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https://www.investopedia.com/ask/answers/110614/whats-difference-between-credit-rating-and-credit-score.asp

Credit Rating vs. Credit Score: 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-credit-rating-vs-credit-score-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"> Credit Rating vs. Credit Score: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Credit scores are three-digit numbers that tell lenders whether an individual is likely a responsible borrower. Credit ratings, on the other hand, are letter ratings assigned to corporations or governments and are used by investors to determine their riskiness. Learn about the similarities and differences between credit scores and credit ratings, as well as how they are calculated and how they are used. </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>Credit ratings are expressed as letter grades and used for businesses and governments.</li><li>Credit scores are three-digit numbers used for individuals and some small businesses.</li><li>Your credit score is based on information from the three major credit reporting agencies: Experian, TransUnion, and Equifax.</li><li>FICO credit scores range from 300 to 850.<span class="ql-inline-citation" data-cite="12"></span></li><li>Credit ratings are produced by credit rating agencies, such as S&amp;P Global, Moody's Investor Service, or Fitch.</li></ul></div></div></div> <span class="heading-toc" id="toc-credit-rating"></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"> Credit Rating </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> When creating a credit rating, all <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/bonds/09/history-credit-rating-agencies.asp">agencies</a> can set their own scales, but the ratings most popularly used are produced by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp.asp">S&amp;P Global</a>. It uses AAA ratings for corporations or governments that have the strongest capacity for meeting financial commitments, followed by AA, A, BBB, BB, B, CCC, CC, C, and D for default. Pluses and minuses may be added to distinguish differences between ratings from AA to CCC.<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"> To calculate these ratings, credit rating agencies like S&amp;P Global, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fitch-ratings.asp">Fitch Ratings</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moodys.asp">Moody’s</a> review a business’s or government’s history of borrowing and repaying loans, including whether it has a history of missed payments, bankruptcies, or defaults. They will also review cash flows and debt levels.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You can improve your credit score over time by paying your bills on time, paying more than your monthly minimum payment on your credit card, and reducing your debt.<br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The agency also looks at the borrower's cash flows and current debt levels. If the organization has a steady income and the future looks bright, the credit rating will be higher. If there are any doubts about the borrower's economic outlook, their credit rating will fall. </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 credit ratings agencies also assign outlook ratings—“negative,” “positive,” “stable,” and “developing”—to countries. These indicate the potential trend in a country’s rating over the next six months to two years.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-credit-score"></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"> Credit Score </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Credit scores are expressed as a three-digit number. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beacon-score.asp">The most commonly used credit score</a> in consumer lending decisions is the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp">FICO</a>, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fico-fair-isaac.asp">Fair Isaac Corporation</a>, score. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>To determine an individual's credit score, FICO takes several factors about an individual’s finances into account, including their payment history, credit mix, new credit accounts, credit utilization ratio, and length of credit history.<span class="ql-inline-citation" data-cite="15"></span><br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Another credit score for individuals is called the VantageScore, which is the same at all three credit bureaus, unlike the FICO score which can vary slightly. But most lenders use FICO scores when assessing the creditworthiness of a consumer.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> FICO scores range from 300 to 850. A poor score is between 300 and 579, a fair score is from 580 to 669, a good score is from 670 to 739, a very good score is from 740 to 799, and an exceptional score is from 800 to 850.<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_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The higher your score, the more likely you will be to qualify for loans and better the interest rates.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></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_28-0"> <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_29-0"> A credit rating is expressed as a letter grade and reflects the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-worthiness.asp">creditworthiness</a> of a business or government. A numerical credit score, also an expression of creditworthiness, is used for individual consumers or small businesses. Credit ratings are provided by credit rating agencies, mainly S&amp;P, Moody's, and Fitch, whereas your credit score primarily comes from FICO, and your creditworthiness is determined by three rating agencies: Experian, TransUnion, and Equifax. </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"> When it comes to applying for a personal loan, mortgage, or new credit card, lenders will review your personal credit score to determine whether they will extend you credit and how much. When investors seek to purchase sovereign debt from a country or debt issued by a company, they will evaluate the credit rating as determined by the credit agencies. </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"> Both ratings and scores are designed to show potential lenders and creditors a borrower’s likelihood of repaying a debt. They are created by independent third parties rather than by creditors or consumers.<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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-how-do-i-improve-my-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Improve My Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can take several steps to improve your credit score. First, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/check-your-credit-score-without-hurting-it-5213912">check your credit report</a> for errors and make sure to correct any inaccuracies. Pay your bills on time, making at least the minimum payments. Aim to reduce your debt and have a healthy credit mix.<span class="ql-inline-citation" data-cite="14"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-does-checking-your-credit-report-affect-your-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Checking Your Credit Report Affect Your Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Checking your credit score and credit report will not have an impact on your credit score. This is considered a "soft inquiry."<span class="ql-inline-citation" data-cite="18"></span> You are entitled to one free copy of your credit report from the major credit bureaus once per year, which you can get through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.annualcreditreport.com/index.action" rel="sponsored nofollow">AnnualCreditReport.com</a>.<span class="ql-inline-citation" data-cite="16"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-opening-new-credit-affect-your-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Opening New Credit Affect Your Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When you open new credit, the lender will pull your credit history, which creates a "hard inquiry" that can negatively affect your credit score temporarily; however, if you use that credit responsibly, you can boost your credit score in the long term.<span class="ql-inline-citation" data-cite="17"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Although scales may vary, the most commonly used scales for credit scores consider borrowers ranked in the bottom third of the scale to be risky. Borrowers with FICO scores from 300 to 579, for example, are considered risky, while those with scores ranging from 580 to 850 are considered fair to excellent.<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_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> On the S&amp;P credit rating scale, borrowers with ratings under BBB, in the bottom two-thirds of the scale, are considered “non-investment grade,” while those that fall between BBB and AAA on the scale are considered “investment grade.”<span class="ql-inline-citation" data-cite="13"></span> </p></div>

## Credit Rating vs. Credit Score: An Overview Credit scores are three-digit numbers that tell lenders whether an individual is likely a responsible borrower. Credit ratings, on the other hand, are letter ratings assigned to corporations or governments and are used by investors to determine their riskiness. Learn about the similarities and differences between credit scores and credit ratings, as well as how they are calculated and how they are used. ### Key Takeaways * Credit ratings are expressed as letter grades and used for businesses and governments. * Credit scores are three-digit numbers used for individuals and some small businesses. * Your credit score is based on information from the three major credit reporting agencies: Experian, TransUnion, and Equifax. * FICO credit scores range from 300 to 850. * Credit ratings are produced by credit rating agencies, such as S&P Global, Moody's Investor Service, or Fitch. ## Credit Rating When creating a credit rating, all [agencies](https://www.investopedia.com/articles/bonds/09/history-credit-rating-agencies.asp) can set their own scales, but the ratings most popularly used are produced by [S&P Global](https://www.investopedia.com/terms/s/sp.asp). It uses AAA ratings for corporations or governments that have the strongest capacity for meeting financial commitments, followed by AA, A, BBB, BB, B, CCC, CC, C, and D for default. Pluses and minuses may be added to distinguish differences between ratings from AA to CCC. To calculate these ratings, credit rating agencies like S&P Global, [Fitch Ratings](https://www.investopedia.com/terms/f/fitch-ratings.asp), and [Moody’s](https://www.investopedia.com/terms/m/moodys.asp) review a business’s or government’s history of borrowing and repaying loans, including whether it has a history of missed payments, bankruptcies, or defaults. They will also review cash flows and debt levels. ### You can improve your credit score over time by paying your bills on time, paying more than your monthly minimum payment on your credit card, and reducing your debt. The agency also looks at the borrower's cash flows and current debt levels. If the organization has a steady income and the future looks bright, the credit rating will be higher. If there are any doubts about the borrower's economic outlook, their credit rating will fall. The credit ratings agencies also assign outlook ratings—“negative,” “positive,” “stable,” and “developing”—to countries. These indicate the potential trend in a country’s rating over the next six months to two years. ## Credit Score Credit scores are expressed as a three-digit number. [The most commonly used credit score](https://www.investopedia.com/terms/b/beacon-score.asp) in consumer lending decisions is the [FICO](https://www.investopedia.com/terms/f/ficoscore.asp), or [Fair Isaac Corporation](https://www.investopedia.com/terms/f/fico-fair-isaac.asp), score. ### To determine an individual's credit score, FICO takes several factors about an individual’s finances into account, including their payment history, credit mix, new credit accounts, credit utilization ratio, and length of credit history. Another credit score for individuals is called the VantageScore, which is the same at all three credit bureaus, unlike the FICO score which can vary slightly. But most lenders use FICO scores when assessing the creditworthiness of a consumer. FICO scores range from 300 to 850. A poor score is between 300 and 579, a fair score is from 580 to 669, a good score is from 670 to 739, a very good score is from 740 to 799, and an exceptional score is from 800 to 850. The higher your score, the more likely you will be to qualify for loans and better the interest rates. ## Key Differences A credit rating is expressed as a letter grade and reflects the [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp) of a business or government. A numerical credit score, also an expression of creditworthiness, is used for individual consumers or small businesses. Credit ratings are provided by credit rating agencies, mainly S&P, Moody's, and Fitch, whereas your credit score primarily comes from FICO, and your creditworthiness is determined by three rating agencies: Experian, TransUnion, and Equifax. When it comes to applying for a personal loan, mortgage, or new credit card, lenders will review your personal credit score to determine whether they will extend you credit and how much. When investors seek to purchase sovereign debt from a country or debt issued by a company, they will evaluate the credit rating as determined by the credit agencies. Both ratings and scores are designed to show potential lenders and creditors a borrower’s likelihood of repaying a debt. They are created by independent third parties rather than by creditors or consumers. ## How Do I Improve My Credit Score? You can take several steps to improve your credit score. First, [check your credit report](https://www.investopedia.com/check-your-credit-score-without-hurting-it-5213912) for errors and make sure to correct any inaccuracies. Pay your bills on time, making at least the minimum payments. Aim to reduce your debt and have a healthy credit mix. ## Does Checking Your Credit Report Affect Your Credit Score? Checking your credit score and credit report will not have an impact on your credit score. This is considered a "soft inquiry." You are entitled to one free copy of your credit report from the major credit bureaus once per year, which you can get through [AnnualCreditReport.com](https://www.annualcreditreport.com/index.action). ## Does Opening New Credit Affect Your Credit Score? When you open new credit, the lender will pull your credit history, which creates a "hard inquiry" that can negatively affect your credit score temporarily; however, if you use that credit responsibly, you can boost your credit score in the long term. ## The Bottom Line Although scales may vary, the most commonly used scales for credit scores consider borrowers ranked in the bottom third of the scale to be risky. Borrowers with FICO scores from 300 to 579, for example, are considered risky, while those with scores ranging from 580 to 850 are considered fair to excellent. On the S&P credit rating scale, borrowers with ratings under BBB, in the bottom two-thirds of the scale, are considered “non-investment grade,” while those that fall between BBB and AAA on the scale are considered “investment grade.”

Credit Rating vs. Credit Score: An Overview Credit scores are three-digit numbers that tell lenders whether an individual is likely a responsible borrower. Credit ratings, on the other hand, are letter ratings assigned to corporations or governments and are used by investors to determine their riskiness. Learn about the similarities and differences between credit scores and credit ratings, as well as how they are calculated and how they are used. Key Takeaways Credit ratings are expressed as letter grades and used for businesses and governments.Credit scores are three-digit numbers used for individuals and some small businesses.Your credit score is based on information from the three major credit reporting agencies: Experian, TransUnion, and Equifax.FICO credit scores range from 300 to 850.Credit ratings are produced by credit rating agencies, such as S&P Global, Moody's Investor Service, or Fitch. Credit Rating When creating a credit rating, all agencies can set their own scales, but the ratings most popularly used are produced by S&P Global. It uses AAA ratings for corporations or governments that have the strongest capacity for meeting financial commitments, followed by AA, A, BBB, BB, B, CCC, CC, C, and D for default. Pluses and minuses may be added to distinguish differences between ratings from AA to CCC. To calculate these ratings, credit rating agencies like S&P Global, Fitch Ratings, and Moody’s review a business’s or government’s history of borrowing and repaying loans, including whether it has a history of missed payments, bankruptcies, or defaults. They will also review cash flows and debt levels. You can improve your credit score over time by paying your bills on time, paying more than your monthly minimum payment on your credit card, and reducing your debt. The agency also looks at the borrower's cash flows and current debt levels. If the organization has a steady income and the future looks bright, the credit rating will be higher. If there are any doubts about the borrower's economic outlook, their credit rating will fall. The credit ratings agencies also assign outlook ratings—“negative,” “positive,” “stable,” and “developing”—to countries. These indicate the potential trend in a country’s rating over the next six months to two years. Credit Score Credit scores are expressed as a three-digit number. The most commonly used credit score in consumer lending decisions is the FICO, or Fair Isaac Corporation, score. To determine an individual's credit score, FICO takes several factors about an individual’s finances into account, including their payment history, credit mix, new credit accounts, credit utilization ratio, and length of credit history. Another credit score for individuals is called the VantageScore, which is the same at all three credit bureaus, unlike the FICO score which can vary slightly. But most lenders use FICO scores when assessing the creditworthiness of a consumer. FICO scores range from 300 to 850. A poor score is between 300 and 579, a fair score is from 580 to 669, a good score is from 670 to 739, a very good score is from 740 to 799, and an exceptional score is from 800 to 850. The higher your score, the more likely you will be to qualify for loans and better the interest rates. Key Differences A credit rating is expressed as a letter grade and reflects the creditworthiness of a business or government. A numerical credit score, also an expression of creditworthiness, is used for individual consumers or small businesses. Credit ratings are provided by credit rating agencies, mainly S&P, Moody's, and Fitch, whereas your credit score primarily comes from FICO, and your creditworthiness is determined by three rating agencies: Experian, TransUnion, and Equifax. When it comes to applying for a personal loan, mortgage, or new credit card, lenders will review your personal credit score to determine whether they will extend you credit and how much. When investors seek to purchase sovereign debt from a country or debt issued by a company, they will evaluate the credit rating as determined by the credit agencies. Both ratings and scores are designed to show potential lenders and creditors a borrower’s likelihood of repaying a debt. They are created by independent third parties rather than by creditors or consumers. How Do I Improve My Credit Score? You can take several steps to improve your credit score. First, check your credit report for errors and make sure to correct any inaccuracies. Pay your bills on time, making at least the minimum payments. Aim to reduce your debt and have a healthy credit mix. Does Checking Your Credit Report Affect Your Credit Score? Checking your credit score and credit report will not have an impact on your credit score. This is considered a "soft inquiry." You are entitled to one free copy of your credit report from the major credit bureaus once per year, which you can get through AnnualCreditReport.com. Does Opening New Credit Affect Your Credit Score? When you open new credit, the lender will pull your credit history, which creates a "hard inquiry" that can negatively affect your credit score temporarily; however, if you use that credit responsibly, you can boost your credit score in the long term. The Bottom Line Although scales may vary, the most commonly used scales for credit scores consider borrowers ranked in the bottom third of the scale to be risky. Borrowers with FICO scores from 300 to 579, for example, are considered risky, while those with scores ranging from 580 to 850 are considered fair to excellent. On the S&P credit rating scale, borrowers with ratings under BBB, in the bottom two-thirds of the scale, are considered “non-investment grade,” while those that fall between BBB and AAA on the scale are considered “investment grade.”

https://www.investopedia.com/terms/c/convertible-virtual-currency.asp

Convertible Virtual Currency: Meaning, Types, 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-convertible-virtual-currency"></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 Convertible Virtual Currency? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Convertible virtual currency is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/digital-money.asp">digital currency</a> that can be used as a substitute for real and legally recognized currency even though it does not have legal tender status. Convertible digital currencies can be exchanged for fiat currencies on exchanges and used as a store of value or payment method in addition to the uses they were created for. </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"><p><br/></p><ul><li>A convertible virtual currency can be traded for fiat currencies on exchanges or used directly for legitimate forms of commerce and payments.</li><li>These currencies are different from state-backed currencies like the dollar or the euro in that they have no physical presence and are not issued by a government.</li><li>Convertible digital currencies generally run on decentralized blockchain networks.</li><li>Bitcoin, ether, and XRP are examples of convertible virtual currencies.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-convertible-virtual-currency-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> How Convertible Virtual Currency Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Convertible virtual currencies and fiat currencies can be exchanged for each other. They tend to have an exchange rate based on supply and demand. </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"> Convertible virtual currencies contrast with non-convertible currencies (or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closed-virtual-currency.asp">closed virtual currencies</a>) that are not used in external commerce or directly exchangeable for other currencies, such as virtual currency contained within a video game environment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Convertible virtual currency is an example of how technological advances are driving disruptive changes in the traditional way of doing things across the globe. This is especially true of the way goods and services are paid for and acquired. </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"> Formal Definitions of Convertible Virtual Currency </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Virtual currency is defined by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fincen.asp">Financial Crimes Enforcement Network</a> (FinCEN)—a bureau of the U.S. Treasury—as "a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency."<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> A convertible virtual currency usually has a measurable value in real money, but what makes it convertible lies in its ability to be exchangeable. Not all virtual currency can be exchanged for legal tender; therefore, not all virtual currency is convertible. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service</a> (IRS) defines a convertible virtual currency as one that has a value in real currency.<span class="ql-inline-citation" data-cite="2"></span> For the IRS, bitcoin, ether, and similar currencies are convertible virtual currencies. </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"> Another feature of convertible virtual currencies that makes them similar to state-backed currencies is their tax liability, at least in the U.S. "The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences."<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The nature of convertible virtual currencies makes them susceptible to use as vehicles for money laundering, tax evasion, and terrorist financing. This has led some countries to propose regulatory measures for how currencies will be observed and used for tax purposes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> In the U.S., FinCen guidelines rule that virtual currency that can be exchanged for legally recognized money is property, not money, and will be treated as such. Tax principles that apply to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/propertytax.asp">property transactions</a>, therefore, apply to these types of currencies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> For example, a taxpayer who receives bitcoin in exchange for goods and services has to record the fair value of the virtual currency in U.S. dollars as of the date it was received. This value is included in computing the taxpayer's annual gross income. In addition, a virtual currency is also regarded as a capital asset depending on how long it has been held and is thus subject to tax on its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/tax/09/tax-effects-capital-gains.asp">capital gains</a> or losses. </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"> So, if you received one bitcoin as payment for services, you'd need to report any income generated from that sale as income that year on your taxes. If you didn't spend that bitcoin for more than one year and its market value increased during that time, you'd also owe capital gains taxes on the gain when you cashed it in. </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-types-of-convertible-virtual-currencies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Types of Convertible Virtual Currencies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The most popular form of virtual currency remains <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">Bitcoin</a>. Bitcoin runs on a decentralized peer-to-peer network that employs <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a> technology to prevent fraud and control the money supply. </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"> Bitcoin is a convertible virtual currency because it can be exchanged for real money based on its determinable market value. The value of a Bitcoin in dollars has ranged from as low as a few cents to an all-time high of more than $73,000 in March 2024. Other popular virtual currencies are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ether-cryptocurrency.asp">ether</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/ripple-cryptocurrency.asp">XRP</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-convertible-virtual-currencies-example"></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"> Convertible Virtual Currencies Example </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Virtual currency can be converted for cash through online exchanges or brokers. Exchanges such as <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> and Bitstamp allow users to exchange their bitcoins for their local currency. The Bitcoin holder makes a sell order like they would if making a trade with a securities broker. The "sell" order includes the number of Bitcoins and the price per coin. The user's account is credited in the local currency when their order is matched to a corresponding "buy" order. </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"> Bitcoin can also be exchanged for real currency using <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin-atm.asp">Bitcoin ATMs</a>, which are only available in select countries. </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 some circumstances, closed virtual currencies are considered convertible virtual currencies. Linden dollars is a closed virtual currency that is solely used in a virtual world called Second Life. Second Life is a social game with a virtual economy where players buy and sell goods using Linden dollars. Players convert their real money (e.g., euros) into Linden dollars at the game's official currency exchange site known as LindeX.<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"> Like a traditional exchange platform, market and limit buy and sell orders are conducted among the players. As of June 2021, $319 Linden dollars will buy 1 U.S. dollar. FinCEN rules about virtual currencies recognized Linden dollars as a convertible virtual currency in 2013.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <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-an-example-of-a-convertible-virtual-currency"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an Example of a Convertible Virtual Currency?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Bitcoin, ether, and XRP are examples of convertible virtual currencies.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-what-is-virtual-currency-mixing"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Virtual Currency Mixing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Convertible virtual currency mixing is the practice of using several virtual currencies to hide a monetary source, destination, and amount. FinCen proposed a rule in October 2023 to make the practice illegal because it is similar to money laundering.<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_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-is-ethereum-a-convertible-virtual-currency"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Ethereum a Convertible Virtual Currency?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Ethereum is the blockchain network and ecosystem with a native token, ether. Ether is a convertible virtual currency.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Convertible virtual currencies are digital assets that can be bought with and exchanged for fiat currency. They are generally, but not always, cryptocurrencies or other digital assets with a monetary or market value and can be used as payments for goods and services. </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 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/><br/> </p></div>

## What Is Convertible Virtual Currency? Convertible virtual currency is a [digital currency](https://www.investopedia.com/terms/d/digital-money.asp) that can be used as a substitute for real and legally recognized currency even though it does not have legal tender status. Convertible digital currencies can be exchanged for fiat currencies on exchanges and used as a store of value or payment method in addition to the uses they were created for. ### Key Takeaways * A convertible virtual currency can be traded for fiat currencies on exchanges or used directly for legitimate forms of commerce and payments. * These currencies are different from state-backed currencies like the dollar or the euro in that they have no physical presence and are not issued by a government. * Convertible digital currencies generally run on decentralized blockchain networks. * Bitcoin, ether, and XRP are examples of convertible virtual currencies. ## How Convertible Virtual Currency Works Convertible virtual currencies and fiat currencies can be exchanged for each other. They tend to have an exchange rate based on supply and demand. Convertible virtual currencies contrast with non-convertible currencies (or [closed virtual currencies](https://www.investopedia.com/terms/c/closed-virtual-currency.asp)) that are not used in external commerce or directly exchangeable for other currencies, such as virtual currency contained within a video game environment. Convertible virtual currency is an example of how technological advances are driving disruptive changes in the traditional way of doing things across the globe. This is especially true of the way goods and services are paid for and acquired. ### Formal Definitions of Convertible Virtual Currency Virtual currency is defined by the [Financial Crimes Enforcement Network](https://www.investopedia.com/terms/f/fincen.asp) (FinCEN)—a bureau of the U.S. Treasury—as "a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency." A convertible virtual currency usually has a measurable value in real money, but what makes it convertible lies in its ability to be exchangeable. Not all virtual currency can be exchanged for legal tender; therefore, not all virtual currency is convertible. The [Internal Revenue Service](https://www.investopedia.com/terms/i/irs.asp) (IRS) defines a convertible virtual currency as one that has a value in real currency. For the IRS, bitcoin, ether, and similar currencies are convertible virtual currencies. Another feature of convertible virtual currencies that makes them similar to state-backed currencies is their tax liability, at least in the U.S. "The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences." ## Special Considerations The nature of convertible virtual currencies makes them susceptible to use as vehicles for money laundering, tax evasion, and terrorist financing. This has led some countries to propose regulatory measures for how currencies will be observed and used for tax purposes. In the U.S., FinCen guidelines rule that virtual currency that can be exchanged for legally recognized money is property, not money, and will be treated as such. Tax principles that apply to [property transactions](https://www.investopedia.com/terms/p/propertytax.asp), therefore, apply to these types of currencies. For example, a taxpayer who receives bitcoin in exchange for goods and services has to record the fair value of the virtual currency in U.S. dollars as of the date it was received. This value is included in computing the taxpayer's annual gross income. In addition, a virtual currency is also regarded as a capital asset depending on how long it has been held and is thus subject to tax on its [capital gains](https://www.investopedia.com/articles/tax/09/tax-effects-capital-gains.asp) or losses. So, if you received one bitcoin as payment for services, you'd need to report any income generated from that sale as income that year on your taxes. If you didn't spend that bitcoin for more than one year and its market value increased during that time, you'd also owe capital gains taxes on the gain when you cashed it in. ## Types of Convertible Virtual Currencies The most popular form of virtual currency remains [Bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp). Bitcoin runs on a decentralized peer-to-peer network that employs [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) technology to prevent fraud and control the money supply. Bitcoin is a convertible virtual currency because it can be exchanged for real money based on its determinable market value. The value of a Bitcoin in dollars has ranged from as low as a few cents to an all-time high of more than $73,000 in March 2024. Other popular virtual currencies are [ether](https://www.investopedia.com/terms/e/ether-cryptocurrency.asp) and [XRP](https://www.investopedia.com/terms/r/ripple-cryptocurrency.asp). ## Convertible Virtual Currencies Example Virtual currency can be converted for cash through online exchanges or brokers. Exchanges such as [Coinbase](https://www.investopedia.com/tech/coinbase-what-it-and-how-do-you-use-it/) and Bitstamp allow users to exchange their bitcoins for their local currency. The Bitcoin holder makes a sell order like they would if making a trade with a securities broker. The "sell" order includes the number of Bitcoins and the price per coin. The user's account is credited in the local currency when their order is matched to a corresponding "buy" order. Bitcoin can also be exchanged for real currency using [Bitcoin ATMs](https://www.investopedia.com/terms/b/bitcoin-atm.asp), which are only available in select countries. In some circumstances, closed virtual currencies are considered convertible virtual currencies. Linden dollars is a closed virtual currency that is solely used in a virtual world called Second Life. Second Life is a social game with a virtual economy where players buy and sell goods using Linden dollars. Players convert their real money (e.g., euros) into Linden dollars at the game's official currency exchange site known as LindeX. Like a traditional exchange platform, market and limit buy and sell orders are conducted among the players. As of June 2021, $319 Linden dollars will buy 1 U.S. dollar. FinCEN rules about virtual currencies recognized Linden dollars as a convertible virtual currency in 2013. ## What Is an Example of a Convertible Virtual Currency? Bitcoin, ether, and XRP are examples of convertible virtual currencies. ## What Is Virtual Currency Mixing? Convertible virtual currency mixing is the practice of using several virtual currencies to hide a monetary source, destination, and amount. FinCen proposed a rule in October 2023 to make the practice illegal because it is similar to money laundering. ## Is Ethereum a Convertible Virtual Currency? Ethereum is the blockchain network and ecosystem with a native token, ether. Ether is a convertible virtual currency. ## The Bottom Line Convertible virtual currencies are digital assets that can be bought with and exchanged for fiat currency. They are generally, but not always, cryptocurrencies or other digital assets with a monetary or market value and can be used as payments for goods and services. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.*

