, you could risk damaging your credit and losing the boat. * **Total cost of ownership**: The purchase price of a boat is not the only cost to consider. You also have expenses like gas, maintenance, taxes, and storage. ## How to Apply for a Boat Loan * **Choose a lender**. Find a [lender](https://www.investopedia.com/best-boat-loans-5085089) that fits your needs. * **Gather the necessary information**. The lender will want to know details about the type of boat you plan to purchase, as well as personal information on your income, assets, and debt. * **Apply**. Some lenders have an online application process. Other lenders, such as banks and credit unions, may require you to apply in person. ## Pros and Cons of Financing a Boat ### Pros * **Access to funds**: A boat loan can give you access to the funds you need to buy your dream boat. * **Flexibility**: With a multitude of lenders offering boat loans, you can shop around to find flexible terms that meet your needs. ### Cons * **Risk**: A loan is a financial obligation. If you cannot repay it, you could damage your credit. In the case of a secured loan, you could lose your boat. * **Depreciation**: Boats [depreciate](https://www.investopedia.com/terms/d/depreciation.asp) over time. It is possible that the boat will become less valuable than what you owe your lender. ## What Is the Average Interest Rate on a Boat Loan? [The interest rate on a boat loan](https://www.investopedia.com/what-is-a-good-interest-rate-for-a-boat-loan-8303037) is affected by market conditions, your creditworthiness, and the individual lender. As of September 2023, borrowers with excellent credit could expect to find interest rates on a 20-year boat loan starting at approximately 8.24%. ## What Are the Average Terms for a Boat Loan? You will find [a wide range of terms](https://www.investopedia.com/how-long-are-boat-loans-7975687) for boat loans. Ten to 15 year terms are common. You can also find terms for a couple of years or as long as 20 years. ## Where Is the Easiest Place to Get a Boat Loan? Many lenders offer boat loans. You can explore options offered by banks, credit unions, online lenders and marine finance companies. The application requirements and process will vary depending on the lender. ## Who Has the Best Boat Loan Rates? The [best boat loans](https://www.investopedia.com/best-boat-loans-5085089) will give you low rates, high maximums and flexible repayment terms. For example, LightStream offers fast funding, interest rates starting at 6.99%, and terms of 24 to 144 months. ## How Are Super Yachts Financed? Super yachts are extravagant vessels that are significantly larger than standard private yachts. These yachts are purchased by multimillionaires and billionaires. Buyers can pay upfront. Alternatively, they can [explore leasing options or a marine mortgage](https://www.investopedia.com/articles/investing/082015/can-i-afford-super-yacht.asp). ### The Bottom Line A boat loan can be a useful financing option if you have always dreamed of getting out on the water in your own boat. Like any other loan, it is important to consider all of your options and compare interest rates and loan terms before making a decision.