What Is Convertible Virtual Currency? Convertible virtual currency is a digital currency that can be used as a substitute for real and legally recognized currency even though it does not have legal tender status. Convertible digital currencies can be exchanged for fiat currencies on exchanges and used as a store of value or payment method in addition to the uses they were created for. Key Takeaways A convertible virtual currency can be traded for fiat currencies on exchanges or used directly for legitimate forms of commerce and payments.These currencies are different from state-backed currencies like the dollar or the euro in that they have no physical presence and are not issued by a government.Convertible digital currencies generally run on decentralized blockchain networks.Bitcoin, ether, and XRP are examples of convertible virtual currencies. How Convertible Virtual Currency Works Convertible virtual currencies and fiat currencies can be exchanged for each other. They tend to have an exchange rate based on supply and demand. Convertible virtual currencies contrast with non-convertible currencies (or closed virtual currencies) that are not used in external commerce or directly exchangeable for other currencies, such as virtual currency contained within a video game environment. Convertible virtual currency is an example of how technological advances are driving disruptive changes in the traditional way of doing things across the globe. This is especially true of the way goods and services are paid for and acquired. Formal Definitions of Convertible Virtual Currency Virtual currency is defined by the Financial Crimes Enforcement Network (FinCEN)—a bureau of the U.S. Treasury—as "a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency." A convertible virtual currency usually has a measurable value in real money, but what makes it convertible lies in its ability to be exchangeable. Not all virtual currency can be exchanged for legal tender; therefore, not all virtual currency is convertible. The Internal Revenue Service (IRS) defines a convertible virtual currency as one that has a value in real currency. For the IRS, bitcoin, ether, and similar currencies are convertible virtual currencies. Another feature of convertible virtual currencies that makes them similar to state-backed currencies is their tax liability, at least in the U.S. "The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences." Special Considerations The nature of convertible virtual currencies makes them susceptible to use as vehicles for money laundering, tax evasion, and terrorist financing. This has led some countries to propose regulatory measures for how currencies will be observed and used for tax purposes. In the U.S., FinCen guidelines rule that virtual currency that can be exchanged for legally recognized money is property, not money, and will be treated as such. Tax principles that apply to property transactions, therefore, apply to these types of currencies. For example, a taxpayer who receives bitcoin in exchange for goods and services has to record the fair value of the virtual currency in U.S. dollars as of the date it was received. This value is included in computing the taxpayer's annual gross income. In addition, a virtual currency is also regarded as a capital asset depending on how long it has been held and is thus subject to tax on its capital gains or losses. So, if you received one bitcoin as payment for services, you'd need to report any income generated from that sale as income that year on your taxes. If you didn't spend that bitcoin for more than one year and its market value increased during that time, you'd also owe capital gains taxes on the gain when you cashed it in. Types of Convertible Virtual Currencies The most popular form of virtual currency remains Bitcoin. Bitcoin runs on a decentralized peer-to-peer network that employs blockchain technology to prevent fraud and control the money supply. Bitcoin is a convertible virtual currency because it can be exchanged for real money based on its determinable market value. The value of a Bitcoin in dollars has ranged from as low as a few cents to an all-time high of more than $73,000 in March 2024. Other popular virtual currencies are ether and XRP. Convertible Virtual Currencies Example Virtual currency can be converted for cash through online exchanges or brokers. Exchanges such as Coinbase and Bitstamp allow users to exchange their bitcoins for their local currency. The Bitcoin holder makes a sell order like they would if making a trade with a securities broker. The "sell" order includes the number of Bitcoins and the price per coin. The user's account is credited in the local currency when their order is matched to a corresponding "buy" order. Bitcoin can also be exchanged for real currency using Bitcoin ATMs, which are only available in select countries. In some circumstances, closed virtual currencies are considered convertible virtual currencies. Linden dollars is a closed virtual currency that is solely used in a virtual world called Second Life. Second Life is a social game with a virtual economy where players buy and sell goods using Linden dollars. Players convert their real money (e.g., euros) into Linden dollars at the game's official currency exchange site known as LindeX. Like a traditional exchange platform, market and limit buy and sell orders are conducted among the players. As of June 2021, $319 Linden dollars will buy 1 U.S. dollar. FinCEN rules about virtual currencies recognized Linden dollars as a convertible virtual currency in 2013. What Is an Example of a Convertible Virtual Currency? Bitcoin, ether, and XRP are examples of convertible virtual currencies. What Is Virtual Currency Mixing? Convertible virtual currency mixing is the practice of using several virtual currencies to hide a monetary source, destination, and amount. FinCen proposed a rule in October 2023 to make the practice illegal because it is similar to money laundering. Is Ethereum a Convertible Virtual Currency? Ethereum is the blockchain network and ecosystem with a native token, ether. Ether is a convertible virtual currency. The Bottom Line Convertible virtual currencies are digital assets that can be bought with and exchanged for fiat currency. They are generally, but not always, cryptocurrencies or other digital assets with a monetary or market value and can be used as payments for goods and services. 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/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp

Fannie Mae and Freddie Mac: An Overview

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The Federal National Mortgage Association, commonly known as "Fannie Mae," and the Federal Home Loan Mortgage Corporation, "Freddie Mac," are the two government-sponsored enterprises (GSEs) chartered by the U.S. Congress in 1938. Neither originates or services its own mortgages. Instead, they buy and guarantee mortgages issued through lenders in the secondary mortgage market.<span class="ql-inline-citation" data-cite="42"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Their influence over the U.S. real estate market is hard to overstate. The names Fannie Mae and Freddie Mac rarely surface on investing sites or financial news headlines. Yet, these enterprises have been the pillars on which the American housing market of the last 80 years has largely been built. Their sway lies in securitizing loans, effectively transforming individual mortgages into tradable bonds. This constant flow of capital allows lenders to extend more credit, ultimately shaping interest rates and making homeownership accessible to millions of Americans. </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 look at how they work, their roles in the 2008 financial crisis, their work for renters and homeowners during the COVID-19 pandemic, and their prospects in the years ahead. </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>Fannie Mae was first chartered by the U.S. government in 1938 to help boost the mortgage market while Congress chartered Freddie Mac in 1970 to extend credit beyond commercial banks.<span class="ql-inline-citation" data-cite="15"></span><span class="ql-inline-citation" data-cite="43"></span></li><li>Neither organization originates or services loans but buys mortgages from lenders to hold or repackage as mortgage-backed securities.</li><li>Lenders use the money from selling mortgages to Fannie Mae and Freddie Mac to originate more loans, widening the pool of money available for individuals and families to buy homes.</li><li>Fannie Mae and Freddie Mac issued a temporary moratorium on foreclosures and evictions because of the COVID-19 pandemic.<span class="ql-inline-citation" data-cite="38"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-fannie-mae"></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 Fannie Mae? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> In the early 20th century, homeownership was out of reach for most people in the U.S.. Unless you could pay cash for an entire home (which few people could), you were looking at a prohibitively large down payment and a short-term loan, culminating in a big <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balloon-payment.asp">balloon payment</a>.<span class="ql-inline-citation" data-cite="30"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Even if you could buy a home during the Great Depression, you might have been among the nearly one in four homeowners who lost their homes to foreclosure. The banks also had no money to lend, and the nation faced a housing crisis.<span class="ql-inline-citation" data-cite="44"></span> The U.S. Congress responded in 1938 with the National Housing Act, creating the Federal National Mortgage Association, better known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/fannie-mae-loans/">Fannie Mae</a> from its acronym, FNMA, to supply reliable, steady funding for housing. It brought a new type of mortgage to the market: the long-term, fixed-rate loan with an option to refinance anytime.<span class="ql-inline-citation" data-cite="15"></span> This has become the primary way many Americans buy their first homes. </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"> Fannie Mae initially bought mortgages insured by the Federal Housing Administration (FHA) and later added loans guaranteed by the Veterans Administration (VA), later called Veterans Affairs.<span class="ql-inline-citation" data-cite="16"></span> The Johnson administration privatized Fannie Mae in 1968, making it a shareholder-owned company funded entirely with private capital. This would have significant effects later on, but it resulted from a budget gimmick: Starting in 1965, Fannie Mae was growing more rapidly. This might have been good for homeowners able to buy homes at the time but bad for the Johnson presidential administration: an accounting quirk meant that Fannie Mae's mortgages were added to the annual budget expenditures, thus increasing the budget deficit. </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"> Two years later, Fannie Mae was authorized to buy conventional mortgages in addition to FHA and VA loans.<span class="ql-inline-citation" data-cite="42"></span><span class="ql-inline-citation" data-cite="16"></span> The agency began issuing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp">mortgage-backed securities</a> (MBS) in the 1980s to offer more liquidity in the mortgage investment market.<span class="ql-inline-citation" data-cite="16"></span> The money to buy mortgage-related assets came from issuing debt securities offered in the U.S. and international capital markets.<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_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> For decades, Fannie Mae would be the main buyer and seller of government-insured mortgages. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-what-is-freddie-mac"></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 Is Freddie Mac? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freddiemac.asp">Freddie Mac</a> is the unofficial name of the Federal Home Loan Mortgage Corporation. It was established in 1970 under the Emergency Home Finance Act to expand the secondary mortgage market and reduce interest rate risk for banks. In 1989, it was reorganized as a shareholder-owned company as part of the Financial Institutions Reform, Recovery, and Enforcement Act.<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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Freddie Mac's charter is like Fannie Mae's. It was meant to expand the secondary mortgage market and MBS by buying loans made by banks, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/041015/what-difference-between-savings-loan-company-and-bank.asp">savings and loans</a>, and other lending institutions. But unlike Fannie Mae, which buys mortgages from major retail and commercial banks, Freddie Mac buys its loans from smaller banks, such as thrift banks, that focus on providing banking services to underserved communities.<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_24-0"></div> <span class="heading-toc" id="toc-what-do-fannie-mae-and-freddie-mac-do"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> What Do Fannie Mae and Freddie Mac Do? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Fannie Mae and Freddie Mac have similar charters, mandates, and regulatory structures. Each buys mortgages from lenders to hold in their portfolios or repackage as MBS that can be sold. In turn, lenders use the money from selling the mortgages to originate more loans. This helps individuals and families access a continuous and stable supply of mortgage funding. </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"> According to their charters, Fannie Mae and Freddie Mac "establish secondary market facilities for residential mortgages [and] provide that the operations thereof shall be financed by private <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital.asp">capital</a> to the maximum extent feasible."<span class="ql-inline-citation" data-cite="17"></span> Both entities are mandated to do the following: </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>Maintain stability in the secondary market for residential mortgages</li> <li>Respond appropriately to the private capital market</li> <li>Offer ongoing support to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/secondarymarket.asp">secondary market</a> for residential mortgages by increasing the liquidity of mortgage investments and making more money available for residential mortgage financing</li> <li>Promote access to mortgage credit by increasing the liquidity of mortgage investments and making more money available for residential mortgage financing<span class="ql-inline-citation" data-cite="17"></span><span class="ql-inline-citation" data-cite="18"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Fannie Mae has one additional responsibility according to its charter: to manage and liquidate federally owned mortgage portfolios to minimize adverse effects on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/home-mortgage.asp">residential mortgage</a> market and minimize potential losses to the federal government.<span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-who-regulates-fannie-mae-and-freddie-mac"></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"> Who Regulates Fannie Mae and Freddie Mac? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Fannie Mae and Freddie Mac's congressional charters made them Government Sponsored Enterprises <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gse.asp">GSEs</a>. Though private, they had ties to the U.S. federal government that was thought to provide a financial backstop, with a line of credit from the U.S. Treasury for $2.25 billion. In September 2008, during the height of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-crisis.asp">financial crisis</a>, they were placed under the direct supervision of the federal government.<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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> During regular times, the government ties were less apparent but nonetheless important. Each was a unique company unlike any other in the U.S. Here are some of the differences:<span class="ql-inline-citation" data-cite="51"></span><span class="ql-inline-citation" data-cite="45"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li>The U.S. president appoints five of the 18 members of the organization's boards of directors.</li> <li>The secretary of the Treasury is authorized to buy up to $2.25 billion of securities from each company to support its liquidity.</li> <li>Their securities are considered "government securities" under the Securities Exchange Act of 1934.</li> <li>These securities did not have to be registered with the U.S. Securities and Exchange Commission.</li> <li>They could not originate mortgages, but they could buy them for securitization or investment purposes. In 2008, a year we'll return to, the mortgage amounts were limited to $417,000, effectively closing them out of higher-price real estate areas given their mission to target low- and moderate-income households.</li> <li>Both companies are exempt from state and local taxes.</li> <li>Both companies are regulated by the Department of Housing and Urban Development (<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">HUD</a>) and the Federal Housing Finance Agency (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fhfa.asp">FHFA</a>).</li> <li>Should they face insolvency, this was not to be resolved through a bankruptcy process but by Congress.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The FHFA regulates, enforces, and monitors Fannie and Freddie's capital standards and limits the size of their mortgage investment portfolios. HUD oversees Fannie and Freddie's general housing missions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_43-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_44-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/complaint/">Consumer Financial Protection Bureau</a> or with HUD.</p></div></div></div> <span class="heading-toc" id="toc-an-implicit-guarantee"></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"> An Implicit Guarantee </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Fannie and Freddie's GSE status created perceptions in the market that its securities were safe. It was widely said that the federal government would step in and bail out these organizations if either firm ever ran into financial trouble, as was seen in the lead-up to the Great Recession. This is known as an implicit guarantee.<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_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Given the market's faith in this implicit guarantee, Fannie Mae and Freddie Mac were allowed to borrow money in the bond market at lower yields than other financial institutions could. </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 yield on Fannie Mae and Freddie Mac's corporate debt, known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/agency_debenture.asp">agency debt</a>, has historically been about 35 <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/basispoint.asp">basis points</a> higher than U.S. Treasury bonds.<span class="ql-inline-citation" data-cite="21"></span> AAA-rated financial firm debt, by comparison, has historically yielded about 70 basis points more than U.S. Treasury bonds.<span class="ql-inline-citation" data-cite="22"></span> While 35 basis points may not seem like much, it made a huge difference, given the trillions of dollars involved. </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-role-in-the-financial-crisis-of-2008"></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"> Role in the Financial Crisis of 2008 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> In the 1980s, a crisis that hit the savings and loan industry shrunk that sector's part in the real estate market significantly. By the 1990s, computerization enabled far more efficient and faster processing of mortgage applications and MBSs. These, along with other industry changes, meant that Fannie Mae and Freddie Mac expanded significantly throughout the 1990s and early 2000s.<span class="ql-inline-citation" data-cite="64"></span> During this period, there was a frequent debate about Fannie and Freddie and their holdings among economists, financial market professionals, and government officials.<span class="ql-inline-citation" data-cite="47"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Even without some analysts' concerns over their ballooning balance sheets, Fannie and Freddie were facing regulatory scrutiny in the early 2000s. An investigation by the Office of Federal Housing Enterprise Oversight, the independent agency overseeing the companies, exposed widespread accounting irregularities that made their operations "unsafe and unsound."<span class="ql-inline-citation" data-cite="64"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Both entities, it turns out, were using accounting strategies that delayed accounting for expenses and inflated their income. This allowed them to present steady quarterly profit growth—"smooth over" in the wording one executive used—reassuring investors. The tactics often involved the complex timing of derivative contracts.<span class="ql-inline-citation" data-cite="65"></span> When their misaligned balance sheets finally surfaced, executives at both firms were forced out, years of annual earnings reports had to be resubmitted and billions in losses had to be accounted for, and millions in fines were to be paid.<span class="ql-inline-citation" data-cite="64"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> In 2007, Fannie Mae and Freddie Mac began to take on massive losses on their retained portfolios, especially on their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/alt-a.asp">Alt-A</a> and subprime investments. In 2008, the sheer size of their retained portfolios and mortgage guarantees led the FHFA (and everyone else in the market) to conclude that they would soon be insolvent.<span class="ql-inline-citation" data-cite="46"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> On March 19 of that year, federal regulators allowed the two firms to take on another $200 billion in debt, hoping to stabilize them and the wider economy.<span class="ql-inline-citation" data-cite="54"></span> However, by Sept. 6, 2008, it was clear that the market believed the firms were in financial trouble, and the FHFA put the companies into <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conservatorship.asp">conservatorship</a>. They received $190 billion in bailout funding, which was paid back by 2014. Nevertheless, they remain in conservatorship under the FHFA.<span class="ql-inline-citation" data-cite="55"></span><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_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Under the conservatorship agreements established during the 2008-09 financial crisis, Fannie and Freddie were required to send most of their profits to the Treasury as repayment for being bailed out, preventing them from rebuilding their capital reserves. In 2019, however, new rules were enacted that permit Fannie Mae and Freddie Mac to keep a combined $45 billion in earnings. (This was later increased.) This was seen as an initial step in a broader effort to reform the housing finance system, including ending the government's control over these entities.<span class="ql-inline-citation" data-cite="62"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Through Dec. 31, 2019, Fannie Mae and Freddie Mac had repaid the Treasury a total of $301 billion in dividends during their conservatorship.<span class="ql-inline-citation" data-cite="63"></span> Since then, each has been building its capital reserves. In mid-February 2024, Fannie Mae reported that its 2023 year-end net worth was $77.7 billion, with a net income of $17.4 billion for the year.<span class="ql-inline-citation" data-cite="67"></span> Freddie Mac, for its part, reported its net worth at $47.7 billion, with a net income of $10.5 billion in 2023.<span class="ql-inline-citation" data-cite="66"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-note" 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 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>In September 2019, the U.S. Treasury and FHFA announced that Fannie Mae and Freddie Mac could start keeping their earnings to build up their capital reserves. The move was a step toward transitioning the two out of conservatorship.<span class="ql-inline-citation" data-cite="37"></span> In early 2024, Fannie Mae and Freddie Mac had net worths of $77.7 billion and $47.7 billion, respectively.</p></div></div></div> <span class="heading-toc" id="toc-role-during-the-covid-19-pandemic"></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"> Role During the COVID-19 Pandemic </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> The federal government initiated emergency measures during the COVID-19 pandemic to help individuals and families meet their mortgage or rent obligations. Most relevant here is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/coronavirus-aid-relief-and-economic-security-cares-act-4800707">CARES Act</a>, which introduced protections for homeowners with mortgages backed by Fannie Mae and Freddie Mac.<span class="ql-inline-citation" data-cite="34"></span> The legislation barred lenders and loan servicers from initiating or concluding foreclosures, ultimately expiring on July 31, 2021. For those directly facing financial hardship because of the pandemic, the CARES Act also made it possible to request a mortgage <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forbearance.asp">forbearance</a> on Fannie and Freddie loans for up to 180 days, with an option to extend for another 180 days.<span class="ql-inline-citation" data-cite="59"></span><span class="ql-inline-citation" data-cite="58"></span> The forbearance plan lowered or suspended mortgage payments for up to 12 months without late fees or penalties. After the forbearance period, repayment options included plans to catch up gradually or via a loan modification plan to maintain a lower monthly payment. </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"> Fannie Mae offered an additional program, the Disaster Response Network, that assisted with some of the broader financial effects of the pandemic. The network provided access to HUD-approved housing counselors for homeowners with Fannie Mae-owned loans and renters in Fannie Mae-financed properties. The counselors provided advice, personalized plans, financial coaching and budgeting, and support for up to 18 months.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> The FHFA also established more lenient lending and appraisal standards during the pandemic. These adjustments ensured homebuyers could proceed with loan applications and closings while adhering to social distancing guidelines and lockdowns.<span class="ql-inline-citation" data-cite="49"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> The financial toll of the pandemic on Fannie Mae and Freddie Mac was significant, as these agencies provided vast liquidity to the mortgage and rental markets. Fannie Mae saw its net income decline by over 20% between 2019 and 2020, and Freddie Mac saw a drop of over 17%. However, both GSEs saw their post-pandemic income increase and their balance sheets stabilized, despite the high interest rates that dampened the real estate market after 2022.<span class="ql-inline-citation" data-cite="61"></span><span class="ql-inline-citation" data-cite="60"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_78-0"><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_79-0"><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>Forbearance does not equal forgiveness. Mortgage servicers may have various post-forbearance options. Be wary if the option is a balloon payment rather than simply adding the unpaid months to the end of your mortgage.</p></div></div></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-difference-between-fannie-mae-and-freddie-mac"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between Fannie Mae and Freddie Mac?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Fannie Mae and Freddie Mac are both GSEs that buy and guarantee mortgages, allowing lenders to free up capital to issue new loans. There are some differences, however. Fannie Mae is publicly traded, while private shareholders own Freddie Mac. Fannie Mae tends to focus more on single-family mortgages; Freddie Mac historically has financed larger multifamily holdings.</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-fannie-mae-and-freddie-mac-affect-the-average-homebuyer"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Fannie Mae and Freddie Mac Affect the Average Homebuyer?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Fannie Mae and Freddie Mac play a pivotal role in the U.S. housing market by increasing the liquidity of mortgage capital, which in turn helps lower the cost of borrowing for homebuyers. They purchase mortgages from lenders and either hold these mortgages in their portfolios or package them into mortgage-backed securities that are sold to investors. In 2023 alone, Fannie and Freddie bought loans that financed 805,000 and 955,000 single-family homes, respectively.<span class="ql-inline-citation" data-cite="66"></span><span class="ql-inline-citation" data-cite="67"></span></p><p>By providing lenders with the assurance that their loans can be sold, these entities enable lenders to offer more mortgages at more favorable terms to a broader spectrum of borrowers, including those with lower down payments or otherwise underserved in the market.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_84-0"><span class="heading-toc" id="toc-what-are-the-arguments-for-and-against-privatizing-fannie-mae-and-freddie-mac"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Arguments For and Against Privatizing Fannie Mae and Freddie Mac?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Those who advocate <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/privatization.asp">privatizing</a> Fannie Mae and Freddie Mac argue that it would cut government risk and encourage more competition and efficiency within the mortgage market. They say that privatization could lead to a more sustainable housing finance system by limiting taxpayers' exposure to potential losses. However, opponents fear that privatization could lead to higher mortgage rates, less support for affordable housing, and increased market volatility. They argue that the government's role is crucial in ensuring stability and accessibility in the housing market, especially during economic downturns.</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-did-fannie-mae-and-freddie-mac-fail-during-the-2008-financial-crisis"></span> <h2 class="mntl-sc-block-questionandanswer__question">Did Fannie Mae and Freddie Mac Fail During the 2008 Financial Crisis?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, but it was a close call. The 2008 housing crash left Fannie Mae and Freddie Mac on the verge of bankruptcy, so they were put into government conservatorship. They received huge bailouts, which they have since paid back, but they remain under conservatorship today. There have been various proposals to reform Fannie Mae and Freddie Mac, with goals ranging from winding down their operations to making them fully private again. However, major reform legislation has stalled in Congress so far.</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-what-future-changes-are-coming-to-fannie-mae-and-freddie-mac"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Future Changes Are Coming to Fannie Mae and Freddie Mac?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Any changes to Fannie and Freddie center on ending their conservatorship and ensuring they work in a sound manner that promotes a stable and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/052515/what-difference-between-banks-liquidity-and-its-liquid-assets.asp">liquid</a> mortgage market. Proposals include strengthening their capital reserves to withstand a future housing recession, reducing their market footprint to encourage more private capital in the mortgage market, and supporting more affordable housing. However, the exact path of these reforms is subject to extensive debate among policymakers, industry stakeholders, and consumer and community advocates, reflecting the complex role these entities play in the U.S. housing system.</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"> Fannie Mae and Freddie Mac are charged with bolstering the U.S. mortgage market to provide housing loans to middle America. Both buy mortgages from various lenders, which helps maintain a steady and reliable source of mortgage funding for individuals, families, and investors. This has meant providing liquidity and stabilization efforts, with the federal government's help, during crises like the Great Recession and the COVID-19 pandemic. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> In 2023 alone, they combined to purchase 1.76 million single-family home mortgages. Without Fannie and Freddie, the availability and affordability of mortgage credit would be significantly reduced. Interest rates for homebuyers would likely increase, debt financing would be more difficult for banks and lenders to obtain, and the homeownership rate could decline considerably. Their operations support the broader housing market and the wider economy. Maintaining that access and liquidity for qualified borrowers through future market downturns will remain crucial for many Americans. </p></div>

The Federal National Mortgage Association, commonly known as "Fannie Mae," and the Federal Home Loan Mortgage Corporation, "Freddie Mac," are the two government-sponsored enterprises (GSEs) chartered by the U.S. Congress in 1938. Neither originates or services its own mortgages. Instead, they buy and guarantee mortgages issued through lenders in the secondary mortgage market. Their influence over the U.S. real estate market is hard to overstate. The names Fannie Mae and Freddie Mac rarely surface on investing sites or financial news headlines. Yet, these enterprises have been the pillars on which the American housing market of the last 80 years has largely been built. Their sway lies in securitizing loans, effectively transforming individual mortgages into tradable bonds. This constant flow of capital allows lenders to extend more credit, ultimately shaping interest rates and making homeownership accessible to millions of Americans. Here's a look at how they work, their roles in the 2008 financial crisis, their work for renters and homeowners during the COVID-19 pandemic, and their prospects in the years ahead. ### Key Takeaways * Fannie Mae was first chartered by the U.S. government in 1938 to help boost the mortgage market while Congress chartered Freddie Mac in 1970 to extend credit beyond commercial banks. * Neither organization originates or services loans but buys mortgages from lenders to hold or repackage as mortgage-backed securities. * Lenders use the money from selling mortgages to Fannie Mae and Freddie Mac to originate more loans, widening the pool of money available for individuals and families to buy homes. * Fannie Mae and Freddie Mac issued a temporary moratorium on foreclosures and evictions because of the COVID-19 pandemic. ## What Is Fannie Mae? In the early 20th century, homeownership was out of reach for most people in the U.S.. Unless you could pay cash for an entire home (which few people could), you were looking at a prohibitively large down payment and a short-term loan, culminating in a big [balloon payment](https://www.investopedia.com/terms/b/balloon-payment.asp). Even if you could buy a home during the Great Depression, you might have been among the nearly one in four homeowners who lost their homes to foreclosure. The banks also had no money to lend, and the nation faced a housing crisis. The U.S. Congress responded in 1938 with the National Housing Act, creating the Federal National Mortgage Association, better known as [Fannie Mae](https://www.investopedia.com/mortgage/fannie-mae-loans/) from its acronym, FNMA, to supply reliable, steady funding for housing. It brought a new type of mortgage to the market: the long-term, fixed-rate loan with an option to refinance anytime. This has become the primary way many Americans buy their first homes. Fannie Mae initially bought mortgages insured by the Federal Housing Administration (FHA) and later added loans guaranteed by the Veterans Administration (VA), later called Veterans Affairs. The Johnson administration privatized Fannie Mae in 1968, making it a shareholder-owned company funded entirely with private capital. This would have significant effects later on, but it resulted from a budget gimmick: Starting in 1965, Fannie Mae was growing more rapidly. This might have been good for homeowners able to buy homes at the time but bad for the Johnson presidential administration: an accounting quirk meant that Fannie Mae's mortgages were added to the annual budget expenditures, thus increasing the budget deficit. Two years later, Fannie Mae was authorized to buy conventional mortgages in addition to FHA and VA loans. The agency began issuing [mortgage-backed securities](https://www.investopedia.com/terms/m/mbs.asp) (MBS) in the 1980s to offer more liquidity in the mortgage investment market. The money to buy mortgage-related assets came from issuing debt securities offered in the U.S. and international capital markets. For decades, Fannie Mae would be the main buyer and seller of government-insured mortgages.  ## What Is Freddie Mac? [Freddie Mac](https://www.investopedia.com/terms/f/freddiemac.asp) is the unofficial name of the Federal Home Loan Mortgage Corporation. It was established in 1970 under the Emergency Home Finance Act to expand the secondary mortgage market and reduce interest rate risk for banks. In 1989, it was reorganized as a shareholder-owned company as part of the Financial Institutions Reform, Recovery, and Enforcement Act. Freddie Mac's charter is like Fannie Mae's. It was meant to expand the secondary mortgage market and MBS by buying loans made by banks, [savings and loans](https://www.investopedia.com/ask/answers/041015/what-difference-between-savings-loan-company-and-bank.asp), and other lending institutions. But unlike Fannie Mae, which buys mortgages from major retail and commercial banks, Freddie Mac buys its loans from smaller banks, such as thrift banks, that focus on providing banking services to underserved communities. ## What Do Fannie Mae and Freddie Mac Do? Fannie Mae and Freddie Mac have similar charters, mandates, and regulatory structures. Each buys mortgages from lenders to hold in their portfolios or repackage as MBS that can be sold. In turn, lenders use the money from selling the mortgages to originate more loans. This helps individuals and families access a continuous and stable supply of mortgage funding. According to their charters, Fannie Mae and Freddie Mac "establish secondary market facilities for residential mortgages [and] provide that the operations thereof shall be financed by private [capital](https://www.investopedia.com/terms/c/capital.asp) to the maximum extent feasible." Both entities are mandated to do the following: * Maintain stability in the secondary market for residential mortgages * Respond appropriately to the private capital market * Offer ongoing support to the [secondary market](https://www.investopedia.com/terms/s/secondarymarket.asp) for residential mortgages by increasing the liquidity of mortgage investments and making more money available for residential mortgage financing * Promote access to mortgage credit by increasing the liquidity of mortgage investments and making more money available for residential mortgage financing Fannie Mae has one additional responsibility according to its charter: to manage and liquidate federally owned mortgage portfolios to minimize adverse effects on the [residential mortgage](https://www.investopedia.com/terms/h/home-mortgage.asp) market and minimize potential losses to the federal government. ## Who Regulates Fannie Mae and Freddie Mac? Fannie Mae and Freddie Mac's congressional charters made them Government Sponsored Enterprises [GSEs](https://www.investopedia.com/terms/g/gse.asp). Though private, they had ties to the U.S. federal government that was thought to provide a financial backstop, with a line of credit from the U.S. Treasury for $2.25 billion. In September 2008, during the height of the [financial crisis](https://www.investopedia.com/terms/f/financial-crisis.asp), they were placed under the direct supervision of the federal government. During regular times, the government ties were less apparent but nonetheless important. Each was a unique company unlike any other in the U.S. Here are some of the differences: * The U.S. president appoints five of the 18 members of the organization's boards of directors. * The secretary of the Treasury is authorized to buy up to $2.25 billion of securities from each company to support its liquidity. * Their securities are considered "government securities" under the Securities Exchange Act of 1934. * These securities did not have to be registered with the U.S. Securities and Exchange Commission. * They could not originate mortgages, but they could buy them for securitization or investment purposes. In 2008, a year we'll return to, the mortgage amounts were limited to $417,000, effectively closing them out of higher-price real estate areas given their mission to target low- and moderate-income households. * Both companies are exempt from state and local taxes. * Both companies are regulated by the Department of Housing and Urban Development ([HUD](https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp)) and the Federal Housing Finance Agency ([FHFA](https://www.investopedia.com/terms/f/fhfa.asp)). * Should they face insolvency, this was not to be resolved through a bankruptcy process but by Congress. The FHFA regulates, enforces, and monitors Fannie and Freddie's capital standards and limits the size of their mortgage investment portfolios. HUD oversees Fannie and Freddie's general housing missions. ### Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report with the [Consumer Financial Protection Bureau](https://www.consumerfinance.gov/complaint/) or with HUD. ## An Implicit Guarantee Fannie and Freddie's GSE status created perceptions in the market that its securities were safe. It was widely said that the federal government would step in and bail out these organizations if either firm ever ran into financial trouble, as was seen in the lead-up to the Great Recession. This is known as an implicit guarantee. Given the market's faith in this implicit guarantee, Fannie Mae and Freddie Mac were allowed to borrow money in the bond market at lower yields than other financial institutions could. The yield on Fannie Mae and Freddie Mac's corporate debt, known as [agency debt](https://www.investopedia.com/terms/a/agency_debenture.asp), has historically been about 35 [basis points](https://www.investopedia.com/terms/b/basispoint.asp) higher than U.S. Treasury bonds. AAA-rated financial firm debt, by comparison, has historically yielded about 70 basis points more than U.S. Treasury bonds. While 35 basis points may not seem like much, it made a huge difference, given the trillions of dollars involved. ## Role in the Financial Crisis of 2008 In the 1980s, a crisis that hit the savings and loan industry shrunk that sector's part in the real estate market significantly. By the 1990s, computerization enabled far more efficient and faster processing of mortgage applications and MBSs. These, along with other industry changes, meant that Fannie Mae and Freddie Mac expanded significantly throughout the 1990s and early 2000s. During this period, there was a frequent debate about Fannie and Freddie and their holdings among economists, financial market professionals, and government officials. Even without some analysts' concerns over their ballooning balance sheets, Fannie and Freddie were facing regulatory scrutiny in the early 2000s. An investigation by the Office of Federal Housing Enterprise Oversight, the independent agency overseeing the companies, exposed widespread accounting irregularities that made their operations "unsafe and unsound." Both entities, it turns out, were using accounting strategies that delayed accounting for expenses and inflated their income. This allowed them to present steady quarterly profit growth—"smooth over" in the wording one executive used—reassuring investors. The tactics often involved the complex timing of derivative contracts. When their misaligned balance sheets finally surfaced, executives at both firms were forced out, years of annual earnings reports had to be resubmitted and billions in losses had to be accounted for, and millions in fines were to be paid. In 2007, Fannie Mae and Freddie Mac began to take on massive losses on their retained portfolios, especially on their [Alt-A](https://www.investopedia.com/terms/a/alt-a.asp) and subprime investments. In 2008, the sheer size of their retained portfolios and mortgage guarantees led the FHFA (and everyone else in the market) to conclude that they would soon be insolvent. On March 19 of that year, federal regulators allowed the two firms to take on another $200 billion in debt, hoping to stabilize them and the wider economy. However, by Sept. 6, 2008, it was clear that the market believed the firms were in financial trouble, and the FHFA put the companies into [conservatorship](https://www.investopedia.com/terms/c/conservatorship.asp). They received $190 billion in bailout funding, which was paid back by 2014. Nevertheless, they remain in conservatorship under the FHFA. Under the conservatorship agreements established during the 2008-09 financial crisis, Fannie and Freddie were required to send most of their profits to the Treasury as repayment for being bailed out, preventing them from rebuilding their capital reserves. In 2019, however, new rules were enacted that permit Fannie Mae and Freddie Mac to keep a combined $45 billion in earnings. (This was later increased.) This was seen as an initial step in a broader effort to reform the housing finance system, including ending the government's control over these entities. Through Dec. 31, 2019, Fannie Mae and Freddie Mac had repaid the Treasury a total of $301 billion in dividends during their conservatorship. Since then, each has been building its capital reserves. In mid-February 2024, Fannie Mae reported that its 2023 year-end net worth was $77.7 billion, with a net income of $17.4 billion for the year. Freddie Mac, for its part, reported its net worth at $47.7 billion, with a net income of $10.5 billion in 2023. ### In September 2019, the U.S. Treasury and FHFA announced that Fannie Mae and Freddie Mac could start keeping their earnings to build up their capital reserves. The move was a step toward transitioning the two out of conservatorship. In early 2024, Fannie Mae and Freddie Mac had net worths of $77.7 billion and $47.7 billion, respectively. ## Role During the COVID-19 Pandemic The federal government initiated emergency measures during the COVID-19 pandemic to help individuals and families meet their mortgage or rent obligations. Most relevant here is the [CARES Act](https://www.investopedia.com/coronavirus-aid-relief-and-economic-security-cares-act-4800707), which introduced protections for homeowners with mortgages backed by Fannie Mae and Freddie Mac. The legislation barred lenders and loan servicers from initiating or concluding foreclosures, ultimately expiring on July 31, 2021. For those directly facing financial hardship because of the pandemic, the CARES Act also made it possible to request a mortgage [forbearance](https://www.investopedia.com/terms/f/forbearance.asp) on Fannie and Freddie loans for up to 180 days, with an option to extend for another 180 days. The forbearance plan lowered or suspended mortgage payments for up to 12 months without late fees or penalties. After the forbearance period, repayment options included plans to catch up gradually or via a loan modification plan to maintain a lower monthly payment. Fannie Mae offered an additional program, the Disaster Response Network, that assisted with some of the broader financial effects of the pandemic. The network provided access to HUD-approved housing counselors for homeowners with Fannie Mae-owned loans and renters in Fannie Mae-financed properties. The counselors provided advice, personalized plans, financial coaching and budgeting, and support for up to 18 months. The FHFA also established more lenient lending and appraisal standards during the pandemic. These adjustments ensured homebuyers could proceed with loan applications and closings while adhering to social distancing guidelines and lockdowns. The financial toll of the pandemic on Fannie Mae and Freddie Mac was significant, as these agencies provided vast liquidity to the mortgage and rental markets. Fannie Mae saw its net income decline by over 20% between 2019 and 2020, and Freddie Mac saw a drop of over 17%. However, both GSEs saw their post-pandemic income increase and their balance sheets stabilized, despite the high interest rates that dampened the real estate market after 2022. ### Forbearance does not equal forgiveness. Mortgage servicers may have various post-forbearance options. Be wary if the option is a balloon payment rather than simply adding the unpaid months to the end of your mortgage. ## What Is the Difference Between Fannie Mae and Freddie Mac? Fannie Mae and Freddie Mac are both GSEs that buy and guarantee mortgages, allowing lenders to free up capital to issue new loans. There are some differences, however. Fannie Mae is publicly traded, while private shareholders own Freddie Mac. Fannie Mae tends to focus more on single-family mortgages; Freddie Mac historically has financed larger multifamily holdings. ## How Do Fannie Mae and Freddie Mac Affect the Average Homebuyer? Fannie Mae and Freddie Mac play a pivotal role in the U.S. housing market by increasing the liquidity of mortgage capital, which in turn helps lower the cost of borrowing for homebuyers. They purchase mortgages from lenders and either hold these mortgages in their portfolios or package them into mortgage-backed securities that are sold to investors. In 2023 alone, Fannie and Freddie bought loans that financed 805,000 and 955,000 single-family homes, respectively. By providing lenders with the assurance that their loans can be sold, these entities enable lenders to offer more mortgages at more favorable terms to a broader spectrum of borrowers, including those with lower down payments or otherwise underserved in the market. ## What Are the Arguments For and Against Privatizing Fannie Mae and Freddie Mac? Those who advocate [privatizing](https://www.investopedia.com/terms/p/privatization.asp) Fannie Mae and Freddie Mac argue that it would cut government risk and encourage more competition and efficiency within the mortgage market. They say that privatization could lead to a more sustainable housing finance system by limiting taxpayers' exposure to potential losses. However, opponents fear that privatization could lead to higher mortgage rates, less support for affordable housing, and increased market volatility. They argue that the government's role is crucial in ensuring stability and accessibility in the housing market, especially during economic downturns. ## Did Fannie Mae and Freddie Mac Fail During the 2008 Financial Crisis? No, but it was a close call. The 2008 housing crash left Fannie Mae and Freddie Mac on the verge of bankruptcy, so they were put into government conservatorship. They received huge bailouts, which they have since paid back, but they remain under conservatorship today. There have been various proposals to reform Fannie Mae and Freddie Mac, with goals ranging from winding down their operations to making them fully private again. However, major reform legislation has stalled in Congress so far. ## What Future Changes Are Coming to Fannie Mae and Freddie Mac? Any changes to Fannie and Freddie center on ending their conservatorship and ensuring they work in a sound manner that promotes a stable and [liquid](https://www.investopedia.com/ask/answers/052515/what-difference-between-banks-liquidity-and-its-liquid-assets.asp) mortgage market. Proposals include strengthening their capital reserves to withstand a future housing recession, reducing their market footprint to encourage more private capital in the mortgage market, and supporting more affordable housing. However, the exact path of these reforms is subject to extensive debate among policymakers, industry stakeholders, and consumer and community advocates, reflecting the complex role these entities play in the U.S. housing system. ## The Bottom Line Fannie Mae and Freddie Mac are charged with bolstering the U.S. mortgage market to provide housing loans to middle America. Both buy mortgages from various lenders, which helps maintain a steady and reliable source of mortgage funding for individuals, families, and investors. This has meant providing liquidity and stabilization efforts, with the federal government's help, during crises like the Great Recession and the COVID-19 pandemic. In 2023 alone, they combined to purchase 1.76 million single-family home mortgages. Without Fannie and Freddie, the availability and affordability of mortgage credit would be significantly reduced. Interest rates for homebuyers would likely increase, debt financing would be more difficult for banks and lenders to obtain, and the homeownership rate could decline considerably. Their operations support the broader housing market and the wider economy. Maintaining that access and liquidity for qualified borrowers through future market downturns will remain crucial for many Americans.

The Federal National Mortgage Association, commonly known as "Fannie Mae," and the Federal Home Loan Mortgage Corporation, "Freddie Mac," are the two government-sponsored enterprises (GSEs) chartered by the U.S. Congress in 1938. Neither originates or services its own mortgages. Instead, they buy and guarantee mortgages issued through lenders in the secondary mortgage market. Their influence over the U.S. real estate market is hard to overstate. The names Fannie Mae and Freddie Mac rarely surface on investing sites or financial news headlines. Yet, these enterprises have been the pillars on which the American housing market of the last 80 years has largely been built. Their sway lies in securitizing loans, effectively transforming individual mortgages into tradable bonds. This constant flow of capital allows lenders to extend more credit, ultimately shaping interest rates and making homeownership accessible to millions of Americans. Here's a look at how they work, their roles in the 2008 financial crisis, their work for renters and homeowners during the COVID-19 pandemic, and their prospects in the years ahead. Key Takeaways Fannie Mae was first chartered by the U.S. government in 1938 to help boost the mortgage market while Congress chartered Freddie Mac in 1970 to extend credit beyond commercial banks.Neither organization originates or services loans but buys mortgages from lenders to hold or repackage as mortgage-backed securities.Lenders use the money from selling mortgages to Fannie Mae and Freddie Mac to originate more loans, widening the pool of money available for individuals and families to buy homes.Fannie Mae and Freddie Mac issued a temporary moratorium on foreclosures and evictions because of the COVID-19 pandemic. What Is Fannie Mae? In the early 20th century, homeownership was out of reach for most people in the U.S.. Unless you could pay cash for an entire home (which few people could), you were looking at a prohibitively large down payment and a short-term loan, culminating in a big balloon payment. Even if you could buy a home during the Great Depression, you might have been among the nearly one in four homeowners who lost their homes to foreclosure. The banks also had no money to lend, and the nation faced a housing crisis. The U.S. Congress responded in 1938 with the National Housing Act, creating the Federal National Mortgage Association, better known as Fannie Mae from its acronym, FNMA, to supply reliable, steady funding for housing. It brought a new type of mortgage to the market: the long-term, fixed-rate loan with an option to refinance anytime. This has become the primary way many Americans buy their first homes. Fannie Mae initially bought mortgages insured by the Federal Housing Administration (FHA) and later added loans guaranteed by the Veterans Administration (VA), later called Veterans Affairs. The Johnson administration privatized Fannie Mae in 1968, making it a shareholder-owned company funded entirely with private capital. This would have significant effects later on, but it resulted from a budget gimmick: Starting in 1965, Fannie Mae was growing more rapidly. This might have been good for homeowners able to buy homes at the time but bad for the Johnson presidential administration: an accounting quirk meant that Fannie Mae's mortgages were added to the annual budget expenditures, thus increasing the budget deficit. Two years later, Fannie Mae was authorized to buy conventional mortgages in addition to FHA and VA loans. The agency began issuing mortgage-backed securities (MBS) in the 1980s to offer more liquidity in the mortgage investment market. The money to buy mortgage-related assets came from issuing debt securities offered in the U.S. and international capital markets. For decades, Fannie Mae would be the main buyer and seller of government-insured mortgages.  What Is Freddie Mac? Freddie Mac is the unofficial name of the Federal Home Loan Mortgage Corporation. It was established in 1970 under the Emergency Home Finance Act to expand the secondary mortgage market and reduce interest rate risk for banks. In 1989, it was reorganized as a shareholder-owned company as part of the Financial Institutions Reform, Recovery, and Enforcement Act. Freddie Mac's charter is like Fannie Mae's. It was meant to expand the secondary mortgage market and MBS by buying loans made by banks, savings and loans, and other lending institutions. But unlike Fannie Mae, which buys mortgages from major retail and commercial banks, Freddie Mac buys its loans from smaller banks, such as thrift banks, that focus on providing banking services to underserved communities. What Do Fannie Mae and Freddie Mac Do? Fannie Mae and Freddie Mac have similar charters, mandates, and regulatory structures. Each buys mortgages from lenders to hold in their portfolios or repackage as MBS that can be sold. In turn, lenders use the money from selling the mortgages to originate more loans. This helps individuals and families access a continuous and stable supply of mortgage funding. According to their charters, Fannie Mae and Freddie Mac "establish secondary market facilities for residential mortgages [and] provide that the operations thereof shall be financed by private capital to the maximum extent feasible." Both entities are mandated to do the following: Maintain stability in the secondary market for residential mortgages Respond appropriately to the private capital market Offer ongoing support to the secondary market for residential mortgages by increasing the liquidity of mortgage investments and making more money available for residential mortgage financing Promote access to mortgage credit by increasing the liquidity of mortgage investments and making more money available for residential mortgage financing Fannie Mae has one additional responsibility according to its charter: to manage and liquidate federally owned mortgage portfolios to minimize adverse effects on the residential mortgage market and minimize potential losses to the federal government. Who Regulates Fannie Mae and Freddie Mac? Fannie Mae and Freddie Mac's congressional charters made them Government Sponsored Enterprises GSEs. Though private, they had ties to the U.S. federal government that was thought to provide a financial backstop, with a line of credit from the U.S. Treasury for $2.25 billion. In September 2008, during the height of the financial crisis, they were placed under the direct supervision of the federal government. During regular times, the government ties were less apparent but nonetheless important. Each was a unique company unlike any other in the U.S. Here are some of the differences: The U.S. president appoints five of the 18 members of the organization's boards of directors. The secretary of the Treasury is authorized to buy up to $2.25 billion of securities from each company to support its liquidity. Their securities are considered "government securities" under the Securities Exchange Act of 1934. These securities did not have to be registered with the U.S. Securities and Exchange Commission. They could not originate mortgages, but they could buy them for securitization or investment purposes. In 2008, a year we'll return to, the mortgage amounts were limited to $417,000, effectively closing them out of higher-price real estate areas given their mission to target low- and moderate-income households. Both companies are exempt from state and local taxes. Both companies are regulated by the Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA). Should they face insolvency, this was not to be resolved through a bankruptcy process but by Congress. The FHFA regulates, enforces, and monitors Fannie and Freddie's capital standards and limits the size of their mortgage investment portfolios. HUD oversees Fannie and Freddie's general housing missions. Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report with the Consumer Financial Protection Bureau or with HUD. An Implicit Guarantee Fannie and Freddie's GSE status created perceptions in the market that its securities were safe. It was widely said that the federal government would step in and bail out these organizations if either firm ever ran into financial trouble, as was seen in the lead-up to the Great Recession. This is known as an implicit guarantee. Given the market's faith in this implicit guarantee, Fannie Mae and Freddie Mac were allowed to borrow money in the bond market at lower yields than other financial institutions could. The yield on Fannie Mae and Freddie Mac's corporate debt, known as agency debt, has historically been about 35 basis points higher than U.S. Treasury bonds. AAA-rated financial firm debt, by comparison, has historically yielded about 70 basis points more than U.S. Treasury bonds. While 35 basis points may not seem like much, it made a huge difference, given the trillions of dollars involved. Role in the Financial Crisis of 2008 In the 1980s, a crisis that hit the savings and loan industry shrunk that sector's part in the real estate market significantly. By the 1990s, computerization enabled far more efficient and faster processing of mortgage applications and MBSs. These, along with other industry changes, meant that Fannie Mae and Freddie Mac expanded significantly throughout the 1990s and early 2000s. During this period, there was a frequent debate about Fannie and Freddie and their holdings among economists, financial market professionals, and government officials. Even without some analysts' concerns over their ballooning balance sheets, Fannie and Freddie were facing regulatory scrutiny in the early 2000s. An investigation by the Office of Federal Housing Enterprise Oversight, the independent agency overseeing the companies, exposed widespread accounting irregularities that made their operations "unsafe and unsound." Both entities, it turns out, were using accounting strategies that delayed accounting for expenses and inflated their income. This allowed them to present steady quarterly profit growth—"smooth over" in the wording one executive used—reassuring investors. The tactics often involved the complex timing of derivative contracts. When their misaligned balance sheets finally surfaced, executives at both firms were forced out, years of annual earnings reports had to be resubmitted and billions in losses had to be accounted for, and millions in fines were to be paid. In 2007, Fannie Mae and Freddie Mac began to take on massive losses on their retained portfolios, especially on their Alt-A and subprime investments. In 2008, the sheer size of their retained portfolios and mortgage guarantees led the FHFA (and everyone else in the market) to conclude that they would soon be insolvent. On March 19 of that year, federal regulators allowed the two firms to take on another $200 billion in debt, hoping to stabilize them and the wider economy. However, by Sept. 6, 2008, it was clear that the market believed the firms were in financial trouble, and the FHFA put the companies into conservatorship. They received $190 billion in bailout funding, which was paid back by 2014. Nevertheless, they remain in conservatorship under the FHFA. Under the conservatorship agreements established during the 2008-09 financial crisis, Fannie and Freddie were required to send most of their profits to the Treasury as repayment for being bailed out, preventing them from rebuilding their capital reserves. In 2019, however, new rules were enacted that permit Fannie Mae and Freddie Mac to keep a combined $45 billion in earnings. (This was later increased.) This was seen as an initial step in a broader effort to reform the housing finance system, including ending the government's control over these entities. Through Dec. 31, 2019, Fannie Mae and Freddie Mac had repaid the Treasury a total of $301 billion in dividends during their conservatorship. Since then, each has been building its capital reserves. In mid-February 2024, Fannie Mae reported that its 2023 year-end net worth was $77.7 billion, with a net income of $17.4 billion for the year. Freddie Mac, for its part, reported its net worth at $47.7 billion, with a net income of $10.5 billion in 2023. In September 2019, the U.S. Treasury and FHFA announced that Fannie Mae and Freddie Mac could start keeping their earnings to build up their capital reserves. The move was a step toward transitioning the two out of conservatorship. In early 2024, Fannie Mae and Freddie Mac had net worths of $77.7 billion and $47.7 billion, respectively. Role During the COVID-19 Pandemic The federal government initiated emergency measures during the COVID-19 pandemic to help individuals and families meet their mortgage or rent obligations. Most relevant here is the CARES Act, which introduced protections for homeowners with mortgages backed by Fannie Mae and Freddie Mac. The legislation barred lenders and loan servicers from initiating or concluding foreclosures, ultimately expiring on July 31, 2021. For those directly facing financial hardship because of the pandemic, the CARES Act also made it possible to request a mortgage forbearance on Fannie and Freddie loans for up to 180 days, with an option to extend for another 180 days. The forbearance plan lowered or suspended mortgage payments for up to 12 months without late fees or penalties. After the forbearance period, repayment options included plans to catch up gradually or via a loan modification plan to maintain a lower monthly payment. Fannie Mae offered an additional program, the Disaster Response Network, that assisted with some of the broader financial effects of the pandemic. The network provided access to HUD-approved housing counselors for homeowners with Fannie Mae-owned loans and renters in Fannie Mae-financed properties. The counselors provided advice, personalized plans, financial coaching and budgeting, and support for up to 18 months. The FHFA also established more lenient lending and appraisal standards during the pandemic. These adjustments ensured homebuyers could proceed with loan applications and closings while adhering to social distancing guidelines and lockdowns. The financial toll of the pandemic on Fannie Mae and Freddie Mac was significant, as these agencies provided vast liquidity to the mortgage and rental markets. Fannie Mae saw its net income decline by over 20% between 2019 and 2020, and Freddie Mac saw a drop of over 17%. However, both GSEs saw their post-pandemic income increase and their balance sheets stabilized, despite the high interest rates that dampened the real estate market after 2022. Forbearance does not equal forgiveness. Mortgage servicers may have various post-forbearance options. Be wary if the option is a balloon payment rather than simply adding the unpaid months to the end of your mortgage. What Is the Difference Between Fannie Mae and Freddie Mac? Fannie Mae and Freddie Mac are both GSEs that buy and guarantee mortgages, allowing lenders to free up capital to issue new loans. There are some differences, however. Fannie Mae is publicly traded, while private shareholders own Freddie Mac. Fannie Mae tends to focus more on single-family mortgages; Freddie Mac historically has financed larger multifamily holdings. How Do Fannie Mae and Freddie Mac Affect the Average Homebuyer? Fannie Mae and Freddie Mac play a pivotal role in the U.S. housing market by increasing the liquidity of mortgage capital, which in turn helps lower the cost of borrowing for homebuyers. They purchase mortgages from lenders and either hold these mortgages in their portfolios or package them into mortgage-backed securities that are sold to investors. In 2023 alone, Fannie and Freddie bought loans that financed 805,000 and 955,000 single-family homes, respectively.By providing lenders with the assurance that their loans can be sold, these entities enable lenders to offer more mortgages at more favorable terms to a broader spectrum of borrowers, including those with lower down payments or otherwise underserved in the market. What Are the Arguments For and Against Privatizing Fannie Mae and Freddie Mac? Those who advocate privatizing Fannie Mae and Freddie Mac argue that it would cut government risk and encourage more competition and efficiency within the mortgage market. They say that privatization could lead to a more sustainable housing finance system by limiting taxpayers' exposure to potential losses. However, opponents fear that privatization could lead to higher mortgage rates, less support for affordable housing, and increased market volatility. They argue that the government's role is crucial in ensuring stability and accessibility in the housing market, especially during economic downturns. Did Fannie Mae and Freddie Mac Fail During the 2008 Financial Crisis? No, but it was a close call. The 2008 housing crash left Fannie Mae and Freddie Mac on the verge of bankruptcy, so they were put into government conservatorship. They received huge bailouts, which they have since paid back, but they remain under conservatorship today. There have been various proposals to reform Fannie Mae and Freddie Mac, with goals ranging from winding down their operations to making them fully private again. However, major reform legislation has stalled in Congress so far. What Future Changes Are Coming to Fannie Mae and Freddie Mac? Any changes to Fannie and Freddie center on ending their conservatorship and ensuring they work in a sound manner that promotes a stable and liquid mortgage market. Proposals include strengthening their capital reserves to withstand a future housing recession, reducing their market footprint to encourage more private capital in the mortgage market, and supporting more affordable housing. However, the exact path of these reforms is subject to extensive debate among policymakers, industry stakeholders, and consumer and community advocates, reflecting the complex role these entities play in the U.S. housing system. The Bottom Line Fannie Mae and Freddie Mac are charged with bolstering the U.S. mortgage market to provide housing loans to middle America. Both buy mortgages from various lenders, which helps maintain a steady and reliable source of mortgage funding for individuals, families, and investors. This has meant providing liquidity and stabilization efforts, with the federal government's help, during crises like the Great Recession and the COVID-19 pandemic. In 2023 alone, they combined to purchase 1.76 million single-family home mortgages. Without Fannie and Freddie, the availability and affordability of mortgage credit would be significantly reduced. Interest rates for homebuyers would likely increase, debt financing would be more difficult for banks and lenders to obtain, and the homeownership rate could decline considerably. Their operations support the broader housing market and the wider economy. Maintaining that access and liquidity for qualified borrowers through future market downturns will remain crucial for many Americans.