Boats are a major purchase. The price will vary depending on the type of boat, the size and whether it is new or used. The average 20-foot boat brand new could cost $40,000 to $60,000. Many people who decide to buy a boat will explore financing options. What Is a Boat Loan? Boat loans are a type of personal loan for borrowers who want to purchase a boat. Several different types of lenders offer boat loans. These loans are similar to auto loans. Some lenders offer boat-specific loans, but many offer personal loans that can be used for many purposes, including the purchase of a boat. Key Takeaways A boat loan is a type of personal loan that borrowers can use for the purchase of a marine vessel.Borrowers can explore boat loan options at banks, credit unions, online lenders, and marine lenders.A boat loan can break the total cost into more manageable monthly payments, but potentially high interest rates could make the overall cost of the loan expensive. How a Boat Loan Works Boat loans are installment loans, which means you will repay the amount borrowed in monthly amounts with interest. Typical considerations include: The amount you can borrow: The total amount that you borrow will depend on the boat you want to purchase and your lender's discretion.Interest rate: Your interest rate will be fixed or variable. The rate will be determined by factors like the loan term, the type of boat, your creditworthiness, and market conditions.Repayment terms: Repayment terms will vary, but you can expect to find terms of 10 to 15 years. Some lenders have repayment terms of up to 20 years. Unsecured loans typically have longer repayment periods than secured loans.Down payment: Some lenders will require that you pay a percentage of the total loan amount in the form of a down payment. Down payments typically range from 10% to 30%. Types of Boat Loans Borrowers can compare different types of boat loans to determine their best option. Secured Boat loans can be secured. Secured loans require collateral. In most cases, the boat you purchase will serve as the collateral. If you are unable to make your loan payments, your lender could take the boat. Lenders may offer secured loans to people who have poor credit. Unsecured Unsecured loans do not require collateral. Lenders will decide to offer an unsecured loan based on the borrower's creditworthiness. This type of boat loan may come with a higher interest rate because it is riskier for the lender. Home Equity Loan A home equity loan, also referred to as a second mortgage, enables homeowners to borrow against the equity they have in their homes. This is a type of secured loan; your home serves as collateral. Home equity loans tend to have low interest rates, but if you are unable to repay the loan, you risk losing your home. Personal Loan Boat loans are a type of personal loan, but you can also consider a general personal loan to finance your purchase. Personal loans can be used to cover a wide variety of expenses, including a boat. The interest rates and terms of personal loans can vary significantly. What Is a Vessel Loan? Boat loans may also be referred to vessel loans. Vessel loans can also be used to finance purchases of commercial watercrafts. Where to Get a Boat Loan Several different types of lenders offer new and used boat loans. Banks Some banks offer boat loans. For example, Bank of the West offers loans up to $5 million. Interest rates start at 8.99%, and its loan terms range from five to 20 years. Credit unions Credit unions are nonprofit, member-owned institutions, and some offer boat financing. Mountain America Credit Union has interest rates starting at 8.74% and loan terms of up to 15 years. Online lenders Many online lenders specialize in personal loans, which can make them a good option for boat loans. LightStream offers loans up to $100,000. If you have excellent credit and sign up for autopay, you could qualify for an interest rate as low as 6.99%. The lender has loan terms of two years to 12 years. Marine dealerships You may be able to apply for a loan through a marine dealership that sells boats. Some dealerships partner with boat loan companies to give customers access to dealer financing options. What to Consider Before Applying for a Boat Loan Before you apply for a boat loan, consider: Your credit score: Your credit score will play an important role in determining the interest rates and terms that lenders offer. If you have poor credit, you may only qualify for a secured loan or a loan with a high interest rate. Boat loan credit requirements will vary depending on the lender. Your ability to repay the loan: A boat loan calculator can help you figure out the total cost of the loan. Will you be able to afford the monthly payments? If you can't, you could risk damaging your credit and losing the boat. Total cost of ownership: The purchase price of a boat is not the only cost to consider. You also have expenses like gas, maintenance, taxes, and storage. How to Apply for a Boat Loan Choose a lender. Find a lender that fits your needs. Gather the necessary information. The lender will want to know details about the type of boat you plan to purchase, as well as personal information on your income, assets, and debt. Apply. Some lenders have an online application process. Other lenders, such as banks and credit unions, may require you to apply in person. Pros and Cons of Financing a Boat Pros Access to funds: A boat loan can give you access to the funds you need to buy your dream boat. Flexibility: With a multitude of lenders offering boat loans, you can shop around to find flexible terms that meet your needs. Cons Risk: A loan is a financial obligation. If you cannot repay it, you could damage your credit. In the case of a secured loan, you could lose your boat. Depreciation: Boats depreciate over time. It is possible that the boat will become less valuable than what you owe your lender. What Is the Average Interest Rate on a Boat Loan? The interest rate on a boat loan is affected by market conditions, your creditworthiness, and the individual lender. As of September 2023, borrowers with excellent credit could expect to find interest rates on a 20-year boat loan starting at approximately 8.24%. What Are the Average Terms for a Boat Loan? You will find a wide range of terms for boat loans. Ten to 15 year terms are common. You can also find terms for a couple of years or as long as 20 years. Where Is the Easiest Place to Get a Boat Loan? Many lenders offer boat loans. You can explore options offered by banks, credit unions, online lenders and marine finance companies. The application requirements and process will vary depending on the lender. Who Has the Best Boat Loan Rates? The best boat loans will give you low rates, high maximums and flexible repayment terms. For example, LightStream offers fast funding, interest rates starting at 6.99%, and terms of 24 to 144 months. How Are Super Yachts Financed? Super yachts are extravagant vessels that are significantly larger than standard private yachts. These yachts are purchased by multimillionaires and billionaires. Buyers can pay upfront. Alternatively, they can explore leasing options or a marine mortgage. The Bottom Line A boat loan can be a useful financing option if you have always dreamed of getting out on the water in your own boat. Like any other loan, it is important to consider all of your options and compare interest rates and loan terms before making a decision.

https://www.investopedia.com/thoma-bravo-darktrace-acquisition-usd5-billion-8639415