https://www.investopedia.com/articles/investing/041916/money-market-vs-shortterm-bonds-compare-and-contrast-case-study.asp

Money Market vs. Short-Term Bonds: 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-money-market-vs-short-term-bonds-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"> Money Market vs. Short-Term Bonds: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Money market funds and short-term bonds have many similarities, but they also differ in several ways. They're both excellent savings vehicles on a short-term basis. Both are liquid, easily accessible, and relatively safe securities. But these investments can involve fees and they may lose value and decrease an investor's purchasing power. </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 money market is part of the fixed-income market that specializes in short-term government debt securities that mature in less than one year.</li><li>Buying a bond is effectively giving the issuer a loan for a set duration; the issuer pays a predetermined interest rate at set intervals until the bond matures.</li><li>Money markets are extremely low risk, with a typical par value of $1.</li><li>Short-term bonds carry a greater degree of risk depending on the issuer, which may be a company, a government, or an agency.</li></ul></div></div></div> <span class="heading-toc" id="toc-money-market-securities"></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"> Money Market Securities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The money market is part of the fixed-income market that specializes in short-term debt securities that mature in less than one year. Most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/money-marketfund.asp">money market investments</a> mature in three months or less. These are considered to be cash investments because of their quick maturity dates. </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"> Money market securities are issued by governments, financial institutions, and large corporations as promises to repay debts. They're considered extremely safe and conservative, especially during volatile times. Access to the money market is typically obtained through money market mutual funds or a money market bank account in which thousands of investors are pooled to buy money market securities on the investors’ behalf. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Shares can be bought or sold as desired, often through check-writing privileges. A minimum balance is typically required and a limited number of monthly transactions are allowed. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nav.asp">net asset value (NAV)</a> typically stays around $1 per share, so only the yield fluctuates.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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>Lower returns are realized when compared to other investments because of the liquidity of the money market.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Purchasing power is limited, especially when inflation increases. A penalty may be assessed if an account drops below a minimum balance or if the number of monthly transactions is exceeded. Fees can take away much of the profit with such limited returns.<span class="ql-inline-citation" data-cite="3"></span> Shares are not guaranteed by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corporation (FDIC)</a>, the National Credit Union Administration (NCUA), or by any other agency unless an account is opened at a bank or credit union.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-short-term-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"> Short-Term Bonds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Bonds have much in common with money market securities. A bond is issued by a government or corporation as a promise to pay back money borrowed to finance specific projects and activities. More money is necessary than the average bank can provide in such cases, which is why organizations turn to the public for assistance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/123015/top-5-shortterm-bond-funds-2016.asp">Buying a bond</a> effectively means giving the issuer a loan for a set duration. The issuer pays a predetermined interest rate at set intervals until the bond matures. The issuer then pays back the bond’s face value at maturity. A higher interest rate generally means a higher risk of complete repayment with interest.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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>Most bonds can be bought through a full-service or discount brokerage. Government agencies sell government bonds online and deposit payments electronically. Some financial institutions also transact government securities with their clients.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Short-term bonds can be relatively predictable, low-risk income. Stronger returns can be realized when compared to money markets. Some bonds even come tax-free. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> A short-term bond offers a higher potential yield than money market funds. Bonds with quicker maturity rates are also typically less sensitive to increasing or decreasing <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> than other securities. Buying and holding a bond until it's due means receiving the principal and interest according to the stated rate. </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 no-title" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>The bond owner could lose money if interest rates go up, in the sense of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/opportunitycost.asp">opportunity cost</a> by having the money tied up in the bond rather than invested elsewhere.</p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_30-0"><span class="heading-toc" id="toc-what-is-the-safest-type-of-money-market-fund"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Safest Type of Money Market Fund?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Funds that hold a high concentration of government securities are considered by many to be the safest, particularly if they hold Treasuries, which are backed by the government and therefore carry a lesser risk of default.<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_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-whats-the-difference-between-a-short-term-and-a-long-term-bond"></span> <h2 class="mntl-sc-block-questionandanswer__question">What's the Difference Between a Short-Term and a Long-Term Bond?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A short-term bond will typically mature within no more than three years. A long-term bond may not mature until after 10 years. The bond's "coupon" or interest should be paid out a few times a year in either case. Deciding between them can depend on your goals and whether you're investing for the long-term or to achieve something that's on a closer horizon.<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_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-which-is-safer-a-bond-or-a-money-market-fund"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Is Safer, a Bond or a Money Market Fund?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Bonds carry more risk than money market funds. A bond's lender may not be able to make interest or principal payments on time, or the bond may be paid off early with the remaining interest payments lost. The bond may be called, paid off, and reissued at a lower rate if interest rates go down, resulting in lost income for the bond owner.<span class="ql-inline-citation" data-cite="6"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> There are both pros and cons to investing in money market funds and short-term bonds. </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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymarketaccount.asp">Money market accounts</a> are excellent for emergency funds because account values typically remain stable or slightly increase in value. Limited transactions discourage removing funds but the money is nonetheless available when it's needed. Short-term bonds typically yield higher interest rates than money market funds, so the potential to earn more income over time is greater. </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"> Overall, short-term bonds appear to be a better investment than money market funds. </p></div>

## Money Market vs. Short-Term Bonds: An Overview Money market funds and short-term bonds have many similarities, but they also differ in several ways. They're both excellent savings vehicles on a short-term basis. Both are liquid, easily accessible, and relatively safe securities. But these investments can involve fees and they may lose value and decrease an investor's purchasing power. ### Key Takeaways * The money market is part of the fixed-income market that specializes in short-term government debt securities that mature in less than one year. * Buying a bond is effectively giving the issuer a loan for a set duration; the issuer pays a predetermined interest rate at set intervals until the bond matures. * Money markets are extremely low risk, with a typical par value of $1. * Short-term bonds carry a greater degree of risk depending on the issuer, which may be a company, a government, or an agency. ## Money Market Securities The money market is part of the fixed-income market that specializes in short-term debt securities that mature in less than one year. Most [money market investments](https://www.investopedia.com/terms/m/money-marketfund.asp) mature in three months or less. These are considered to be cash investments because of their quick maturity dates. Money market securities are issued by governments, financial institutions, and large corporations as promises to repay debts. They're considered extremely safe and conservative, especially during volatile times. Access to the money market is typically obtained through money market mutual funds or a money market bank account in which thousands of investors are pooled to buy money market securities on the investors’ behalf. Shares can be bought or sold as desired, often through check-writing privileges. A minimum balance is typically required and a limited number of monthly transactions are allowed. The [net asset value (NAV)](https://www.investopedia.com/terms/n/nav.asp) typically stays around $1 per share, so only the yield fluctuates. ### Lower returns are realized when compared to other investments because of the liquidity of the money market. Purchasing power is limited, especially when inflation increases. A penalty may be assessed if an account drops below a minimum balance or if the number of monthly transactions is exceeded. Fees can take away much of the profit with such limited returns. Shares are not guaranteed by the [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp), the National Credit Union Administration (NCUA), or by any other agency unless an account is opened at a bank or credit union. ## Short-Term Bonds Bonds have much in common with money market securities. A bond is issued by a government or corporation as a promise to pay back money borrowed to finance specific projects and activities. More money is necessary than the average bank can provide in such cases, which is why organizations turn to the public for assistance. [Buying a bond](https://www.investopedia.com/articles/investing/123015/top-5-shortterm-bond-funds-2016.asp) effectively means giving the issuer a loan for a set duration. The issuer pays a predetermined interest rate at set intervals until the bond matures. The issuer then pays back the bond’s face value at maturity. A higher interest rate generally means a higher risk of complete repayment with interest. ### Most bonds can be bought through a full-service or discount brokerage. Government agencies sell government bonds online and deposit payments electronically. Some financial institutions also transact government securities with their clients. Short-term bonds can be relatively predictable, low-risk income. Stronger returns can be realized when compared to money markets. Some bonds even come tax-free. A short-term bond offers a higher potential yield than money market funds. Bonds with quicker maturity rates are also typically less sensitive to increasing or decreasing [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) than other securities. Buying and holding a bond until it's due means receiving the principal and interest according to the stated rate. ### The bond owner could lose money if interest rates go up, in the sense of [opportunity cost](https://www.investopedia.com/terms/o/opportunitycost.asp) by having the money tied up in the bond rather than invested elsewhere. ## What Is the Safest Type of Money Market Fund? Funds that hold a high concentration of government securities are considered by many to be the safest, particularly if they hold Treasuries, which are backed by the government and therefore carry a lesser risk of default. ## What's the Difference Between a Short-Term and a Long-Term Bond? A short-term bond will typically mature within no more than three years. A long-term bond may not mature until after 10 years. The bond's "coupon" or interest should be paid out a few times a year in either case. Deciding between them can depend on your goals and whether you're investing for the long-term or to achieve something that's on a closer horizon. ## Which Is Safer, a Bond or a Money Market Fund? Bonds carry more risk than money market funds. A bond's lender may not be able to make interest or principal payments on time, or the bond may be paid off early with the remaining interest payments lost. The bond may be called, paid off, and reissued at a lower rate if interest rates go down, resulting in lost income for the bond owner. ## The Bottom Line There are both pros and cons to investing in money market funds and short-term bonds. [Money market accounts](https://www.investopedia.com/terms/m/moneymarketaccount.asp) are excellent for emergency funds because account values typically remain stable or slightly increase in value. Limited transactions discourage removing funds but the money is nonetheless available when it's needed. Short-term bonds typically yield higher interest rates than money market funds, so the potential to earn more income over time is greater. Overall, short-term bonds appear to be a better investment than money market funds.

Money Market vs. Short-Term Bonds: An Overview Money market funds and short-term bonds have many similarities, but they also differ in several ways. They're both excellent savings vehicles on a short-term basis. Both are liquid, easily accessible, and relatively safe securities. But these investments can involve fees and they may lose value and decrease an investor's purchasing power. Key Takeaways The money market is part of the fixed-income market that specializes in short-term government debt securities that mature in less than one year.Buying a bond is effectively giving the issuer a loan for a set duration; the issuer pays a predetermined interest rate at set intervals until the bond matures.Money markets are extremely low risk, with a typical par value of $1.Short-term bonds carry a greater degree of risk depending on the issuer, which may be a company, a government, or an agency. Money Market Securities The money market is part of the fixed-income market that specializes in short-term debt securities that mature in less than one year. Most money market investments mature in three months or less. These are considered to be cash investments because of their quick maturity dates. Money market securities are issued by governments, financial institutions, and large corporations as promises to repay debts. They're considered extremely safe and conservative, especially during volatile times. Access to the money market is typically obtained through money market mutual funds or a money market bank account in which thousands of investors are pooled to buy money market securities on the investors’ behalf. Shares can be bought or sold as desired, often through check-writing privileges. A minimum balance is typically required and a limited number of monthly transactions are allowed. The net asset value (NAV) typically stays around $1 per share, so only the yield fluctuates. Lower returns are realized when compared to other investments because of the liquidity of the money market. Purchasing power is limited, especially when inflation increases. A penalty may be assessed if an account drops below a minimum balance or if the number of monthly transactions is exceeded. Fees can take away much of the profit with such limited returns. Shares are not guaranteed by the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), or by any other agency unless an account is opened at a bank or credit union. Short-Term Bonds Bonds have much in common with money market securities. A bond is issued by a government or corporation as a promise to pay back money borrowed to finance specific projects and activities. More money is necessary than the average bank can provide in such cases, which is why organizations turn to the public for assistance. Buying a bond effectively means giving the issuer a loan for a set duration. The issuer pays a predetermined interest rate at set intervals until the bond matures. The issuer then pays back the bond’s face value at maturity. A higher interest rate generally means a higher risk of complete repayment with interest. Most bonds can be bought through a full-service or discount brokerage. Government agencies sell government bonds online and deposit payments electronically. Some financial institutions also transact government securities with their clients. Short-term bonds can be relatively predictable, low-risk income. Stronger returns can be realized when compared to money markets. Some bonds even come tax-free. A short-term bond offers a higher potential yield than money market funds. Bonds with quicker maturity rates are also typically less sensitive to increasing or decreasing interest rates than other securities. Buying and holding a bond until it's due means receiving the principal and interest according to the stated rate. The bond owner could lose money if interest rates go up, in the sense of opportunity cost by having the money tied up in the bond rather than invested elsewhere. What Is the Safest Type of Money Market Fund? Funds that hold a high concentration of government securities are considered by many to be the safest, particularly if they hold Treasuries, which are backed by the government and therefore carry a lesser risk of default. What's the Difference Between a Short-Term and a Long-Term Bond? A short-term bond will typically mature within no more than three years. A long-term bond may not mature until after 10 years. The bond's "coupon" or interest should be paid out a few times a year in either case. Deciding between them can depend on your goals and whether you're investing for the long-term or to achieve something that's on a closer horizon. Which Is Safer, a Bond or a Money Market Fund? Bonds carry more risk than money market funds. A bond's lender may not be able to make interest or principal payments on time, or the bond may be paid off early with the remaining interest payments lost. The bond may be called, paid off, and reissued at a lower rate if interest rates go down, resulting in lost income for the bond owner. The Bottom Line There are both pros and cons to investing in money market funds and short-term bonds. Money market accounts are excellent for emergency funds because account values typically remain stable or slightly increase in value. Limited transactions discourage removing funds but the money is nonetheless available when it's needed. Short-term bonds typically yield higher interest rates than money market funds, so the potential to earn more income over time is greater. Overall, short-term bonds appear to be a better investment than money market funds.

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

Placement: Definition and Example in Finance, Regulations & Risks

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-placement"></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 Placement? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A placement is the sale of securities to a small number of private investors that is exempt from registration with the Securities and Exchange Commission under Regulation D, as are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedannuity.asp" rel="noopener noreferrer">fixed annuities</a>. This exemption makes a placement a less expensive way for a company to raise capital compared with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/publicoffering.asp" rel="noopener noreferrer">public offering</a>. A formal <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prospectus.asp" rel="noopener noreferrer">prospectus</a> is not necessary for a private placement, and the participants in a private placement are usually large, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sophisticatedinvestor.asp" rel="noopener noreferrer">sophisticated investors</a> such as investment banks, <a class="pseudoStyle" data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment-fund.asp" rel="noopener noreferrer">investment funds</a>, and insurance companies. </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>Placement refers to the sale of securities to a group of investors, either on a public or private level.</li><li>A public offering would typically involve registering with the Securities and Exchange Commission, while a private placement is exempt from registering.</li><li>Private placements don't have to comply with the same regulations as public offerings, but they do have to comply with Regulation D.</li><li>Regulation D is the set of SEC rules that is is used for securities sold in unregistered, private offerings. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-placement"></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 Placement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A placement can also be called a private placement or unregistered offering. These securities offerings are exempt from being registered by the SEC because they are not offered to the general public.<span class="ql-inline-citation" data-cite="1"></span> They are instead offered to a small group of investors, usually knowledgeable individual investors with deep pockets, and institutions such as investment funds and banks. </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-regulation-d"></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"> Regulation D </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> While private placements are not subject to the same laws and regulations of public offerings, they have to comply with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regulationd.asp" rel="noopener noreferrer">Regulation D</a>, a set of SEC rules that apply to securities sold in unregistered offerings.<span class="ql-inline-citation" data-cite="2"></span> The three SEC rules that placements have to follow are Rules 504, 505, and 506. Rule 504 states that certain issuers can offer and sell up to $1 million of securities in any 12-month period, and these securities can be offered to any type of investor.<span class="ql-inline-citation" data-cite="3"></span> This stock may be freely traded. </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"> Under Rule 505, businesses are permitted to sell up to $5 million in stock during a 12-month period to an unlimited number of investors, provided that no more than 35 of them are non-accredited. Non-accredited investors must be given certain information, including financial statements. If sales are made only to accredited investors, the issuer has discretion over what information to disclose to the investors. However, if both accredited and non-accredited investors participate in the offering, any information provided to accredited investors must be provided to non-accredited investors as well. </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"> Rule 506 states that a company can sell unlimited securities to an unlimited number of investors, provided that no more than 35 of them are non-accredited, as long as the non-accredited investors that participate in the offering are "sophisticated investors." This means they must have the knowledge and experience to evaluate the investment. Securities sold under Rules 505 and 506 cannot be freely traded.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-cautions"></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"> Cautions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> While many placements offer valuable opportunities to those investors who have the opportunity to partake, there are reasons to be cautious. SEC rules are meant to protect investors and ensure the proper disclosure of information to the public. Private placements do not follow these rules and can carry higher risks. This is why financially knowledgeable, high net-worth individuals and investment banks typically participate in these opportunities. However, investors can often earn some good returns through placements. In October 2020, FVCBankcorp, Inc. completed a private placement of $20 million of its fixed­-to­-floating rate subordinated notes that carry a 4.875% fixed interest rate for the first five years.<span class="ql-inline-citation" data-cite="5"></span> </p></div>

## What Is a Placement? A placement is the sale of securities to a small number of private investors that is exempt from registration with the Securities and Exchange Commission under Regulation D, as are [fixed annuities](https://www.investopedia.com/terms/f/fixedannuity.asp). This exemption makes a placement a less expensive way for a company to raise capital compared with a [public offering](https://www.investopedia.com/terms/p/publicoffering.asp). A formal [prospectus](https://www.investopedia.com/terms/p/prospectus.asp) is not necessary for a private placement, and the participants in a private placement are usually large, [sophisticated investors](https://www.investopedia.com/terms/s/sophisticatedinvestor.asp) such as investment banks, [investment funds](https://www.investopedia.com/terms/i/investment-fund.asp), and insurance companies. ### Key Takeaways * Placement refers to the sale of securities to a group of investors, either on a public or private level. * A public offering would typically involve registering with the Securities and Exchange Commission, while a private placement is exempt from registering. * Private placements don't have to comply with the same regulations as public offerings, but they do have to comply with Regulation D. * Regulation D is the set of SEC rules that is is used for securities sold in unregistered, private offerings. ## Understanding Placement A placement can also be called a private placement or unregistered offering. These securities offerings are exempt from being registered by the SEC because they are not offered to the general public. They are instead offered to a small group of investors, usually knowledgeable individual investors with deep pockets, and institutions such as investment funds and banks. ## Regulation D While private placements are not subject to the same laws and regulations of public offerings, they have to comply with [Regulation D](https://www.investopedia.com/terms/r/regulationd.asp), a set of SEC rules that apply to securities sold in unregistered offerings. The three SEC rules that placements have to follow are Rules 504, 505, and 506. Rule 504 states that certain issuers can offer and sell up to $1 million of securities in any 12-month period, and these securities can be offered to any type of investor. This stock may be freely traded. Under Rule 505, businesses are permitted to sell up to $5 million in stock during a 12-month period to an unlimited number of investors, provided that no more than 35 of them are non-accredited. Non-accredited investors must be given certain information, including financial statements. If sales are made only to accredited investors, the issuer has discretion over what information to disclose to the investors. However, if both accredited and non-accredited investors participate in the offering, any information provided to accredited investors must be provided to non-accredited investors as well. Rule 506 states that a company can sell unlimited securities to an unlimited number of investors, provided that no more than 35 of them are non-accredited, as long as the non-accredited investors that participate in the offering are "sophisticated investors." This means they must have the knowledge and experience to evaluate the investment. Securities sold under Rules 505 and 506 cannot be freely traded. ## Cautions While many placements offer valuable opportunities to those investors who have the opportunity to partake, there are reasons to be cautious. SEC rules are meant to protect investors and ensure the proper disclosure of information to the public. Private placements do not follow these rules and can carry higher risks. This is why financially knowledgeable, high net-worth individuals and investment banks typically participate in these opportunities. However, investors can often earn some good returns through placements. In October 2020, FVCBankcorp, Inc. completed a private placement of $20 million of its fixed­-to­-floating rate subordinated notes that carry a 4.875% fixed interest rate for the first five years.

What Is a Placement? A placement is the sale of securities to a small number of private investors that is exempt from registration with the Securities and Exchange Commission under Regulation D, as are fixed annuities. This exemption makes a placement a less expensive way for a company to raise capital compared with a public offering. A formal prospectus is not necessary for a private placement, and the participants in a private placement are usually large, sophisticated investors such as investment banks, investment funds, and insurance companies. Key Takeaways Placement refers to the sale of securities to a group of investors, either on a public or private level.A public offering would typically involve registering with the Securities and Exchange Commission, while a private placement is exempt from registering.Private placements don't have to comply with the same regulations as public offerings, but they do have to comply with Regulation D.Regulation D is the set of SEC rules that is is used for securities sold in unregistered, private offerings.  Understanding Placement A placement can also be called a private placement or unregistered offering. These securities offerings are exempt from being registered by the SEC because they are not offered to the general public. They are instead offered to a small group of investors, usually knowledgeable individual investors with deep pockets, and institutions such as investment funds and banks. Regulation D While private placements are not subject to the same laws and regulations of public offerings, they have to comply with Regulation D, a set of SEC rules that apply to securities sold in unregistered offerings. The three SEC rules that placements have to follow are Rules 504, 505, and 506. Rule 504 states that certain issuers can offer and sell up to $1 million of securities in any 12-month period, and these securities can be offered to any type of investor. This stock may be freely traded. Under Rule 505, businesses are permitted to sell up to $5 million in stock during a 12-month period to an unlimited number of investors, provided that no more than 35 of them are non-accredited. Non-accredited investors must be given certain information, including financial statements. If sales are made only to accredited investors, the issuer has discretion over what information to disclose to the investors. However, if both accredited and non-accredited investors participate in the offering, any information provided to accredited investors must be provided to non-accredited investors as well. Rule 506 states that a company can sell unlimited securities to an unlimited number of investors, provided that no more than 35 of them are non-accredited, as long as the non-accredited investors that participate in the offering are "sophisticated investors." This means they must have the knowledge and experience to evaluate the investment. Securities sold under Rules 505 and 506 cannot be freely traded. Cautions While many placements offer valuable opportunities to those investors who have the opportunity to partake, there are reasons to be cautious. SEC rules are meant to protect investors and ensure the proper disclosure of information to the public. Private placements do not follow these rules and can carry higher risks. This is why financially knowledgeable, high net-worth individuals and investment banks typically participate in these opportunities. However, investors can often earn some good returns through placements. In October 2020, FVCBankcorp, Inc. completed a private placement of $20 million of its fixed­-to­-floating rate subordinated notes that carry a 4.875% fixed interest rate for the first five years.

https://www.investopedia.com/credit-acceptance-car-loan-release-options-7481748

How to Get Out of a Credit Acceptance Car Loan

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> You can get out of a Credit Acceptance loan in several ways, including by paying off the car or refinancing. </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"> Companies like Credit Acceptance Corp. can seem like a good solution for people who need a car but have trouble getting financing, such as because they have poor <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a>. The company offers financing programs that allow car dealers to sell vehicles to consumers with bad credit.<span class="ql-inline-citation" data-cite="1"></span> However, Credit Acceptance charges double-digit <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-good-interest-rate-on-a-car-5176189">interest rates</a> and additional fees, making it difficult to keep up with the payments. </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"> Learn how to get out of a Credit Acceptance car loan through extra payments, refinancing, and other strategies. </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>Credit Acceptance Corp. provides auto loans to consumers with poor credit.</li><li>Credit Acceptance car loans have an average annual percentage rate (APR) of 22%.<span class="ql-inline-citation" data-cite="2"></span></li><li>Paying more than the minimum or refinancing can help you get out of debt faster.</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"> Credit Acceptance Corp. is a publicly traded company (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=cacc">CACC</a>) that connects with dealers to provide financing for people with poor credit. Credit Acceptance’s loans may help if you are struggling financially but can’t apply for a loan directly through the company. Instead, you need to find a car from one of the company’s partner dealers and finance through the dealer. </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 working with Credit Acceptance, dealers are able to approve customers who cannot get approved for financing elsewhere. </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"> About 1.9 million people got used-car loans through Credit Acceptance and its affiliated dealers from Nov. 2, 2015, to April 30, 2021. The company financed more than $4.9 billion in loans in 2020 alone.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Although Credit Acceptance provides financing to consumers who may not qualify for typical auto loans, there is a significant drawback: high rates and fees. Nationally, the average <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> on Credit Acceptance loans was about 22%.<span class="ql-inline-citation" data-cite="2"></span> However, additional fees and charges could drive the total cost even higher. </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 2023, 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> filed a lawsuit against the company, alleging that Credit Acceptance hid key information about rates and fees from consumers and inflated the values of the used vehicles sold. The CFPB reported that the median markup was more than 50% over the reported dealer cost.<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> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Credit Acceptance does not offer a grace period. Your account will be reported as delinquent after 30 days of a payment being past due. Collection measures can include late fees, repossession, and wage garnishment.<span class="ql-inline-citation" data-cite="4"></span> </p></div></div></div> <span class="heading-toc" id="toc-5-strategies-to-get-out-of-a-credit-acceptance-car-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> 5 Strategies to Get Out of a Credit Acceptance Car Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> If you’re researching how to get out of a Credit Acceptance car loan, you have a few options:  </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"> 1. Pay Off the Car </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The quickest way to get out of the loan is to pay it off in full. That approach may not be feasible for the majority of borrowers, but you may be able to raise the money necessary to pay off the loan by asking family or friends for help, taking out a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/070915/personal-loans-vs-car-loans-how-they-differ.asp">personal loan</a>, or applying any windfalls of cash you may receive, such as a tax refund or gift, to the loan.  </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"> 2. Make Extra Payments </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> With such high APRs, Credit Acceptance loans can accrue <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> quickly. You can pay off your loan faster and save money by paying more than the minimum required. Even small amounts—such as an extra $25 per month—can help. </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-note" 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 no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>You can use an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/car-loan-calculator-5084761">auto loan interest calculator</a> to see how additional payment amounts can reduce your time in repayment and lower your total loan cost. </p></div></div></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"> 3. Refinance Your Car Loan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> If 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> or financial situation has improved since you took out your loan through Credit Acceptance, you may be eligible for refinancing. When you <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-refinance-a-car-loan-7368491">refinance a car loan</a>, you take out a new loan and pay off the existing one. With a better credit score or higher income, you might qualify for a loan with a lower interest rate and different terms than you have now. </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"> For example, let’s say you bought a car for $20,000 with an APR of 22%. If you refinanced to a five-year loan with an APR of 12%, you would save $6,468 in interest charges. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-refinance-loans-5069118">Leading auto loan refinancing companies</a> like LendingClub and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bank-of-america-auto-loan-review-8357865">Bank of America</a> are among the lenders that may provide new auto loans at lower rates than Credit Acceptance.  </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"> 4. Trade the Car in for Another Vehicle </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> If you have established good credit habits and are ready for a new vehicle, another option to get out of a Credit Acceptance loan is to purchase another car and trade in the vehicle you financed through Credit Acceptance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> If the car isn’t worth enough to satisfy the existing loan, you can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-trade-in-a-car-that-is-not-paid-off-5180342">roll the remaining balance</a> into a new loan with a different lender with potentially better terms. </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"> 5. Voluntarily Surrender the Vehicle </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> If you’re desperate to get out of a Credit Acceptance loan, you could consider a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0312/what-happens-when-you-buy-too-much-car.aspx">voluntary surrender</a>, sometimes referred to as a voluntary repossession. With a voluntary surrender, you inform the lender that you cannot afford the payments and you give the car back. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lender</a> sells the car at auction to recoup its investment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> However, the car’s sale price may not pay off the existing loan. And even if you return the vehicle and aren’t using it, you would still owe the remaining balance of your car loan. If you can’t afford the payments, the lender can report the surrender as a repossession on your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a>. For this reason, voluntary surrenders are risky and should be considered a last resort to get out of a Credit Acceptance loan. </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-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_50-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_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 do surrender your vehicle, get the lender to confirm in writing that the loan is satisfied and that it will not report the return of the vehicle as a repossession to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp">credit bureaus</a>.</p></div></div></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-happens-if-i-skip-a-payment-on-my-car-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What happens if I skip a payment on my car loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Credit Acceptance begins collection efforts one day after a missed payment due date. It will take the following measures to collect the money owed: </p><ul><li>Its collections department will call you regularly until the payment is made.</li><li>Credit Acceptance will report the missed payments to the credit bureaus.</li><li>You will have to pay late fees.</li><li>Credit Acceptance can repossess your vehicle.</li><li>Credit Acceptance can sue you and get a court order to garnish your wages.<span class="ql-inline-citation" data-cite="4"></span></li></ul></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-what-is-credit-acceptances-repossession-policy"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is Credit Acceptance’s repossession policy?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Credit Acceptance will try to collect on the owed money right after a missed payment occurs. If you don’t pay the money owed and the late fees that accrued, Credit Acceptance will assign your vehicle to a third-party repossession contractor. The contractor will then repossess your car.<span class="ql-inline-citation" data-cite="4"></span></p><p>Once that happens, you can negotiate a payment amount to redeem the vehicle. Otherwise, the car will be sold, with the sale’s proceeds applied to your outstanding loan. </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-does-credit-acceptance-have-trackers-on-cars"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Credit Acceptance have trackers on cars?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In 2017, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ftc.asp">Federal Trade Commission</a> announced an inquiry into Credit Acceptance’s use of trackers called GPS starter interrupters.<span class="ql-inline-citation" data-cite="6"></span> Since then, Credit Acceptance has discontinued the practice; the company stopped using them in mid-2019. </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"> There are several steps you can take to get out of a Credit Acceptance car loan, and each strategy has pros and cons to weigh. Among your options: Pay more than the minimum to get rid of the loan faster, refinance, trade in the vehicle, or, as a last resort, voluntarily surrender the vehicle. </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"> If you’re struggling to afford your bills and are worried about collection calls or repossession of a vehicle, consider using a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-counseling-services-5179499">nonprofit credit counseling agency</a>. Credit counselors can help you create a budget, develop a debt management plan, and negotiate with your creditors on your behalf. You can find a counselor near you through the U.S. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111">Department of Justice’s database of approved agencies</a>. </p></div>

You can get out of a Credit Acceptance loan in several ways, including by paying off the car or refinancing. Companies like Credit Acceptance Corp. can seem like a good solution for people who need a car but have trouble getting financing, such as because they have poor [credit history](https://www.investopedia.com/terms/c/credit-history.asp). The company offers financing programs that allow car dealers to sell vehicles to consumers with bad credit. However, Credit Acceptance charges double-digit [interest rates](https://www.investopedia.com/what-is-a-good-interest-rate-on-a-car-5176189) and additional fees, making it difficult to keep up with the payments. Learn how to get out of a Credit Acceptance car loan through extra payments, refinancing, and other strategies. ### Key Takeaways * Credit Acceptance Corp. provides auto loans to consumers with poor credit. * Credit Acceptance car loans have an average annual percentage rate (APR) of 22%. * Paying more than the minimum or refinancing can help you get out of debt faster. Credit Acceptance Corp. is a publicly traded company ([CACC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=cacc)) that connects with dealers to provide financing for people with poor credit. Credit Acceptance’s loans may help if you are struggling financially but can’t apply for a loan directly through the company. Instead, you need to find a car from one of the company’s partner dealers and finance through the dealer. By working with Credit Acceptance, dealers are able to approve customers who cannot get approved for financing elsewhere. About 1.9 million people got used-car loans through Credit Acceptance and its affiliated dealers from Nov. 2, 2015, to April 30, 2021. The company financed more than $4.9 billion in loans in 2020 alone. Although Credit Acceptance provides financing to consumers who may not qualify for typical auto loans, there is a significant drawback: high rates and fees. Nationally, the average [annual percentage rate (APR)](https://www.investopedia.com/terms/a/apr.asp) on Credit Acceptance loans was about 22%. However, additional fees and charges could drive the total cost even higher. In 2023, the [Consumer Financial Protection Bureau (CFPB)](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp) filed a lawsuit against the company, alleging that Credit Acceptance hid key information about rates and fees from consumers and inflated the values of the used vehicles sold. The CFPB reported that the median markup was more than 50% over the reported dealer cost. ### Credit Acceptance does not offer a grace period. Your account will be reported as delinquent after 30 days of a payment being past due. Collection measures can include late fees, repossession, and wage garnishment.  ## 5 Strategies to Get Out of a Credit Acceptance Car Loan If you’re researching how to get out of a Credit Acceptance car loan, you have a few options:  ### 1. Pay Off the Car The quickest way to get out of the loan is to pay it off in full. That approach may not be feasible for the majority of borrowers, but you may be able to raise the money necessary to pay off the loan by asking family or friends for help, taking out a [personal loan](https://www.investopedia.com/articles/personal-finance/070915/personal-loans-vs-car-loans-how-they-differ.asp), or applying any windfalls of cash you may receive, such as a tax refund or gift, to the loan.  ### 2. Make Extra Payments With such high APRs, Credit Acceptance loans can accrue [interest](https://www.investopedia.com/terms/i/interest.asp) quickly. You can pay off your loan faster and save money by paying more than the minimum required. Even small amounts—such as an extra $25 per month—can help. ### You can use an [auto loan interest calculator](https://www.investopedia.com/car-loan-calculator-5084761) to see how additional payment amounts can reduce your time in repayment and lower your total loan cost.  ### 3. Refinance Your Car Loan If your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) or financial situation has improved since you took out your loan through Credit Acceptance, you may be eligible for refinancing. When you [refinance a car loan](https://www.investopedia.com/how-to-refinance-a-car-loan-7368491), you take out a new loan and pay off the existing one. With a better credit score or higher income, you might qualify for a loan with a lower interest rate and different terms than you have now. For example, let’s say you bought a car for $20,000 with an APR of 22%. If you refinanced to a five-year loan with an APR of 12%, you would save $6,468 in interest charges. [Leading auto loan refinancing companies](https://www.investopedia.com/best-auto-refinance-loans-5069118) like LendingClub and [Bank of America](https://www.investopedia.com/bank-of-america-auto-loan-review-8357865) are among the lenders that may provide new auto loans at lower rates than Credit Acceptance.  ### 4. Trade the Car in for Another Vehicle If you have established good credit habits and are ready for a new vehicle, another option to get out of a Credit Acceptance loan is to purchase another car and trade in the vehicle you financed through Credit Acceptance. If the car isn’t worth enough to satisfy the existing loan, you can [roll the remaining balance](https://www.investopedia.com/how-to-trade-in-a-car-that-is-not-paid-off-5180342) into a new loan with a different lender with potentially better terms. ### 5. Voluntarily Surrender the Vehicle If you’re desperate to get out of a Credit Acceptance loan, you could consider a [voluntary surrender](https://www.investopedia.com/financial-edge/0312/what-happens-when-you-buy-too-much-car.aspx), sometimes referred to as a voluntary repossession. With a voluntary surrender, you inform the lender that you cannot afford the payments and you give the car back. The [lender](https://www.investopedia.com/terms/l/lender.asp) sells the car at auction to recoup its investment. However, the car’s sale price may not pay off the existing loan. And even if you return the vehicle and aren’t using it, you would still owe the remaining balance of your car loan. If you can’t afford the payments, the lender can report the surrender as a repossession on your [credit report](https://www.investopedia.com/terms/c/creditreport.asp). For this reason, voluntary surrenders are risky and should be considered a last resort to get out of a Credit Acceptance loan. ### If you do surrender your vehicle, get the lender to confirm in writing that the loan is satisfied and that it will not report the return of the vehicle as a repossession to the [credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp). ## What happens if I skip a payment on my car loan? Credit Acceptance begins collection efforts one day after a missed payment due date. It will take the following measures to collect the money owed:  * Its collections department will call you regularly until the payment is made. * Credit Acceptance will report the missed payments to the credit bureaus. * You will have to pay late fees. * Credit Acceptance can repossess your vehicle. * Credit Acceptance can sue you and get a court order to garnish your wages. ## What is Credit Acceptance’s repossession policy? Credit Acceptance will try to collect on the owed money right after a missed payment occurs. If you don’t pay the money owed and the late fees that accrued, Credit Acceptance will assign your vehicle to a third-party repossession contractor. The contractor will then repossess your car. Once that happens, you can negotiate a payment amount to redeem the vehicle. Otherwise, the car will be sold, with the sale’s proceeds applied to your outstanding loan.  ## Does Credit Acceptance have trackers on cars? In 2017, the [Federal Trade Commission](https://www.investopedia.com/terms/f/ftc.asp) announced an inquiry into Credit Acceptance’s use of trackers called GPS starter interrupters. Since then, Credit Acceptance has discontinued the practice; the company stopped using them in mid-2019.  ## The Bottom Line There are several steps you can take to get out of a Credit Acceptance car loan, and each strategy has pros and cons to weigh. Among your options: Pay more than the minimum to get rid of the loan faster, refinance, trade in the vehicle, or, as a last resort, voluntarily surrender the vehicle. If you’re struggling to afford your bills and are worried about collection calls or repossession of a vehicle, consider using a [nonprofit credit counseling agency](https://www.investopedia.com/best-credit-counseling-services-5179499). Credit counselors can help you create a budget, develop a debt management plan, and negotiate with your creditors on your behalf. You can find a counselor near you through the U.S. [Department of Justice’s database of approved agencies](https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111).

You can get out of a Credit Acceptance loan in several ways, including by paying off the car or refinancing. Companies like Credit Acceptance Corp. can seem like a good solution for people who need a car but have trouble getting financing, such as because they have poor credit history. The company offers financing programs that allow car dealers to sell vehicles to consumers with bad credit. However, Credit Acceptance charges double-digit interest rates and additional fees, making it difficult to keep up with the payments. Learn how to get out of a Credit Acceptance car loan through extra payments, refinancing, and other strategies. Key Takeaways Credit Acceptance Corp. provides auto loans to consumers with poor credit.Credit Acceptance car loans have an average annual percentage rate (APR) of 22%.Paying more than the minimum or refinancing can help you get out of debt faster. Credit Acceptance Corp. is a publicly traded company (CACC) that connects with dealers to provide financing for people with poor credit. Credit Acceptance’s loans may help if you are struggling financially but can’t apply for a loan directly through the company. Instead, you need to find a car from one of the company’s partner dealers and finance through the dealer. By working with Credit Acceptance, dealers are able to approve customers who cannot get approved for financing elsewhere. About 1.9 million people got used-car loans through Credit Acceptance and its affiliated dealers from Nov. 2, 2015, to April 30, 2021. The company financed more than $4.9 billion in loans in 2020 alone. Although Credit Acceptance provides financing to consumers who may not qualify for typical auto loans, there is a significant drawback: high rates and fees. Nationally, the average annual percentage rate (APR) on Credit Acceptance loans was about 22%. However, additional fees and charges could drive the total cost even higher. In 2023, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against the company, alleging that Credit Acceptance hid key information about rates and fees from consumers and inflated the values of the used vehicles sold. The CFPB reported that the median markup was more than 50% over the reported dealer cost. Credit Acceptance does not offer a grace period. Your account will be reported as delinquent after 30 days of a payment being past due. Collection measures can include late fees, repossession, and wage garnishment.  5 Strategies to Get Out of a Credit Acceptance Car Loan If you’re researching how to get out of a Credit Acceptance car loan, you have a few options:  1. Pay Off the Car The quickest way to get out of the loan is to pay it off in full. That approach may not be feasible for the majority of borrowers, but you may be able to raise the money necessary to pay off the loan by asking family or friends for help, taking out a personal loan, or applying any windfalls of cash you may receive, such as a tax refund or gift, to the loan.  2. Make Extra Payments With such high APRs, Credit Acceptance loans can accrue interest quickly. You can pay off your loan faster and save money by paying more than the minimum required. Even small amounts—such as an extra $25 per month—can help. You can use an auto loan interest calculator to see how additional payment amounts can reduce your time in repayment and lower your total loan cost.  3. Refinance Your Car Loan If your credit score or financial situation has improved since you took out your loan through Credit Acceptance, you may be eligible for refinancing. When you refinance a car loan, you take out a new loan and pay off the existing one. With a better credit score or higher income, you might qualify for a loan with a lower interest rate and different terms than you have now. For example, let’s say you bought a car for $20,000 with an APR of 22%. If you refinanced to a five-year loan with an APR of 12%, you would save $6,468 in interest charges. Leading auto loan refinancing companies like LendingClub and Bank of America are among the lenders that may provide new auto loans at lower rates than Credit Acceptance.  4. Trade the Car in for Another Vehicle If you have established good credit habits and are ready for a new vehicle, another option to get out of a Credit Acceptance loan is to purchase another car and trade in the vehicle you financed through Credit Acceptance. If the car isn’t worth enough to satisfy the existing loan, you can roll the remaining balance into a new loan with a different lender with potentially better terms. 5. Voluntarily Surrender the Vehicle If you’re desperate to get out of a Credit Acceptance loan, you could consider a voluntary surrender, sometimes referred to as a voluntary repossession. With a voluntary surrender, you inform the lender that you cannot afford the payments and you give the car back. The lender sells the car at auction to recoup its investment. However, the car’s sale price may not pay off the existing loan. And even if you return the vehicle and aren’t using it, you would still owe the remaining balance of your car loan. If you can’t afford the payments, the lender can report the surrender as a repossession on your credit report. For this reason, voluntary surrenders are risky and should be considered a last resort to get out of a Credit Acceptance loan. If you do surrender your vehicle, get the lender to confirm in writing that the loan is satisfied and that it will not report the return of the vehicle as a repossession to the credit bureaus. What happens if I skip a payment on my car loan? Credit Acceptance begins collection efforts one day after a missed payment due date. It will take the following measures to collect the money owed: Its collections department will call you regularly until the payment is made.Credit Acceptance will report the missed payments to the credit bureaus.You will have to pay late fees.Credit Acceptance can repossess your vehicle.Credit Acceptance can sue you and get a court order to garnish your wages. What is Credit Acceptance’s repossession policy? Credit Acceptance will try to collect on the owed money right after a missed payment occurs. If you don’t pay the money owed and the late fees that accrued, Credit Acceptance will assign your vehicle to a third-party repossession contractor. The contractor will then repossess your car.Once that happens, you can negotiate a payment amount to redeem the vehicle. Otherwise, the car will be sold, with the sale’s proceeds applied to your outstanding loan.  Does Credit Acceptance have trackers on cars? In 2017, the Federal Trade Commission announced an inquiry into Credit Acceptance’s use of trackers called GPS starter interrupters. Since then, Credit Acceptance has discontinued the practice; the company stopped using them in mid-2019.  The Bottom Line There are several steps you can take to get out of a Credit Acceptance car loan, and each strategy has pros and cons to weigh. Among your options: Pay more than the minimum to get rid of the loan faster, refinance, trade in the vehicle, or, as a last resort, voluntarily surrender the vehicle. If you’re struggling to afford your bills and are worried about collection calls or repossession of a vehicle, consider using a nonprofit credit counseling agency. Credit counselors can help you create a budget, develop a debt management plan, and negotiate with your creditors on your behalf. You can find a counselor near you through the U.S. Department of Justice’s database of approved agencies.

https://www.investopedia.com/terms/b/bed-and-breakfast-deal.asp

Bed and Breakfast Deal: Definition, How It Works, and Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-bed-and-breakfast-deal"></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 Bed and Breakfast Deal? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A bed and breakfast deal was a practice in the United Kingdom whereby a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">security</a> holder sold it at the end of the day and bought it back one day later. Its purpose was to create a disposal event and a loss that would benefit the holder regarding capital gains. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> This practice became defunct when legislation was passed in 1998 making it impossible to make an arrangement to sell a security and repurchase it less than 30 days later to claim a loss for a capital gains tax exemption.<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_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> This practice is also called "bed and breakfasting" or "bed and breakfasting with shares." </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>Bed and breakfasting with shares was an investing strategy in the United Kingdom where an investor sold a security at the end of the day and repurchased it the next day.</li><li>The bed and breakfast deal allowed investors to claim a loss as a capital gains tax exemption while still owning the asset.</li><li>The 30-Day Rule of 1998 banned the practice of traditional "bed and breakfasting," forcing investors to wait 30 days before repurchasing the asset to claim a capital gains tax exemption.<span class="ql-inline-citation" data-cite="1"></span></li><li>There are several strategies that allow investors to replace the bed and breakfast deal without violating the 30-Day Rule.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-bed-and-breakfast-deal-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> How a Bed and Breakfast Deal Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Traders carry out bed and breakfast deals to maintain an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">investment portfolio</a> while minimizing UK <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital_gains_tax.asp">capital gains taxes</a>. Traders used to close out positions at the end of the year and immediately reopen them on the first day of the new financial year to take advantage of the annual tax exemption. Because this practice intentionally sought to reduce or bypass capital gains taxes, tax authorities passed a rule preventing investors from arranging bed and breakfast deals.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Because of this rule, traditional "bed and breakfasting" is no longer possible. You must now wait 30 days to buy an asset back and claim a capital gains tax exclusion.<span class="ql-inline-citation" data-cite="1"></span> However, this does not always appeal to those who wish to stay in the market because it means the asset must be entirely "disposed" of, with the previous owner having no claim on or to it. </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>For a transaction to be considered a bed and breakfast deal, the purchased asset must be of the same class, acquired by the same person in the same capacity, and be acquired within 30 days of disposal (the sale).<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-alternatives-to-bed-and-breakfast-deals"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Alternatives to Bed and Breakfast Deals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> There is a way for you to sell an asset and buy it back later while maintaining a position in the market using a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contractfordifferences.asp">contract for differences</a> (CFD). A contract for differences lets you trade the asset's price movement while not holding it. You can use this on stock indices, <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</a> (ETFs), and commodity futures. </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"> Using a CFD strategy, you could sell your asset and wait the mandatory 30 days before repurchasing it. Then, you purchase a CFD for the asset from a CFD broker. After 30 days, you close their CFD position, repurchase the investment, and claim a capital gains tax exemption if warranted. This strategy lets you stay in the market and participate in the stock's price movement without violating the 30-Day Rule. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Another alternative is to use the bed and spouse strategy, where you sell the asset and your spouse or partner immediately purchases it. Then, they transfer it to you, and you can claim the tax exemption if there was a loss. </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"> Lastly, if you have an individual saving account (ISA), you can use the bed and ISA strategy to sell your asset and purchase it with your retirement account.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_26-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_27-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>CFDs are an advanced strategy that can lead investors to large losses in volatile markets, and the industry itself is not highly regulated; because of this, CFD trading is not allowed in the United States.</p></div></div></div> <span class="heading-toc" id="toc-example-of-a-bed-and-breakfast-deal"></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"> Example of a Bed and Breakfast Deal </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Let's assume you bought 10,000 shares of XYZ Group six months ago at £3.50, and the share price of XYZ Group is currently £3.00. You contact your regular stockbroker and sell the shares at £3.00, thereby <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recognizedloss.asp">actualizing a loss</a> of £5,000 (ignoring broker commissions in this example). </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 past, you might have sold the shares, and claimed the loss as part of your annual exemption amount. The next day share price rose to £3.05, so you could justify repurchasing them. In this case, the £5,000 loss lowers the taxable amount of your income from capital gains, and you purchased the shares again for £0.45 per share less than you did six months ago. </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"> Regulators would now consider this a bed and breakfast deal—you could still repurchase the shares, but because you didn't wait 30 days to do so you can't claim the tax exclusion on the loss. </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-30-day-rule-for-shares"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the 30-Day Rule for Shares?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The 30-day rule for shares prevents investors from selling a share and repurchasing it the next day to realize a loss and take advantage of capital gains tax exemption laws. The rule requires a 30-day window between buying and selling a share to claim the exemption.</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-i-share-my-bed-and-isa"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Share My Bed and ISA?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A bed and ISA is where you sell an investment and repurchase it with your ISA funds.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_39-0"><span class="heading-toc" id="toc-how-does-bed-and-spouse-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does Bed and Spouse Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In the bed and spouse strategy, you sell an asset for a loss to take a capital gain exemption and have your spouse or partner repurchase it and transfer it to you.</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"> Originally, "bed and breakfast deal" was used to refer to selling an asset one day and repurchasing it the next to take advantage of capital gains tax exemptions. It now refers to selling an asset and repurchasing it within 30 days to take advantage of tax exemptions. </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"> Investors in the U.K. must wait 30 days before repurchasing an asset to claim capital gains tax exemptions to avoid the "bed and breakfast rule."<span class="ql-inline-citation" data-cite="1"></span><br/> </p></div>