PE Firm Thoma Bravo Set To Buy British Cybersecurity Company Darktrace For $5.3B

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>British AI cybersecurity company Darktrace said it approved a $5.3 billion buyout offer from U.S. private equity firm Thoma Bravo.</li><li>Darktrace shareholders would receive $7.75 a share if the sale goes through.</li><li>The share price reflects a 20% premium to the closing price on April 25, the last business day before the announcement.</li><li>Thoma Bravo's prior offer to acquire Dartrace fell through in 2022 after companies could not agree on the terms of the acquisition.</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"> U.S. private equity firm Thoma Bravo, is set to buy British AI cybersecurity company Darktrace for $5.3 billion. Darktrace said its board unanimously approved the offer, sending its shares about 16% higher in London trading.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The British firm, which provides AI-based services to protect companies from cyberattacks, counts Coca-Cola (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KO">KO</a>) and sports car maker Aston Martin among its clients, according to its website.<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 market remains fragmented, with few truly global players," Darktrace said of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/011116/worlds-top-10-private-equity-firms-apo-bx.asp">Thoma Bravo</a>'s investment in the firm. "Serving the world's largest customers and enterprises requires Darktrace to continually make significant technology investments and further scale globally, to ensure that its platform can stay ahead of changing cyber threats." </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"> Darktrace shareholders would receive $7.75 a share if the sale goes through—a 20% premium to the London-listed firm's closing price on April 25, the last business day before the announcement. </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 previous attempt by Thoma Bravo to buy Darktrace fell through in 2022 as both companies couldn't agree on the terms.<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"> Cybersecurity firms that deploy AI are in heavy demand. Cisco Systems (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO">CSCO</a>), for instance, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cisco-systems-completes-its-usd28-billion-purchase-of-splunk-8610584">acquired cybersecurity provider Splunk</a> for $28 billion in March. </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 * British AI cybersecurity company Darktrace said it approved a $5.3 billion buyout offer from U.S. private equity firm Thoma Bravo. * Darktrace shareholders would receive $7.75 a share if the sale goes through. * The share price reflects a 20% premium to the closing price on April 25, the last business day before the announcement. * Thoma Bravo's prior offer to acquire Dartrace fell through in 2022 after companies could not agree on the terms of the acquisition. U.S. private equity firm Thoma Bravo, is set to buy British AI cybersecurity company Darktrace for $5.3 billion. Darktrace said its board unanimously approved the offer, sending its shares about 16% higher in London trading. The British firm, which provides AI-based services to protect companies from cyberattacks, counts Coca-Cola ([KO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KO)) and sports car maker Aston Martin among its clients, according to its website. "The market remains fragmented, with few truly global players," Darktrace said of [Thoma Bravo](https://www.investopedia.com/articles/markets/011116/worlds-top-10-private-equity-firms-apo-bx.asp)'s investment in the firm. "Serving the world's largest customers and enterprises requires Darktrace to continually make significant technology investments and further scale globally, to ensure that its platform can stay ahead of changing cyber threats." Darktrace shareholders would receive $7.75 a share if the sale goes through—a 20% premium to the London-listed firm's closing price on April 25, the last business day before the announcement. A previous attempt by Thoma Bravo to buy Darktrace fell through in 2022 as both companies couldn't agree on the terms. Cybersecurity firms that deploy AI are in heavy demand. Cisco Systems ([CSCO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO)), for instance, [acquired cybersecurity provider Splunk](https://www.investopedia.com/cisco-systems-completes-its-usd28-billion-purchase-of-splunk-8610584) for $28 billion in March. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

KEY TAKEAWAYS British AI cybersecurity company Darktrace said it approved a $5.3 billion buyout offer from U.S. private equity firm Thoma Bravo.Darktrace shareholders would receive $7.75 a share if the sale goes through.The share price reflects a 20% premium to the closing price on April 25, the last business day before the announcement.Thoma Bravo's prior offer to acquire Dartrace fell through in 2022 after companies could not agree on the terms of the acquisition. U.S. private equity firm Thoma Bravo, is set to buy British AI cybersecurity company Darktrace for $5.3 billion. Darktrace said its board unanimously approved the offer, sending its shares about 16% higher in London trading. The British firm, which provides AI-based services to protect companies from cyberattacks, counts Coca-Cola (KO) and sports car maker Aston Martin among its clients, according to its website. "The market remains fragmented, with few truly global players," Darktrace said of Thoma Bravo's investment in the firm. "Serving the world's largest customers and enterprises requires Darktrace to continually make significant technology investments and further scale globally, to ensure that its platform can stay ahead of changing cyber threats." Darktrace shareholders would receive $7.75 a share if the sale goes through—a 20% premium to the London-listed firm's closing price on April 25, the last business day before the announcement. A previous attempt by Thoma Bravo to buy Darktrace fell through in 2022 as both companies couldn't agree on the terms. Cybersecurity firms that deploy AI are in heavy demand. Cisco Systems (CSCO), for instance, acquired cybersecurity provider Splunk for $28 billion in March. Do you have a news tip for Investopedia reporters? Please email us at [email protected]