## What Is a Bed and Breakfast Deal? A bed and breakfast deal was a practice in the United Kingdom whereby a [security](https://www.investopedia.com/terms/s/security.asp) holder sold it at the end of the day and bought it back one day later. Its purpose was to create a disposal event and a loss that would benefit the holder regarding capital gains. This practice became defunct when legislation was passed in 1998 making it impossible to make an arrangement to sell a security and repurchase it less than 30 days later to claim a loss for a capital gains tax exemption. This practice is also called "bed and breakfasting" or "bed and breakfasting with shares." ### Key Takeaways * Bed and breakfasting with shares was an investing strategy in the United Kingdom where an investor sold a security at the end of the day and repurchased it the next day. * The bed and breakfast deal allowed investors to claim a loss as a capital gains tax exemption while still owning the asset. * The 30-Day Rule of 1998 banned the practice of traditional "bed and breakfasting," forcing investors to wait 30 days before repurchasing the asset to claim a capital gains tax exemption. * There are several strategies that allow investors to replace the bed and breakfast deal without violating the 30-Day Rule. ## How a Bed and Breakfast Deal Works Traders carry out bed and breakfast deals to maintain an [investment portfolio](https://www.investopedia.com/terms/p/portfolio.asp) while minimizing UK [capital gains taxes](https://www.investopedia.com/terms/c/capital_gains_tax.asp). Traders used to close out positions at the end of the year and immediately reopen them on the first day of the new financial year to take advantage of the annual tax exemption. Because this practice intentionally sought to reduce or bypass capital gains taxes, tax authorities passed a rule preventing investors from arranging bed and breakfast deals. Because of this rule, traditional "bed and breakfasting" is no longer possible. You must now wait 30 days to buy an asset back and claim a capital gains tax exclusion. However, this does not always appeal to those who wish to stay in the market because it means the asset must be entirely "disposed" of, with the previous owner having no claim on or to it. ### For a transaction to be considered a bed and breakfast deal, the purchased asset must be of the same class, acquired by the same person in the same capacity, and be acquired within 30 days of disposal (the sale). ## Alternatives to Bed and Breakfast Deals There is a way for you to sell an asset and buy it back later while maintaining a position in the market using a [contract for differences](https://www.investopedia.com/terms/c/contractfordifferences.asp) (CFD). A contract for differences lets you trade the asset's price movement while not holding it. You can use this on stock indices, [exchange-traded funds](https://www.investopedia.com/terms/e/etf.asp) (ETFs), and commodity futures. Using a CFD strategy, you could sell your asset and wait the mandatory 30 days before repurchasing it. Then, you purchase a CFD for the asset from a CFD broker. After 30 days, you close their CFD position, repurchase the investment, and claim a capital gains tax exemption if warranted. This strategy lets you stay in the market and participate in the stock's price movement without violating the 30-Day Rule. Another alternative is to use the bed and spouse strategy, where you sell the asset and your spouse or partner immediately purchases it. Then, they transfer it to you, and you can claim the tax exemption if there was a loss. Lastly, if you have an individual saving account (ISA), you can use the bed and ISA strategy to sell your asset and purchase it with your retirement account. ### CFDs are an advanced strategy that can lead investors to large losses in volatile markets, and the industry itself is not highly regulated; because of this, CFD trading is not allowed in the United States. ## Example of a Bed and Breakfast Deal Let's assume you bought 10,000 shares of XYZ Group six months ago at £3.50, and the share price of XYZ Group is currently £3.00. You contact your regular stockbroker and sell the shares at £3.00, thereby [actualizing a loss](https://www.investopedia.com/terms/r/recognizedloss.asp) of £5,000 (ignoring broker commissions in this example). In the past, you might have sold the shares, and claimed the loss as part of your annual exemption amount. The next day share price rose to £3.05, so you could justify repurchasing them. In this case, the £5,000 loss lowers the taxable amount of your income from capital gains, and you purchased the shares again for £0.45 per share less than you did six months ago. Regulators would now consider this a bed and breakfast deal—you could still repurchase the shares, but because you didn't wait 30 days to do so you can't claim the tax exclusion on the loss. ## What Is the 30-Day Rule for Shares? The 30-day rule for shares prevents investors from selling a share and repurchasing it the next day to realize a loss and take advantage of capital gains tax exemption laws. The rule requires a 30-day window between buying and selling a share to claim the exemption. ## How Do I Share My Bed and ISA? A bed and ISA is where you sell an investment and repurchase it with your ISA funds. ## How Does Bed and Spouse Work? In the bed and spouse strategy, you sell an asset for a loss to take a capital gain exemption and have your spouse or partner repurchase it and transfer it to you. ## The Bottom Line Originally, "bed and breakfast deal" was used to refer to selling an asset one day and repurchasing it the next to take advantage of capital gains tax exemptions. It now refers to selling an asset and repurchasing it within 30 days to take advantage of tax exemptions. Investors in the U.K. must wait 30 days before repurchasing an asset to claim capital gains tax exemptions to avoid the "bed and breakfast rule."

What Is a Bed and Breakfast Deal? A bed and breakfast deal was a practice in the United Kingdom whereby a security holder sold it at the end of the day and bought it back one day later. Its purpose was to create a disposal event and a loss that would benefit the holder regarding capital gains. This practice became defunct when legislation was passed in 1998 making it impossible to make an arrangement to sell a security and repurchase it less than 30 days later to claim a loss for a capital gains tax exemption. This practice is also called "bed and breakfasting" or "bed and breakfasting with shares." Key Takeaways Bed and breakfasting with shares was an investing strategy in the United Kingdom where an investor sold a security at the end of the day and repurchased it the next day.The bed and breakfast deal allowed investors to claim a loss as a capital gains tax exemption while still owning the asset.The 30-Day Rule of 1998 banned the practice of traditional "bed and breakfasting," forcing investors to wait 30 days before repurchasing the asset to claim a capital gains tax exemption.There are several strategies that allow investors to replace the bed and breakfast deal without violating the 30-Day Rule. How a Bed and Breakfast Deal Works Traders carry out bed and breakfast deals to maintain an investment portfolio while minimizing UK capital gains taxes. Traders used to close out positions at the end of the year and immediately reopen them on the first day of the new financial year to take advantage of the annual tax exemption. Because this practice intentionally sought to reduce or bypass capital gains taxes, tax authorities passed a rule preventing investors from arranging bed and breakfast deals. Because of this rule, traditional "bed and breakfasting" is no longer possible. You must now wait 30 days to buy an asset back and claim a capital gains tax exclusion. However, this does not always appeal to those who wish to stay in the market because it means the asset must be entirely "disposed" of, with the previous owner having no claim on or to it. For a transaction to be considered a bed and breakfast deal, the purchased asset must be of the same class, acquired by the same person in the same capacity, and be acquired within 30 days of disposal (the sale). Alternatives to Bed and Breakfast Deals There is a way for you to sell an asset and buy it back later while maintaining a position in the market using a contract for differences (CFD). A contract for differences lets you trade the asset's price movement while not holding it. You can use this on stock indices, exchange-traded funds (ETFs), and commodity futures. Using a CFD strategy, you could sell your asset and wait the mandatory 30 days before repurchasing it. Then, you purchase a CFD for the asset from a CFD broker. After 30 days, you close their CFD position, repurchase the investment, and claim a capital gains tax exemption if warranted. This strategy lets you stay in the market and participate in the stock's price movement without violating the 30-Day Rule. Another alternative is to use the bed and spouse strategy, where you sell the asset and your spouse or partner immediately purchases it. Then, they transfer it to you, and you can claim the tax exemption if there was a loss. Lastly, if you have an individual saving account (ISA), you can use the bed and ISA strategy to sell your asset and purchase it with your retirement account. CFDs are an advanced strategy that can lead investors to large losses in volatile markets, and the industry itself is not highly regulated; because of this, CFD trading is not allowed in the United States. Example of a Bed and Breakfast Deal Let's assume you bought 10,000 shares of XYZ Group six months ago at £3.50, and the share price of XYZ Group is currently £3.00. You contact your regular stockbroker and sell the shares at £3.00, thereby actualizing a loss of £5,000 (ignoring broker commissions in this example). In the past, you might have sold the shares, and claimed the loss as part of your annual exemption amount. The next day share price rose to £3.05, so you could justify repurchasing them. In this case, the £5,000 loss lowers the taxable amount of your income from capital gains, and you purchased the shares again for £0.45 per share less than you did six months ago. Regulators would now consider this a bed and breakfast deal—you could still repurchase the shares, but because you didn't wait 30 days to do so you can't claim the tax exclusion on the loss. What Is the 30-Day Rule for Shares? The 30-day rule for shares prevents investors from selling a share and repurchasing it the next day to realize a loss and take advantage of capital gains tax exemption laws. The rule requires a 30-day window between buying and selling a share to claim the exemption. How Do I Share My Bed and ISA? A bed and ISA is where you sell an investment and repurchase it with your ISA funds. How Does Bed and Spouse Work? In the bed and spouse strategy, you sell an asset for a loss to take a capital gain exemption and have your spouse or partner repurchase it and transfer it to you. The Bottom Line Originally, "bed and breakfast deal" was used to refer to selling an asset one day and repurchasing it the next to take advantage of capital gains tax exemptions. It now refers to selling an asset and repurchasing it within 30 days to take advantage of tax exemptions. Investors in the U.K. must wait 30 days before repurchasing an asset to claim capital gains tax exemptions to avoid the "bed and breakfast rule."

https://www.investopedia.com/alibaba-daniel-zhang-steps-down-amid-restructuring-7967853

Alibaba Ex-CEO Daniel Zhang Steps Down Amid Restructuring Ahead of Cloud Unit 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"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Alibaba (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BABA">BABA</a>) shares dropped 1.17% in early trading on Monday after former CEO Daniel Zhang stepped down, just two months after shifting his focus to Alibaba's cloud unit amid a restructuring ahead of its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering (IPO)</a>.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <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>Daniel Zhang is stepping down as head of Alibaba's cloud unit.</li><li>The former group CEO had taken over the helm of the cloud division just two months ago.</li><li>ADRs of Alibaba slipped following the news as Zhang's abrupt departure raised concerns about the cloud unit's upcoming IPO. </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"> Valued between $41 billion and $60 billion, Alibaba's Cloud Intelligence Group is its second most profitable business. It is planned to be the first of the Group's five newly created business units to go public next year.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Eddie Yongming Wu, who was set to take over as CEO and director of Alibaba Group, will take over for Zhang as chair and CEO of the cloud business. </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"> During Zhang's eight-year tenure, Alibaba became China's biggest company, starting new ventures such as physical retail that went on to become the group's fastest-growing business. However, the company has suffered from increased regulatory scrutiny of China's internet sector.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The cloud division's revenue also fell for the time in its history earlier this year, by 2% from January to March, partly due to a delay of some of its projects.<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"> Zhang will reportedly continue contributing to Alibaba by running a $1 billion technology investment fund set up by the group.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

Alibaba ([BABA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BABA)) shares dropped 1.17% in early trading on Monday after former CEO Daniel Zhang stepped down, just two months after shifting his focus to Alibaba's cloud unit amid a restructuring ahead of its [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp). ### Key Takeaways * Daniel Zhang is stepping down as head of Alibaba's cloud unit. * The former group CEO had taken over the helm of the cloud division just two months ago. * ADRs of Alibaba slipped following the news as Zhang's abrupt departure raised concerns about the cloud unit's upcoming IPO. Valued between $41 billion and $60 billion, Alibaba's Cloud Intelligence Group is its second most profitable business. It is planned to be the first of the Group's five newly created business units to go public next year. Eddie Yongming Wu, who was set to take over as CEO and director of Alibaba Group, will take over for Zhang as chair and CEO of the cloud business. During Zhang's eight-year tenure, Alibaba became China's biggest company, starting new ventures such as physical retail that went on to become the group's fastest-growing business. However, the company has suffered from increased regulatory scrutiny of China's internet sector. The cloud division's revenue also fell for the time in its history earlier this year, by 2% from January to March, partly due to a delay of some of its projects. Zhang will reportedly continue contributing to Alibaba by running a $1 billion technology investment fund set up by the group. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Alibaba (BABA) shares dropped 1.17% in early trading on Monday after former CEO Daniel Zhang stepped down, just two months after shifting his focus to Alibaba's cloud unit amid a restructuring ahead of its initial public offering (IPO). Key Takeaways Daniel Zhang is stepping down as head of Alibaba's cloud unit.The former group CEO had taken over the helm of the cloud division just two months ago.ADRs of Alibaba slipped following the news as Zhang's abrupt departure raised concerns about the cloud unit's upcoming IPO. Valued between $41 billion and $60 billion, Alibaba's Cloud Intelligence Group is its second most profitable business. It is planned to be the first of the Group's five newly created business units to go public next year. Eddie Yongming Wu, who was set to take over as CEO and director of Alibaba Group, will take over for Zhang as chair and CEO of the cloud business. During Zhang's eight-year tenure, Alibaba became China's biggest company, starting new ventures such as physical retail that went on to become the group's fastest-growing business. However, the company has suffered from increased regulatory scrutiny of China's internet sector. The cloud division's revenue also fell for the time in its history earlier this year, by 2% from January to March, partly due to a delay of some of its projects. Zhang will reportedly continue contributing to Alibaba by running a $1 billion technology investment fund set up by the group. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Triple Top: What It Is, How It Works, 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-triple-top"></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 Triple Top? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The triple top is a type of chart pattern used 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> to predict the reversal in the movement of an asset's price. Consisting of three <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peak.asp">peaks</a>, a triple top signals that the asset may no longer be rallying, and that lower prices may be on the way. </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 order for the pattern to be considered a triple top, it must occur after an uptrend. The opposite of a triple is a triple bottom, which indicates the asset's price is no longer falling and could head higher. </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 triple top is formed by three peaks moving into the same area, with pullbacks in between.</li><li>A triple top is considered complete, indicating a further price slide, once the price moves below pattern support.</li><li>A trader exits longs or enters shorts when the triple top completes.</li><li>If trading the pattern, a stop loss can be placed above resistance (peaks).</li><li>The estimated downside target for the pattern is the height of the pattern subtracted from the breakout point.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-triple-top-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 Triple Top Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The triple top pattern occurs when the price of an asset creates three peaks at nearly the same price level. The area of the peaks is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/resistance.asp">resistance</a>. The pullbacks between the peaks are called the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swinglow.asp">swing lows</a>. After the third peak, if the price falls below the swing lows, the pattern is considered complete and traders watch for a further move to the downside. </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 three consecutive peaks make the triple top visually similar to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/head-shoulders.asp">head and shoulders pattern</a>; however, in this case, the middle peak is nearly equal to the other peaks rather than being higher. The pattern is also similar to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/doubletop.asp">double top</a> pattern, when the price touches the resistance area twice, creating a pair of high points before falling. </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>Triple tops are traded in essentially the same way as head and shoulders patterns.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Say a stock's price peaks at $119, pulls back to $110, rallies to $119.25, pulls back to $111, rallies to $118, then drops below $111, that is a triple top and signals the stock is likely heading lower. It would look like the chart below. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_17-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:75.2%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/gs-OHN4ABEbcXdqNhVFDGbxdSPA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-01-78a37beca8574d169c2cccd1fc18279d.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/gs-OHN4ABEbcXdqNhVFDGbxdSPA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-01-78a37beca8574d169c2cccd1fc18279d.jpg" data-srcset="https://www.investopedia.com/thmb/jAN4C0rTVuw0JW_-4jEkkoQzzxA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-01-78a37beca8574d169c2cccd1fc18279d.jpg 750w" data-tracking-container="true" height="3983" id="mntl-sc-block-image_1-0" width="5292"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3983" sizes="750px" src="https://www.investopedia.com/thmb/gs-OHN4ABEbcXdqNhVFDGbxdSPA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-01-78a37beca8574d169c2cccd1fc18279d.jpg" srcset="https://www.investopedia.com/thmb/jAN4C0rTVuw0JW_-4jEkkoQzzxA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-01-78a37beca8574d169c2cccd1fc18279d.jpg 750w" width="5292"/> </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">Triple Top.</span> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2021 </span> </figcaption></figure> <span class="heading-toc" id="toc-significance-of-the-triple-top"></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"> Significance of the Triple Top </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Technically, a triple top pattern shows us that the price is unable to penetrate the area of the peaks. Translated into real-life events, it means that, after multiple attempts, the asset is unable to find many buyers in that price range. </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"> As the price falls, it puts pressure on all those traders who bought during the pattern to start selling. If the price can't rise above resistance there is limited profit potential in holding onto it. As the price falls below the swing lows of the pattern, selling may escalate as former buyers exit losing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/long.asp">long</a> positions and new traders jump into <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/short.asp">short</a> positions. This is the psychology of the pattern, and what helps fuel the selloff after the pattern completes. </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"> No pattern works all the time. Sometimes a triple top will form and complete, leading traders to believe the asset will continue to fall. But then, the price may then recover and move above the resistance area. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> For protection, a trader could place a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stop-lossorder.asp">stop loss</a> on short positions above the latest peak, or above a recent <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swinghigh.asp">swing high</a> within the pattern. This move limits the risk of the trade if the price doesn't drop and instead rallies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <span class="heading-toc" id="toc-trading-triple-top-patterns"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Trading Triple Top Patterns </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Some traders will enter into a short position, or exit long positions, once the price of the asset falls below pattern <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/support.asp" rel="noopener noreferrer">support</a>. The support level of the pattern is the most recent swing low following the second peak, or alternatively, a trader could connect the swing lows between the peaks with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trendline.asp" rel="noopener noreferrer">trendline</a>. When the price falls below the trendline the pattern is considered complete and a further decline in price is expected. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> To add confirmation to the pattern, traders will watch for heavy <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volume.asp" rel="noopener noreferrer">volume</a> as the price falls through support. Volume should pick up showing a strong interest in selling. If the volume doesn't increase, the pattern is more prone to failure (price rallying or not falling as expected). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The pattern provides a downside target equal to the height of the pattern subtracted from the breakout point. This target is an estimate. Sometimes the price will drop much lower than the target, other times it won't reach the target. </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"> Other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalindicator.asp" rel="noopener noreferrer">technical indicators</a> and chart patterns may also be used in conjunction with the triple top. For example, a trader may watch for a bearish <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macd.asp" rel="noopener noreferrer">MACD</a> crossover following the third peak, or for the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rsi.asp" rel="noopener noreferrer">RSI</a> to drop out of overbought territory to help confirm the price drop. </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-real-world-example-of-a-triple-top"></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"> Real-World Example of a Triple Top </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The following chart shows an example of a triple top in Bruker Corp. (BRKR). The price reaches near $36.50 on three consecutive attempts. The price pulls back between each attempt, creating the triple top pattern. The stock quickly broke below trendline support at $34 and continued to decline on escalating volume. </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:59.2%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/m4vf9HbPJ2Tnd7Gb9clsCv1WFW0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-02-f2c3428399574d4181d943daf126cf77.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/m4vf9HbPJ2Tnd7Gb9clsCv1WFW0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-02-f2c3428399574d4181d943daf126cf77.jpg" data-srcset="https://www.investopedia.com/thmb/Gli73N0LPbqHb5NC5GFoXUHPEBM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-02-f2c3428399574d4181d943daf126cf77.jpg 750w" data-tracking-container="true" height="3137" id="mntl-sc-block-image_2-0" width="5292"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3137" sizes="750px" src="https://www.investopedia.com/thmb/m4vf9HbPJ2Tnd7Gb9clsCv1WFW0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-02-f2c3428399574d4181d943daf126cf77.jpg" srcset="https://www.investopedia.com/thmb/Gli73N0LPbqHb5NC5GFoXUHPEBM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-02-f2c3428399574d4181d943daf126cf77.jpg 750w" width="5292"/> </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 2021</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Traders could enter short or exit longs when the price drops below support at $34. A stop-loss could initially be placed just above the major resistance area. </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 estimated target for the decline is the height of the pattern, about $3.25, subtracted from the $34 breakout point. Therefore, the target is $30.75. The target was reached before the price started bouncing, although that won't always happen. </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-special-considerations-for-a-triple-top"></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"> Special Considerations for a Triple Top </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> As with double tops and bottoms, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskrewardratio.asp">risk/reward</a> ratio is a drawback of these triple patterns. Since both the stop loss and target are based on the height of the pattern, they are roughly equal. Patterns in which the potential profit is greater than the risk are preferred by most professional traders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> By placing the stop loss within the pattern, instead of above it (triple top) or below it (triple bottom) improves the reward relative to the risk. The risk is based on only a portion of the pattern height, while the target is based on the full pattern height. </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"> Depending on which entry points are used—the trendline or the recent pullback low—it is possible to have two profit targets since the height of the pattern can be added to either of these breakout points. Traders can choose which target breakout level they prefer in order to extract more profit from the trade. </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-a-triple-top-bullish-or-bearish"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a Triple Top Bullish or Bearish?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The triple top is a bearish reversal chart pattern that leads to the trend change to the downside. On the other hand, the triple bottom pattern is a bullish reversal chart pattern that leads to the trend change to the upside.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-are-triple-tops-rare"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Triple Tops Rare?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Triple top patterns occur less frequently than double top patterns, where there is one peak less to happen. But the fact that it is a rare chart formation is also the biggest weakness of a triple top.<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_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-how-long-does-the-triple-top-pattern-take-to-form"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does the Triple Top Pattern Take to Form?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As other major reversal patterns, the triple top pattern usually form over a three- to six- month period.<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_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"> The triple top is used in technical analysis to predict the reversal in the movement of an asset's price. A triple top occurs when the price peaks, retraces, rallies to a similar peak, retraces, rallies to a similar high again then declines again.<br/> </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"> A triple top is considered complete once the price moves below pattern support and the trend changes to the downside. Then, a trader may decide to exit longs or enter shorts. </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 triple bottom chart pattern is an upside-down version of the triple top and marks the end of a downtrend.<br/> </p></div>

## What Is a Triple Top? The triple top is a type of chart pattern used in [technical analysis](https://www.investopedia.com/terms/t/technicalanalysis.asp) to predict the reversal in the movement of an asset's price. Consisting of three [peaks](https://www.investopedia.com/terms/p/peak.asp), a triple top signals that the asset may no longer be rallying, and that lower prices may be on the way. In order for the pattern to be considered a triple top, it must occur after an uptrend. The opposite of a triple is a triple bottom, which indicates the asset's price is no longer falling and could head higher. ### Key Takeaways * A triple top is formed by three peaks moving into the same area, with pullbacks in between. * A triple top is considered complete, indicating a further price slide, once the price moves below pattern support. * A trader exits longs or enters shorts when the triple top completes. * If trading the pattern, a stop loss can be placed above resistance (peaks). * The estimated downside target for the pattern is the height of the pattern subtracted from the breakout point. ## How a Triple Top Works The triple top pattern occurs when the price of an asset creates three peaks at nearly the same price level. The area of the peaks is [resistance](https://www.investopedia.com/terms/r/resistance.asp). The pullbacks between the peaks are called the [swing lows](https://www.investopedia.com/terms/s/swinglow.asp). After the third peak, if the price falls below the swing lows, the pattern is considered complete and traders watch for a further move to the downside. The three consecutive peaks make the triple top visually similar to the [head and shoulders pattern](https://www.investopedia.com/terms/h/head-shoulders.asp); however, in this case, the middle peak is nearly equal to the other peaks rather than being higher. The pattern is also similar to the [double top](https://www.investopedia.com/terms/d/doubletop.asp) pattern, when the price touches the resistance area twice, creating a pair of high points before falling. ### Triple tops are traded in essentially the same way as head and shoulders patterns. Say a stock's price peaks at $119, pulls back to $110, rallies to $119.25, pulls back to $111, rallies to $118, then drops below $111, that is a triple top and signals the stock is likely heading lower. It would look like the chart below. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-01-78a37beca8574d169c2cccd1fc18279d.jpg) Triple Top. Image by Sabrina Jiang © Investopedia 2021  ## Significance of the Triple Top Technically, a triple top pattern shows us that the price is unable to penetrate the area of the peaks. Translated into real-life events, it means that, after multiple attempts, the asset is unable to find many buyers in that price range. As the price falls, it puts pressure on all those traders who bought during the pattern to start selling. If the price can't rise above resistance there is limited profit potential in holding onto it. As the price falls below the swing lows of the pattern, selling may escalate as former buyers exit losing [long](https://www.investopedia.com/terms/l/long.asp) positions and new traders jump into [short](https://www.investopedia.com/terms/s/short.asp) positions. This is the psychology of the pattern, and what helps fuel the selloff after the pattern completes. No pattern works all the time. Sometimes a triple top will form and complete, leading traders to believe the asset will continue to fall. But then, the price may then recover and move above the resistance area. For protection, a trader could place a [stop loss](https://www.investopedia.com/terms/s/stop-lossorder.asp) on short positions above the latest peak, or above a recent [swing high](https://www.investopedia.com/terms/s/swinghigh.asp) within the pattern. This move limits the risk of the trade if the price doesn't drop and instead rallies. ## Trading Triple Top Patterns Some traders will enter into a short position, or exit long positions, once the price of the asset falls below pattern [support](https://www.investopedia.com/terms/s/support.asp). The support level of the pattern is the most recent swing low following the second peak, or alternatively, a trader could connect the swing lows between the peaks with a [trendline](https://www.investopedia.com/terms/t/trendline.asp). When the price falls below the trendline the pattern is considered complete and a further decline in price is expected. To add confirmation to the pattern, traders will watch for heavy [volume](https://www.investopedia.com/terms/v/volume.asp) as the price falls through support. Volume should pick up showing a strong interest in selling. If the volume doesn't increase, the pattern is more prone to failure (price rallying or not falling as expected). The pattern provides a downside target equal to the height of the pattern subtracted from the breakout point. This target is an estimate. Sometimes the price will drop much lower than the target, other times it won't reach the target. Other [technical indicators](https://www.investopedia.com/terms/t/technicalindicator.asp) and chart patterns may also be used in conjunction with the triple top. For example, a trader may watch for a bearish [MACD](https://www.investopedia.com/terms/m/macd.asp) crossover following the third peak, or for the [RSI](https://www.investopedia.com/terms/r/rsi.asp) to drop out of overbought territory to help confirm the price drop. ## Real-World Example of a Triple Top The following chart shows an example of a triple top in Bruker Corp. (BRKR). The price reaches near $36.50 on three consecutive attempts. The price pulls back between each attempt, creating the triple top pattern. The stock quickly broke below trendline support at $34 and continued to decline on escalating volume. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Triple_Top_Dec_2020-02-f2c3428399574d4181d943daf126cf77.jpg) Image by Sabrina Jiang © Investopedia 2021 Traders could enter short or exit longs when the price drops below support at $34. A stop-loss could initially be placed just above the major resistance area. The estimated target for the decline is the height of the pattern, about $3.25, subtracted from the $34 breakout point. Therefore, the target is $30.75. The target was reached before the price started bouncing, although that won't always happen. ## Special Considerations for a Triple Top As with double tops and bottoms, the [risk/reward](https://www.investopedia.com/terms/r/riskrewardratio.asp) ratio is a drawback of these triple patterns. Since both the stop loss and target are based on the height of the pattern, they are roughly equal. Patterns in which the potential profit is greater than the risk are preferred by most professional traders. By placing the stop loss within the pattern, instead of above it (triple top) or below it (triple bottom) improves the reward relative to the risk. The risk is based on only a portion of the pattern height, while the target is based on the full pattern height. Depending on which entry points are used—the trendline or the recent pullback low—it is possible to have two profit targets since the height of the pattern can be added to either of these breakout points. Traders can choose which target breakout level they prefer in order to extract more profit from the trade. ## Is a Triple Top Bullish or Bearish? The triple top is a bearish reversal chart pattern that leads to the trend change to the downside. On the other hand, the triple bottom pattern is a bullish reversal chart pattern that leads to the trend change to the upside. ## Are Triple Tops Rare? Triple top patterns occur less frequently than double top patterns, where there is one peak less to happen. But the fact that it is a rare chart formation is also the biggest weakness of a triple top. ## How Long Does the Triple Top Pattern Take to Form? As other major reversal patterns, the triple top pattern usually form over a three- to six- month period. ## The Bottom Line The triple top is used in technical analysis to predict the reversal in the movement of an asset's price. A triple top occurs when the price peaks, retraces, rallies to a similar peak, retraces, rallies to a similar high again then declines again. A triple top is considered complete once the price moves below pattern support and the trend changes to the downside. Then, a trader may decide to exit longs or enter shorts. The triple bottom chart pattern is an upside-down version of the triple top and marks the end of a downtrend.

What Is a Triple Top? The triple top is a type of chart pattern used in technical analysis to predict the reversal in the movement of an asset's price. Consisting of three peaks, a triple top signals that the asset may no longer be rallying, and that lower prices may be on the way. In order for the pattern to be considered a triple top, it must occur after an uptrend. The opposite of a triple is a triple bottom, which indicates the asset's price is no longer falling and could head higher. Key Takeaways A triple top is formed by three peaks moving into the same area, with pullbacks in between.A triple top is considered complete, indicating a further price slide, once the price moves below pattern support.A trader exits longs or enters shorts when the triple top completes.If trading the pattern, a stop loss can be placed above resistance (peaks).The estimated downside target for the pattern is the height of the pattern subtracted from the breakout point. How a Triple Top Works The triple top pattern occurs when the price of an asset creates three peaks at nearly the same price level. The area of the peaks is resistance. The pullbacks between the peaks are called the swing lows. After the third peak, if the price falls below the swing lows, the pattern is considered complete and traders watch for a further move to the downside. The three consecutive peaks make the triple top visually similar to the head and shoulders pattern; however, in this case, the middle peak is nearly equal to the other peaks rather than being higher. The pattern is also similar to the double top pattern, when the price touches the resistance area twice, creating a pair of high points before falling. Triple tops are traded in essentially the same way as head and shoulders patterns. Say a stock's price peaks at $119, pulls back to $110, rallies to $119.25, pulls back to $111, rallies to $118, then drops below $111, that is a triple top and signals the stock is likely heading lower. It would look like the chart below. Triple Top. Image by Sabrina Jiang © Investopedia 2021  Significance of the Triple Top Technically, a triple top pattern shows us that the price is unable to penetrate the area of the peaks. Translated into real-life events, it means that, after multiple attempts, the asset is unable to find many buyers in that price range. As the price falls, it puts pressure on all those traders who bought during the pattern to start selling. If the price can't rise above resistance there is limited profit potential in holding onto it. As the price falls below the swing lows of the pattern, selling may escalate as former buyers exit losing long positions and new traders jump into short positions. This is the psychology of the pattern, and what helps fuel the selloff after the pattern completes. No pattern works all the time. Sometimes a triple top will form and complete, leading traders to believe the asset will continue to fall. But then, the price may then recover and move above the resistance area. For protection, a trader could place a stop loss on short positions above the latest peak, or above a recent swing high within the pattern. This move limits the risk of the trade if the price doesn't drop and instead rallies. Trading Triple Top Patterns Some traders will enter into a short position, or exit long positions, once the price of the asset falls below pattern support. The support level of the pattern is the most recent swing low following the second peak, or alternatively, a trader could connect the swing lows between the peaks with a trendline. When the price falls below the trendline the pattern is considered complete and a further decline in price is expected. To add confirmation to the pattern, traders will watch for heavy volume as the price falls through support. Volume should pick up showing a strong interest in selling. If the volume doesn't increase, the pattern is more prone to failure (price rallying or not falling as expected). The pattern provides a downside target equal to the height of the pattern subtracted from the breakout point. This target is an estimate. Sometimes the price will drop much lower than the target, other times it won't reach the target. Other technical indicators and chart patterns may also be used in conjunction with the triple top. For example, a trader may watch for a bearish MACD crossover following the third peak, or for the RSI to drop out of overbought territory to help confirm the price drop. Real-World Example of a Triple Top The following chart shows an example of a triple top in Bruker Corp. (BRKR). The price reaches near $36.50 on three consecutive attempts. The price pulls back between each attempt, creating the triple top pattern. The stock quickly broke below trendline support at $34 and continued to decline on escalating volume. Image by Sabrina Jiang © Investopedia 2021 Traders could enter short or exit longs when the price drops below support at $34. A stop-loss could initially be placed just above the major resistance area. The estimated target for the decline is the height of the pattern, about $3.25, subtracted from the $34 breakout point. Therefore, the target is $30.75. The target was reached before the price started bouncing, although that won't always happen. Special Considerations for a Triple Top As with double tops and bottoms, the risk/reward ratio is a drawback of these triple patterns. Since both the stop loss and target are based on the height of the pattern, they are roughly equal. Patterns in which the potential profit is greater than the risk are preferred by most professional traders. By placing the stop loss within the pattern, instead of above it (triple top) or below it (triple bottom) improves the reward relative to the risk. The risk is based on only a portion of the pattern height, while the target is based on the full pattern height. Depending on which entry points are used—the trendline or the recent pullback low—it is possible to have two profit targets since the height of the pattern can be added to either of these breakout points. Traders can choose which target breakout level they prefer in order to extract more profit from the trade. Is a Triple Top Bullish or Bearish? The triple top is a bearish reversal chart pattern that leads to the trend change to the downside. On the other hand, the triple bottom pattern is a bullish reversal chart pattern that leads to the trend change to the upside. Are Triple Tops Rare? Triple top patterns occur less frequently than double top patterns, where there is one peak less to happen. But the fact that it is a rare chart formation is also the biggest weakness of a triple top. How Long Does the Triple Top Pattern Take to Form? As other major reversal patterns, the triple top pattern usually form over a three- to six- month period. The Bottom Line The triple top is used in technical analysis to predict the reversal in the movement of an asset's price. A triple top occurs when the price peaks, retraces, rallies to a similar peak, retraces, rallies to a similar high again then declines again. A triple top is considered complete once the price moves below pattern support and the trend changes to the downside. Then, a trader may decide to exit longs or enter shorts. The triple bottom chart pattern is an upside-down version of the triple top and marks the end of a downtrend.

https://www.investopedia.com/top-etfs-for-january-2024-8415863

Top ETFs for January 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"> Top <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> allow investors to easily purchase and diversify across various asset classes through a single investment product that can be bought and sold on an exchange like a stock. Leading funds typically have a large asset base that provides deep liquidity and minimizes <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/managementfee.asp">management fees</a>. Investors can also use top ETFs as a research tool to quickly gauge the performance of an index, a sector, or an industry to make more informed investment decisions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Top ETFs allow investors to easily purchase and diversify across various asset classes through a single investment product.</li><li>For January 2024, ETFs with the best one-month returns include BKCH, GOVZ, ZROZ, BDRY, and FXJ.</li><li>Digital asset-linked ETFs benefited from renewed interest in cryptocurrencies ahead of Bitcoin's halving event in April 2024.</li><li>The Japanese yen currency ETF gained on speculation that the country's central bank will soon move away from its negative interest rate policy that has been in place since 2016.</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"> Below, we outline the top equity, bond, fixed income, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/commodities-4427780#:~:text=Commodities%20are%20basic%20goods%20interchangeable,especially%20sensitive%20to%20economic%20shifts.">commodities</a>, and currency ETFs that generated the highest returns over the last month. We have excluded leveraged and inverse ETFs, as well as funds with less than $50 million in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">assets under management (AUM)</a>. All data is as of Dec. 14, 2023. </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-equity-etf-with-the-best-1-month-return-global-x-blockchain-etf-bkch"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Equity ETF with the Best 1-Month Return: Global X Blockchain ETF (BKCH) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li>One-month performance: 64.36%</li><li>Expense ratio: 0.5%</li><li>Annual dividend yield: 0.72%</li><li>30-day average daily volume: 124,007</li><li>AUM: $103.67 million</li><li>Inception date: July 12, 2021</li><li>Issuer: Mirae Asset Global Investments Co., Ltd.<span class="ql-inline-citation" data-cite="1"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> BKCH aims to provide similar returns to the Solactive Blockchain Index, a market-cap weighted benchmark comprising of companies involved in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a> technologies, such as digital asset transactions, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/how-does-bitcoin-mining-work/">Bitcoin mining</a>, and blockchain hardware.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The fund's top four holdings — Coinbase Global, Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=coin">COIN</a>), Marathon Digital Holdings, Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=mara">MARA</a>), CleanSpark, Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=clsk">CLSK</a>), and Riot Platforms, Inc. (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=riot">RIOT</a>) — represent over half of the portfolio, carrying a cumulative weighting of 53.59%.<span class="ql-inline-citation" data-cite="2"></span> BKCH benefited over the past month from renewed interest in cryptocurrencies ahead of Bitcoin's <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bitcoin-halving-4843769">halving event</a> in April 2024, which crypto investors typically view as a bullish period for digital assets.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-bond-etf-with-the-best-1-month-return-ishares-25-year-treasury-strips-bond-etf-govz"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> Bond ETF with the Best 1-Month Return: iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>One-month performance: 16.25%</li><li>Expense ratio: 0.1%</li><li>Annual dividend yield: 4.3%</li><li>30-day average daily volume: 297,926</li><li>AUM: $166.73 million</li><li>Inception date: Sept. 22, 2020</li><li>Issuer: Blackrock<span class="ql-inline-citation" data-cite="14"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> GOVZ tries to mirror the performance of the ICE BofA Long US Treasury Principal STRIPS Index. The benchmark comprises <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/082313/introduction-strips.asp">separate trading of registered interest and principal securities (STRIPs)</a>, with a remaining maturity of at least 25 years. The fund's top three bonds account for nearly 40% of AUM and mature in August 2049, November 2050, and February 2051.<span class="ql-inline-citation" data-cite="11"></span> Despite the Federal Reserve recently flagging at least three <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/08/interest-rate-affecting-consumers.asp">interest rate cuts</a> this year, bond ETFs remain in the spotlight, with interest rates still sitting at historically high levels around 5%.<span class="ql-inline-citation" data-cite="13"></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-fixed-income-etf-with-the-best-1-month-return-pimco-25-year-zero-coupon-us-treasury-index-exchange-traded-fund-zroz"></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"> Fixed-Income ETF with the Best 1-Month Return: PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund (ZROZ) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li>One-month performance: 16.15%</li><li>Expense ratio: 0.15%</li><li>Annual dividend yield: 3.74%</li><li>30-day average daily volume: 427,193</li><li>AUM: $1.24 billion</li><li>Inception date: Oct. 30, 2009</li><li>Issuer: PIMCO<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_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> This ETF also tracks the ICE BofA Long US Treasury Principal STRIPS Index. The fund's top three STRIP allocations mature in February, May, and August 2053 and carry a combined portfolio weighting of 18.17%.<span class="ql-inline-citation" data-cite="15"></span>ZROZ issues quarterly distributions with proceeds from bonds sold each time it <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rebalancing.asp">rebalances</a>. Fixed income ETFs continue to see buying interest as investors seek to balance risk with reasonable returns.<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-commodities-etf-with-the-best-1-month-return-breakwave-dry-bulk-shipping-etf-bdry"></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"> Commodities ETF with the Best 1-Month Return: Breakwave Dry Bulk Shipping ETF (BDRY) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <li>One-month performance: 49.08%</li><li>Expense ratio: 2.85%</li><li>Annual dividend yield: N/A</li><li>30-day average daily volume: 338,523</li><li>AUM: $56.17 million</li><li>Inception date: March 22, 2018</li><li>Issuer: ETFMG<span class="ql-inline-citation" data-cite="7"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The fund attempts to deliver similar returns to the Breakwave Dry Freight Futures Index — a benchmark designed to track the performance of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freight_derivatives.asp">freight dry shipping derivatives</a>. It is classified as a commodities ETF because bulk carriers transport basic materials like iron ore and coal. Capesize futures command the fund's top basket weighting at 50%, Panamax contracts at 40%, and Supramax contracts with a 10% weighting.<span class="ql-inline-citation" data-cite="8"></span> BDRY has recently benefited from increased coal and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/030215/how-iron-ore-market-works-supply-market-share.asp">iron ore</a> exports to China and reduced daily ship crossings in the Panama Canal due to drought.<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_28-0"></div> <span class="heading-toc" id="toc-currency-etf-with-the-best-1-month-return-invesco-currencyshares-japanese-yen-trust-fxy"></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"> Currency ETF with the Best 1-Month Return: Invesco CurrencyShares Japanese Yen Trust (FXY) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <li>One-month performance: 6.14%</li><li>Expense ratio: 0.4%</li><li>Annual dividend yield: N/A</li><li>30-day average daily volume: 119,204</li><li>AUM: $277.05 million</li><li>Inception date: Feb 12, 2007</li><li>Issuer: Invesco<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_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The ETF tracks the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/u/usd-jpy-us-dollar-japanese-yen-currency-pair.asp#:~:text=USD%2FJPY%20is%20the%20ticker,currency%20pairs%20in%20the%20world.">USD/JPY</a> exchange rate, aiming to provide exposure to price fluctuations between the U.S. dollar and Japanese yen by holding the currency in a deposit account. Investors should be aware that the fund doesn't offer deposit insurance, exposing holders to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrisk.asp">credit risk</a> of its depository, JPMorgan. Nonetheless, it provides a cost-effective solution for those wanting to trade the Japanese yen through a standard brokerage account.<span class="ql-inline-citation" data-cite="5"></span> FXY has benefited over the last month on speculation that Japan's central bank will soon move away from its <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/080716/why-negative-interest-rates-are-still-not-working-japan.asp">negative interest rate policy</a> that has been in place since 2016.<span class="ql-inline-citation" data-cite="6"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <em>The comments, opinions, and analyses expressed 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_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <em>As of the date this article was written, the author does not own any of the above securities.</em> </p></div>

Top [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) allow investors to easily purchase and diversify across various asset classes through a single investment product that can be bought and sold on an exchange like a stock. Leading funds typically have a large asset base that provides deep liquidity and minimizes [management fees](https://www.investopedia.com/terms/m/managementfee.asp). Investors can also use top ETFs as a research tool to quickly gauge the performance of an index, a sector, or an industry to make more informed investment decisions. ### Key Takeaways * Top ETFs allow investors to easily purchase and diversify across various asset classes through a single investment product. * For January 2024, ETFs with the best one-month returns include BKCH, GOVZ, ZROZ, BDRY, and FXJ. * Digital asset-linked ETFs benefited from renewed interest in cryptocurrencies ahead of Bitcoin's halving event in April 2024. * The Japanese yen currency ETF gained on speculation that the country's central bank will soon move away from its negative interest rate policy that has been in place since 2016. Below, we outline the top equity, bond, fixed income, [commodities](https://www.investopedia.com/commodities-4427780#:~:text=Commodities%20are%20basic%20goods%20interchangeable,especially%20sensitive%20to%20economic%20shifts.), and currency ETFs that generated the highest returns over the last month. We have excluded leveraged and inverse ETFs, as well as funds with less than $50 million in [assets under management (AUM)](https://www.investopedia.com/terms/a/aum.asp). All data is as of Dec. 14, 2023. ## Equity ETF with the Best 1-Month Return: Global X Blockchain ETF (BKCH) * One-month performance: 64.36% * Expense ratio: 0.5% * Annual dividend yield: 0.72% * 30-day average daily volume: 124,007 * AUM: $103.67 million * Inception date: July 12, 2021 * Issuer: Mirae Asset Global Investments Co., Ltd. BKCH aims to provide similar returns to the Solactive Blockchain Index, a market-cap weighted benchmark comprising of companies involved in [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) technologies, such as digital asset transactions, [Bitcoin mining](https://www.investopedia.com/tech/how-does-bitcoin-mining-work/), and blockchain hardware. The fund's top four holdings — Coinbase Global, Inc. ([COIN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=coin)), Marathon Digital Holdings, Inc. ([MARA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=mara)), CleanSpark, Inc. ([CLSK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=clsk)), and Riot Platforms, Inc. ([RIOT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=riot)) — represent over half of the portfolio, carrying a cumulative weighting of 53.59%. BKCH benefited over the past month from renewed interest in cryptocurrencies ahead of Bitcoin's [halving event](https://www.investopedia.com/bitcoin-halving-4843769) in April 2024, which crypto investors typically view as a bullish period for digital assets. ## Bond ETF with the Best 1-Month Return: iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ) * One-month performance: 16.25% * Expense ratio: 0.1% * Annual dividend yield: 4.3% * 30-day average daily volume: 297,926 * AUM: $166.73 million * Inception date: Sept. 22, 2020 * Issuer: Blackrock GOVZ tries to mirror the performance of the ICE BofA Long US Treasury Principal STRIPS Index. The benchmark comprises [separate trading of registered interest and principal securities (STRIPs)](https://www.investopedia.com/articles/investing/082313/introduction-strips.asp), with a remaining maturity of at least 25 years. The fund's top three bonds account for nearly 40% of AUM and mature in August 2049, November 2050, and February 2051. Despite the Federal Reserve recently flagging at least three [interest rate cuts](https://www.investopedia.com/articles/economics/08/interest-rate-affecting-consumers.asp) this year, bond ETFs remain in the spotlight, with interest rates still sitting at historically high levels around 5%. ## Fixed-Income ETF with the Best 1-Month Return: PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund (ZROZ) * One-month performance: 16.15% * Expense ratio: 0.15% * Annual dividend yield: 3.74% * 30-day average daily volume: 427,193 * AUM: $1.24 billion * Inception date: Oct. 30, 2009 * Issuer: PIMCO This ETF also tracks the ICE BofA Long US Treasury Principal STRIPS Index. The fund's top three STRIP allocations mature in February, May, and August 2053 and carry a combined portfolio weighting of 18.17%.ZROZ issues quarterly distributions with proceeds from bonds sold each time it [rebalances](https://www.investopedia.com/terms/r/rebalancing.asp). Fixed income ETFs continue to see buying interest as investors seek to balance risk with reasonable returns. ## Commodities ETF with the Best 1-Month Return: Breakwave Dry Bulk Shipping ETF (BDRY) * One-month performance: 49.08% * Expense ratio: 2.85% * Annual dividend yield: N/A * 30-day average daily volume: 338,523 * AUM: $56.17 million * Inception date: March 22, 2018 * Issuer: ETFMG The fund attempts to deliver similar returns to the Breakwave Dry Freight Futures Index — a benchmark designed to track the performance of [freight dry shipping derivatives](https://www.investopedia.com/terms/f/freight_derivatives.asp). It is classified as a commodities ETF because bulk carriers transport basic materials like iron ore and coal. Capesize futures command the fund's top basket weighting at 50%, Panamax contracts at 40%, and Supramax contracts with a 10% weighting. BDRY has recently benefited from increased coal and [iron ore](https://www.investopedia.com/articles/investing/030215/how-iron-ore-market-works-supply-market-share.asp) exports to China and reduced daily ship crossings in the Panama Canal due to drought. ## Currency ETF with the Best 1-Month Return: Invesco CurrencyShares Japanese Yen Trust (FXY) * One-month performance: 6.14% * Expense ratio: 0.4% * Annual dividend yield: N/A * 30-day average daily volume: 119,204 * AUM: $277.05 million * Inception date: Feb 12, 2007 * Issuer: Invesco The ETF tracks the [USD/JPY](https://www.investopedia.com/terms/forex/u/usd-jpy-us-dollar-japanese-yen-currency-pair.asp#:~:text=USD%2FJPY%20is%20the%20ticker,currency%20pairs%20in%20the%20world.) exchange rate, aiming to provide exposure to price fluctuations between the U.S. dollar and Japanese yen by holding the currency in a deposit account. Investors should be aware that the fund doesn't offer deposit insurance, exposing holders to [credit risk](https://www.investopedia.com/terms/c/creditrisk.asp) of its depository, JPMorgan. Nonetheless, it provides a cost-effective solution for those wanting to trade the Japanese yen through a standard brokerage account. FXY has benefited over the last month on speculation that Japan's central bank will soon move away from its [negative interest rate policy](https://www.investopedia.com/articles/markets/080716/why-negative-interest-rates-are-still-not-working-japan.asp) that has been in place since 2016. *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.*

Top exchange-traded funds (ETFs) allow investors to easily purchase and diversify across various asset classes through a single investment product that can be bought and sold on an exchange like a stock. Leading funds typically have a large asset base that provides deep liquidity and minimizes management fees. Investors can also use top ETFs as a research tool to quickly gauge the performance of an index, a sector, or an industry to make more informed investment decisions. Key Takeaways Top ETFs allow investors to easily purchase and diversify across various asset classes through a single investment product.For January 2024, ETFs with the best one-month returns include BKCH, GOVZ, ZROZ, BDRY, and FXJ.Digital asset-linked ETFs benefited from renewed interest in cryptocurrencies ahead of Bitcoin's halving event in April 2024.The Japanese yen currency ETF gained on speculation that the country's central bank will soon move away from its negative interest rate policy that has been in place since 2016. Below, we outline the top equity, bond, fixed income, commodities, and currency ETFs that generated the highest returns over the last month. We have excluded leveraged and inverse ETFs, as well as funds with less than $50 million in assets under management (AUM). All data is as of Dec. 14, 2023. Equity ETF with the Best 1-Month Return: Global X Blockchain ETF (BKCH) One-month performance: 64.36%Expense ratio: 0.5%Annual dividend yield: 0.72%30-day average daily volume: 124,007AUM: $103.67 millionInception date: July 12, 2021Issuer: Mirae Asset Global Investments Co., Ltd. BKCH aims to provide similar returns to the Solactive Blockchain Index, a market-cap weighted benchmark comprising of companies involved in blockchain technologies, such as digital asset transactions, Bitcoin mining, and blockchain hardware. The fund's top four holdings — Coinbase Global, Inc. (COIN), Marathon Digital Holdings, Inc. (MARA), CleanSpark, Inc. (CLSK), and Riot Platforms, Inc. (RIOT) — represent over half of the portfolio, carrying a cumulative weighting of 53.59%. BKCH benefited over the past month from renewed interest in cryptocurrencies ahead of Bitcoin's halving event in April 2024, which crypto investors typically view as a bullish period for digital assets. Bond ETF with the Best 1-Month Return: iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ) One-month performance: 16.25%Expense ratio: 0.1%Annual dividend yield: 4.3%30-day average daily volume: 297,926AUM: $166.73 millionInception date: Sept. 22, 2020Issuer: Blackrock GOVZ tries to mirror the performance of the ICE BofA Long US Treasury Principal STRIPS Index. The benchmark comprises separate trading of registered interest and principal securities (STRIPs), with a remaining maturity of at least 25 years. The fund's top three bonds account for nearly 40% of AUM and mature in August 2049, November 2050, and February 2051. Despite the Federal Reserve recently flagging at least three interest rate cuts this year, bond ETFs remain in the spotlight, with interest rates still sitting at historically high levels around 5%. Fixed-Income ETF with the Best 1-Month Return: PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund (ZROZ) One-month performance: 16.15%Expense ratio: 0.15%Annual dividend yield: 3.74%30-day average daily volume: 427,193AUM: $1.24 billionInception date: Oct. 30, 2009Issuer: PIMCO This ETF also tracks the ICE BofA Long US Treasury Principal STRIPS Index. The fund's top three STRIP allocations mature in February, May, and August 2053 and carry a combined portfolio weighting of 18.17%.ZROZ issues quarterly distributions with proceeds from bonds sold each time it rebalances. Fixed income ETFs continue to see buying interest as investors seek to balance risk with reasonable returns. Commodities ETF with the Best 1-Month Return: Breakwave Dry Bulk Shipping ETF (BDRY) One-month performance: 49.08%Expense ratio: 2.85%Annual dividend yield: N/A30-day average daily volume: 338,523AUM: $56.17 millionInception date: March 22, 2018Issuer: ETFMG The fund attempts to deliver similar returns to the Breakwave Dry Freight Futures Index — a benchmark designed to track the performance of freight dry shipping derivatives. It is classified as a commodities ETF because bulk carriers transport basic materials like iron ore and coal. Capesize futures command the fund's top basket weighting at 50%, Panamax contracts at 40%, and Supramax contracts with a 10% weighting. BDRY has recently benefited from increased coal and iron ore exports to China and reduced daily ship crossings in the Panama Canal due to drought. Currency ETF with the Best 1-Month Return: Invesco CurrencyShares Japanese Yen Trust (FXY) One-month performance: 6.14%Expense ratio: 0.4%Annual dividend yield: N/A30-day average daily volume: 119,204AUM: $277.05 millionInception date: Feb 12, 2007Issuer: Invesco The ETF tracks the USD/JPY exchange rate, aiming to provide exposure to price fluctuations between the U.S. dollar and Japanese yen by holding the currency in a deposit account. Investors should be aware that the fund doesn't offer deposit insurance, exposing holders to credit risk of its depository, JPMorgan. Nonetheless, it provides a cost-effective solution for those wanting to trade the Japanese yen through a standard brokerage account. FXY has benefited over the last month on speculation that Japan's central bank will soon move away from its negative interest rate policy that has been in place since 2016. 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/top-nasdaq-etfs-for-q4-2023-7973952

Top NASDAQ ETFs for Q4 2023

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Top NASDAQ <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/etfs-4427784">exchange-traded funds (ETFs)</a> provide investors with exposure primarily to established and emerging technology companies, but also to names in the consumer discretionary and healthcare sectors. Given that many smaller technology companies carry more investment risk, NASDAQ ETFs offer a solution to diversify by investing in a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-advisor/steps-building-profitable-portfolio/">portfolio</a> of stocks rather than relying on the fortunes of a particular company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Below, we examine three top performing NASDAQ ETFs, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">under management (AUM)</a>. The first fund provides exposure to the broader index, while the other two funds target specific sectors within the Nasdaq. All data below is as of Sept. 22. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Top NASDAQ ETFs provide investors with exposure to established and emerging technology companies as well as stocks in the consumer discretionary and healthcare sectors.</li><li>QQQ has over $200 billion in AUM and returned 27.12% over the past year. It provides exposure the largest 100 non-financial companies trading the Nasdaq stock exchange. </li><li>OTEC sports a one-year return of 29.68% and holds $205.1 billion in net assets. It specifically tracks the technology sector of Nasdaq traded stocks.</li><li>PNQI has generated a 27.12% return over the past twelve months and commands net assets of nearly $600 million. The fund targets internet stocks listed on the Nasdaq exchange.</li></ul><p><br/></p></div></div></div> <span class="heading-toc" id="toc-invesco-qqq-trust-qqq"></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"> Invesco QQQ Trust (QQQ) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li>Performance Over One-Year: 27.12%</li><li>Expense Ratio: 0.2%</li><li>Annual Dividend Yield: 0.8%</li><li>Three-Month Average Daily Volume: 46,130,276</li><li>Assets Under Management: $205.1 billion</li><li>Inception Date: March 10, 1999</li><li>Issuer: Invesco<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The fund, which <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rebalancing.asp">rebalances</a> quarterly, aims to provide a similar return to the NASDAQ-100 Index, a benchmark comprising of the largest 100 non-financial companies trading the Nasdaq stock exchange.<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"> QQQ top weights tech giants Apple Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL">AAPL</a>), Microsoft Corporation (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft">MSFT</a>) and Amazon.com, Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn">AMZN</a>) with respective weightings of 10.88%, 9.45%, and 5.54%. Not surprisingly, technology commands the lion’s share of sector exposure, roughly accounting for a third of the fund’s portfolio.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-first-trust-nasdaq-100-technology-sector-index-fund-qtec"></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"> First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>Performance Over One-Year: 29.68%</li><li>Expense Ratio: 0.57%</li><li>Annual Dividend Yield: 0.61%</li><li>Three-Month Average Daily Volume: 209,363</li><li>Assets Under Management: $2.9 billion</li><li>Inception Date: April 19, 2006<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="3"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> QTEC seeks to track the price and yield performance of the NASDAQ-100 Technology Index, a benchmark specifically targeting technology companies listed on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a> stock exchange. It rebalances four times annually in March, June, September, and December.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The fund, which equal weights large-cap technology stocks, holds sector bellwether names, such as Apple, Meta Platforms, Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=meta">META</a>), and in-vouge <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-invest-in-ai-7504987">artificial intelligence</a> (AI) play NVIDIA Corporation (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda">NVDA</a>).<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-invesco-nasdaq-internet-etf-pnqi"></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"> Invesco NASDAQ Internet ETF (PNQI) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li>Performance Over One-Year: 27.12%</li><li>Expense Ratio: 0.6%</li><li>Annual Dividend Yield: 0.12%</li><li>Three-Month Average Daily Volume: 52,723</li><li>Assets Under Management: $573.23 million</li><li>Inception Date: June 12, 2008</li><li>Issuer: Invesco<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="5"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The ETF has an investment objective to track the performance of the NASDAQ CTA Internet Index – a benchmark made up of a broad group of U.S.-listed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0212/how-the-internet-has-changed-investing.aspx">internet</a> companies engaged in software, search engines, web hosting, and online commerce.<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"> PNQI’s top four holdings include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fang-stocks-fb-amzn.asp">FANG</a> members Meta, Amazon (AMZN), Alphabet Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=goog">GOOG</a>), and Microsoft (MSFT). The fund restricts each <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/megacap.asp">mega-cap</a> holding to under 10% and rebalances quarterly.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <em>As of the date this article was written, the author does not own any of the above ETFs.</em> </p></div>

Top NASDAQ [exchange-traded funds (ETFs)](https://www.investopedia.com/etfs-4427784) provide investors with exposure primarily to established and emerging technology companies, but also to names in the consumer discretionary and healthcare sectors. Given that many smaller technology companies carry more investment risk, NASDAQ ETFs offer a solution to diversify by investing in a [portfolio](https://www.investopedia.com/financial-advisor/steps-building-profitable-portfolio/) of stocks rather than relying on the fortunes of a particular company. Below, we examine three top performing NASDAQ ETFs, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets [under management (AUM)](https://www.investopedia.com/terms/a/aum.asp). The first fund provides exposure to the broader index, while the other two funds target specific sectors within the Nasdaq. All data below is as of Sept. 22. ### Key Takeaways * Top NASDAQ ETFs provide investors with exposure to established and emerging technology companies as well as stocks in the consumer discretionary and healthcare sectors. * QQQ has over $200 billion in AUM and returned 27.12% over the past year. It provides exposure the largest 100 non-financial companies trading the Nasdaq stock exchange. * OTEC sports a one-year return of 29.68% and holds $205.1 billion in net assets. It specifically tracks the technology sector of Nasdaq traded stocks. * PNQI has generated a 27.12% return over the past twelve months and commands net assets of nearly $600 million. The fund targets internet stocks listed on the Nasdaq exchange. ## Invesco QQQ Trust (QQQ) * Performance Over One-Year: 27.12% * Expense Ratio: 0.2% * Annual Dividend Yield: 0.8% * Three-Month Average Daily Volume: 46,130,276 * Assets Under Management: $205.1 billion * Inception Date: March 10, 1999 * Issuer: Invesco The fund, which [rebalances](https://www.investopedia.com/terms/r/rebalancing.asp) quarterly, aims to provide a similar return to the NASDAQ-100 Index, a benchmark comprising of the largest 100 non-financial companies trading the Nasdaq stock exchange. QQQ top weights tech giants Apple Inc. ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)), Microsoft Corporation ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft)) and Amazon.com, Inc. ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)) with respective weightings of 10.88%, 9.45%, and 5.54%. Not surprisingly, technology commands the lion’s share of sector exposure, roughly accounting for a third of the fund’s portfolio. ## First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) * Performance Over One-Year: 29.68% * Expense Ratio: 0.57% * Annual Dividend Yield: 0.61% * Three-Month Average Daily Volume: 209,363 * Assets Under Management: $2.9 billion * Inception Date: April 19, 2006 QTEC seeks to track the price and yield performance of the NASDAQ-100 Technology Index, a benchmark specifically targeting technology companies listed on the [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp) stock exchange. It rebalances four times annually in March, June, September, and December. The fund, which equal weights large-cap technology stocks, holds sector bellwether names, such as Apple, Meta Platforms, Inc. ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=meta)), and in-vouge [artificial intelligence](https://www.investopedia.com/how-to-invest-in-ai-7504987) (AI) play NVIDIA Corporation ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda)). ## Invesco NASDAQ Internet ETF (PNQI) * Performance Over One-Year: 27.12% * Expense Ratio: 0.6% * Annual Dividend Yield: 0.12% * Three-Month Average Daily Volume: 52,723 * Assets Under Management: $573.23 million * Inception Date: June 12, 2008 * Issuer: Invesco The ETF has an investment objective to track the performance of the NASDAQ CTA Internet Index – a benchmark made up of a broad group of U.S.-listed [internet](https://www.investopedia.com/financial-edge/0212/how-the-internet-has-changed-investing.aspx) companies engaged in software, search engines, web hosting, and online commerce. PNQI’s top four holdings include [FANG](https://www.investopedia.com/terms/f/fang-stocks-fb-amzn.asp) members Meta, Amazon (AMZN), Alphabet Inc. ([GOOG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=goog)), and Microsoft (MSFT). The fund restricts each [mega-cap](https://www.investopedia.com/terms/m/megacap.asp) holding to under 10% and rebalances quarterly. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.* *As of the date this article was written, the author does not own any of the above ETFs.*

Top NASDAQ exchange-traded funds (ETFs) provide investors with exposure primarily to established and emerging technology companies, but also to names in the consumer discretionary and healthcare sectors. Given that many smaller technology companies carry more investment risk, NASDAQ ETFs offer a solution to diversify by investing in a portfolio of stocks rather than relying on the fortunes of a particular company. Below, we examine three top performing NASDAQ ETFs, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The first fund provides exposure to the broader index, while the other two funds target specific sectors within the Nasdaq. All data below is as of Sept. 22. Key Takeaways Top NASDAQ ETFs provide investors with exposure to established and emerging technology companies as well as stocks in the consumer discretionary and healthcare sectors.QQQ has over $200 billion in AUM and returned 27.12% over the past year. It provides exposure the largest 100 non-financial companies trading the Nasdaq stock exchange. OTEC sports a one-year return of 29.68% and holds $205.1 billion in net assets. It specifically tracks the technology sector of Nasdaq traded stocks.PNQI has generated a 27.12% return over the past twelve months and commands net assets of nearly $600 million. The fund targets internet stocks listed on the Nasdaq exchange. Invesco QQQ Trust (QQQ) Performance Over One-Year: 27.12%Expense Ratio: 0.2%Annual Dividend Yield: 0.8%Three-Month Average Daily Volume: 46,130,276Assets Under Management: $205.1 billionInception Date: March 10, 1999Issuer: Invesco The fund, which rebalances quarterly, aims to provide a similar return to the NASDAQ-100 Index, a benchmark comprising of the largest 100 non-financial companies trading the Nasdaq stock exchange. QQQ top weights tech giants Apple Inc. (AAPL), Microsoft Corporation (MSFT) and Amazon.com, Inc. (AMZN) with respective weightings of 10.88%, 9.45%, and 5.54%. Not surprisingly, technology commands the lion’s share of sector exposure, roughly accounting for a third of the fund’s portfolio. First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) Performance Over One-Year: 29.68%Expense Ratio: 0.57%Annual Dividend Yield: 0.61%Three-Month Average Daily Volume: 209,363Assets Under Management: $2.9 billionInception Date: April 19, 2006 QTEC seeks to track the price and yield performance of the NASDAQ-100 Technology Index, a benchmark specifically targeting technology companies listed on the Nasdaq stock exchange. It rebalances four times annually in March, June, September, and December. The fund, which equal weights large-cap technology stocks, holds sector bellwether names, such as Apple, Meta Platforms, Inc. (META), and in-vouge artificial intelligence (AI) play NVIDIA Corporation (NVDA). Invesco NASDAQ Internet ETF (PNQI) Performance Over One-Year: 27.12%Expense Ratio: 0.6%Annual Dividend Yield: 0.12%Three-Month Average Daily Volume: 52,723Assets Under Management: $573.23 millionInception Date: June 12, 2008Issuer: Invesco The ETF has an investment objective to track the performance of the NASDAQ CTA Internet Index – a benchmark made up of a broad group of U.S.-listed internet companies engaged in software, search engines, web hosting, and online commerce. PNQI’s top four holdings include FANG members Meta, Amazon (AMZN), Alphabet Inc. (GOOG), and Microsoft (MSFT). The fund restricts each mega-cap holding to under 10% and rebalances quarterly. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own any of the above ETFs.

https://www.investopedia.com/student-loan-forbearance-pros-and-cons-4771305

Student Loan Forbearance: 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"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Student loan forbearance is a way to suspend or lower your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loans-4689727">student loan</a> payments temporarily, typically for 12 months or less, during times of financial stress. Forbearance is not as desirable as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/defermentperiod.asp">deferment</a>, in which you may not have to pay interest that accrues during the deferment period on certain types of loans. With forbearance, you are always responsible for accrued interest when the forbearance period is over. </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"> Here’s a look at the pros and cons of student loan forbearance. </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>Student loan forbearance is for temporary (typically 12 months) relief only; it is not a long-term solution.</li><li>Deferment or an income-driven repayment (IDR) plan is preferable to forbearance.</li><li>Forbearance for federal student loans takes two forms: general and mandatory.</li><li>To avoid default, you must continue making required payments on your student loans until your forbearance application has been approved.</li><li>To lower costs, try to pay interest as it accrues while the loan is in forbearance.</li></ul></div></div></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>All federal student loan payments and collections were temporarily paused due to the 2020 COVID-19 economic crisis, and interest did not accumulate. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">Interest</a> on federal student loans resumed on Sept. 1, 2023, and payments resumed in October 2023.<span class="ql-inline-citation" data-cite="16"></span></p></div></div></div> <span class="heading-toc" id="toc-student-loan-forbearance-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"> Student Loan Forbearance: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> With all student loan forbearance, interest on your loan continues to accrue during the deferral period and is usually <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/040915/what-does-it-mean-capitalize-accrued-interest.asp">capitalized</a> (added to the loan amount owed) at the end of the deferral period unless you pay the interest as it accrues.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/perkins-loan.asp">Perkins Loans</a> are an exception to the capitalization rule. With a Perkins Loan, your interest accrues during the deferral period but is not capitalized. Instead, it is added to the interest balance (not the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a>) during repayment, unless you pay it as it <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accrue.asp">accrues</a>. (Although the U.S. government stopped offering Perkins Loans in 2017, many people are still paying back what they borrowed through these loans.)<span class="ql-inline-citation" data-cite="5"></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_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Federal student loan forbearance is usually granted for 12 months at a time and can be renewed for up to three years. Conditions and payment amounts for some types of federal student loan forbearance are mandated by law. In other instances, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loan_servicing.asp">loan servicer</a> has discretion.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Private student loan forbearance is typically granted for up to 12 months, but lenders rarely offer renewal. Conditions and amounts for private loan forbearance are up to the lender. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>If you are in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a> on your student loans, you are not eligible for any strategy discussed in this article.<span class="ql-inline-citation" data-cite="6"></span></p></div></div></div> <span class="heading-toc" id="toc-general-federal-student-loan-forbearance"></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"> General Federal Student Loan Forbearance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> If you are having trouble making payments on your Direct Loan, Federal Family Education Loan (FFEL), or Perkins Loan and don’t qualify for deferment, you can request a general forbearance of up to 12 months from your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-servicers-customer-service-5323796">student loan servicer</a>. </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"> If your financial problems continue, you can request a new general forbearance of up to 12 months, and another 12 months after that, for a cumulative total of three years. Your loan servicer, however, may set a maximum period on an individual basis for Direct and FFEL loans.<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_24-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_25-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_26-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>The White House’s student loan debt relief plan was overturned by the U.S. Supreme Court on June 30, 2023.<span class="ql-inline-citation" data-cite="17"></span> Shortly after, the Biden administration announced the Saving on a Valuable Education (SAVE) plan to provide an alternative path to debt relief.<span class="ql-inline-citation" data-cite="18"></span> Launched on Aug. 22, 2023, it aims to help more than 20 million borrowers by either reducing their monthly payments by half (from 10% to 5% of their discretionary income) or bringing payments down to $0 for qualifying individuals.<span class="ql-inline-citation" data-cite="15"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> General forbearance is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/what-do-if-you-have-problems-your-student-loan-servicer/">at the discretion of the loan servicer</a> and is typically granted due to unforeseen medical expenses, unemployment, or almost any financial difficulty that prevents you from making loan payments. You may request a general forbearance by filling out an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://studentaid.gov/sites/default/files/GeneralForbearance.pdf">online form</a> or calling your loan servicer and requesting forbearance over the phone.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-mandatory-federal-student-loan-forbearance"></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"> Mandatory Federal Student Loan Forbearance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Unlike a general forbearance, which is at the discretion of your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/find-student-loan-servicer-5322700">loan servicer</a>, you must be granted a mandatory forbearance if you qualify and request it. Most mandatory forbearance uses the same form: <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://studentaid.gov/sites/default/files/MedicalorDentalInternshipResidencyNationalGuardandDoDStudentLoanRepayment.pdf">Service-Based Mandatory Forbearance Request</a>; however, there is a different form for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://studentaid.gov/sites/default/files/TeacherForbearance.pdf">Teacher Loan Forgiveness</a> and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://my.americorps.gov/trust/help/member_portal/how_to_request_forbearance_on_your_qualified_loans.htm">AmeriCorps</a>. </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"> Mandatory forbearance is available for the following: </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>Participation in a medical or dental internship or residency (Direct and FFEL loans only)</li> <li>Total student loan payments of 20% or more of your monthly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grossincome.asp">gross income</a> (Direct, FFEL, and Perkins loans)</li> <li>Service in AmeriCorps (Direct and FFEL loans only)</li> <li>Qualification for Teacher Loan Forgiveness (Direct and FFEL loans only)</li> <li>Qualification for partial repayment of your student loans under the U.S. Department of Defense Student Loan Repayment Program (Direct and FFEL loans only)</li> <li>Activated service in the National Guard when it doesn’t provide for a military deferment (Direct and FFEL loans only)<span class="ql-inline-citation" data-cite="7"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-private-student-loan-forbearance"></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"> Private Student Loan Forbearance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Your forbearance options with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/younginvestors/09/private-or-federal-student-loans.asp#toc-private-loans">private student loans</a> will vary by lender, but they are generally less flexible than those available with federal student loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Many private lenders extend a forbearance option while you are in school or taking part in an internship or medical residency. Some let you make interest-only payments while in school. In-school forbearance typically has a time limit, which could create problems if you take longer than four years to graduate. Some lenders also offer a six-month grace period after graduation. </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 private lenders grant a forbearance if you are unemployed or are having difficulty making payments after you graduate. Typically, these are granted for two months at a time for no longer than 12 months in total. There may be an additional fee for each month you are in forbearance. </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"> Other types of forbearance are often granted for active-duty military service or if you have been affected by a natural disaster. With all private loans, interest accrues during forbearance and is capitalized unless you pay it as it accrues. </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-advantages-and-disadvantages-of-student-loan-forbearance"></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"> Advantages and Disadvantages of Student Loan Forbearance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> As with many financial tools, student loan forbearance has both advantages and disadvantages. For example, if your choice is between forbearance and wage <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/garnishment.asp">garnishment</a> or loss of an income tax refund, then forbearance is a better option, both financially and in terms of the impact on your credit.<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"> It’s worth noting that accrued interest during forbearance will likely be less costly than the interest rate you would pay when taking out 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> or, worse still, a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payday-loans.asp">payday loan</a>.<span class="ql-inline-citation" data-cite="21"></span><span class="ql-inline-citation" data-cite="22"></span><span class="ql-inline-citation" data-cite="20"></span> However, the fact that accrued interest is capitalized means you will pay more over the life of the loan than you would if you were able to avoid forbearance.<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_49-0"></div> <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>Better than garnishment or default</p></li> <li><p>Lower interest than payday or personal loan</p></li> <li><p>Frees you to pay critical expenses</p></li> <li><p>Has no impact on your credit score</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Not a long-term solution</p></li> <li><p>Capitalization of accrued interest is expensive</p></li> <li><p>Repeated renewal could result in loan default</p></li> <li><p>Late/missing payments hurt your credit score</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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Forbearance provides temporary breathing room to allow you to pay essential expenses, such as housing and utilities, but it can be very costly if you try to use it as a long-term solution by constantly renewing your status. This could ultimately result in loan default or worse, along with the possibility of severe damage to 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>. </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 forbearance is noted on your credit reports, it does not result in a lower credit score unless you have late or missed payments.<span class="ql-inline-citation" data-cite="12"></span> To avoid complications and unnecessary expenses during and after forbearance, keep making payments while your application is being processed, get out of forbearance as soon as you are financially able to, and, if possible, make interest payments as they accrue. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_57-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_58-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-rescue-plan-definition-5095694">American Rescue Plan</a> passed by Congress and signed by President Joe Biden in March 2021 included a provision that student loan forgiveness issued from Jan. 1, 2021, to Dec. 31, 2025, will not be taxable to the recipient.<span class="ql-inline-citation" data-cite="3"></span></p></div></div></div> <span class="heading-toc" id="toc-alternatives-to-forbearance"></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"> Alternatives to Forbearance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Before applying for forbearance, and depending on the type of loan(s) you have, you should consider two alternatives: deferment and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/income-driven-repayment-plans-7562851">income-driven repayment (IDR)</a> plans. </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 data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-forbearance-vs-deferment-8607428">Deferment, like forbearance</a>, lets you pause payments temporarily—typically for up to three years. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-student-loan-deferment-4771251">If you qualify for deferment</a><strong> </strong>and have subsidized federal loans, then accrued interest during deferral will be paid by the government. All you will owe at the end of the deferment period is the original loan amount. </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"> Unsubsidized federal loan deferment and private loan deferment are treated the same as forbearance, meaning that interest accrues and is capitalized at the end of the deferral period, adding to what you owe.<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_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> IDR plans for federal student loans come in four forms: Saving on a Valuable Education (SAVE) (it replaced the Revised Pay as You Earn [REPAYE] Repayment plan), Pay as You Earn (PAYE) Repayment, Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). </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"> Payments are usually a percentage of your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discretionaryincome.asp">discretionary income</a> and can be as low as $0 per month. One disadvantage is that because <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayment</a> typically takes longer, you will pay more interest over the life of the loan. A possible advantage is that if your loan is not totally repaid by the end of the repayment period—20 to 25 years—any balance will be forgiven then. Visit the Federal Student Aid website to learn more and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://studentaid.gov/idr/">make an online request</a> for an IDR plan.<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_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-is-it-better-to-defer-or-seek-forbearance"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is It Better to Defer or Seek Forbearance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Deferment and forbearance let you pause your student loan payments temporarily—typically for up to three years. An income-driven repayment (IDR) plan will adjust your monthly payment depending on your current income.</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-is-it-smart-to-pay-student-loans-during-forbearance"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is It Smart to Pay Student Loans During Forbearance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you can afford to, it’s a very good idea to pay your student loans during a forbearance period. Paying off at least the interest that accrues each month will prevent interest capitalization (i.e., unpaid interest being added to your loan’s principal, which would result in a larger amount in interest being added each subsequent month during the forbearance period), saving you money in the long run.<span class="ql-inline-citation" data-cite="14"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-does-forbearance-hurt-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Forbearance Hurt Credit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Student loan forbearance won’t reduce your credit score unless you also have late or missed payments.<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_75-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_76-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> Student loan forbearance is almost always a last resort, not a first option. Use it if you need temporary relief and don’t qualify for deferment. For long-term problems, consider an IDR plan instead. If possible, pay the interest as it accrues to avoid paying interest on interest when you do resume repayment. Finally, when you first begin to experience financial trouble, talk to your loan servicer to explore all repayment options. </p></div>

Student loan forbearance is a way to suspend or lower your [student loan](https://www.investopedia.com/student-loans-4689727) payments temporarily, typically for 12 months or less, during times of financial stress. Forbearance is not as desirable as [deferment](https://www.investopedia.com/terms/d/defermentperiod.asp), in which you may not have to pay interest that accrues during the deferment period on certain types of loans. With forbearance, you are always responsible for accrued interest when the forbearance period is over. Here’s a look at the pros and cons of student loan forbearance. ### Key Takeaways * Student loan forbearance is for temporary (typically 12 months) relief only; it is not a long-term solution. * Deferment or an income-driven repayment (IDR) plan is preferable to forbearance. * Forbearance for federal student loans takes two forms: general and mandatory. * To avoid default, you must continue making required payments on your student loans until your forbearance application has been approved. * To lower costs, try to pay interest as it accrues while the loan is in forbearance. ### All federal student loan payments and collections were temporarily paused due to the 2020 COVID-19 economic crisis, and interest did not accumulate. [Interest](https://www.investopedia.com/terms/i/interest.asp) on federal student loans resumed on Sept. 1, 2023, and payments resumed in October 2023. ## Student Loan Forbearance: An Overview With all student loan forbearance, interest on your loan continues to accrue during the deferral period and is usually [capitalized](https://www.investopedia.com/ask/answers/040915/what-does-it-mean-capitalize-accrued-interest.asp) (added to the loan amount owed) at the end of the deferral period unless you pay the interest as it accrues. [Perkins Loans](https://www.investopedia.com/terms/p/perkins-loan.asp) are an exception to the capitalization rule. With a Perkins Loan, your interest accrues during the deferral period but is not capitalized. Instead, it is added to the interest balance (not the [principal](https://www.investopedia.com/terms/p/principal.asp)) during repayment, unless you pay it as it [accrues](https://www.investopedia.com/terms/a/accrue.asp). (Although the U.S. government stopped offering Perkins Loans in 2017, many people are still paying back what they borrowed through these loans.) Federal student loan forbearance is usually granted for 12 months at a time and can be renewed for up to three years. Conditions and payment amounts for some types of federal student loan forbearance are mandated by law. In other instances, the [loan servicer](https://www.investopedia.com/terms/l/loan_servicing.asp) has discretion. Private student loan forbearance is typically granted for up to 12 months, but lenders rarely offer renewal. Conditions and amounts for private loan forbearance are up to the lender. ### If you are in [default](https://www.investopedia.com/terms/d/default2.asp) on your student loans, you are not eligible for any strategy discussed in this article. ## General Federal Student Loan Forbearance If you are having trouble making payments on your Direct Loan, Federal Family Education Loan (FFEL), or Perkins Loan and don’t qualify for deferment, you can request a general forbearance of up to 12 months from your [student loan servicer](https://www.investopedia.com/student-loan-servicers-customer-service-5323796). If your financial problems continue, you can request a new general forbearance of up to 12 months, and another 12 months after that, for a cumulative total of three years. Your loan servicer, however, may set a maximum period on an individual basis for Direct and FFEL loans. ### The White House’s student loan debt relief plan was overturned by the U.S. Supreme Court on June 30, 2023. Shortly after, the Biden administration announced the Saving on a Valuable Education (SAVE) plan to provide an alternative path to debt relief. Launched on Aug. 22, 2023, it aims to help more than 20 million borrowers by either reducing their monthly payments by half (from 10% to 5% of their discretionary income) or bringing payments down to $0 for qualifying individuals. General forbearance is [at the discretion of the loan servicer](https://www.investopedia.com/personal-finance/what-do-if-you-have-problems-your-student-loan-servicer/) and is typically granted due to unforeseen medical expenses, unemployment, or almost any financial difficulty that prevents you from making loan payments. You may request a general forbearance by filling out an [online form](https://studentaid.gov/sites/default/files/GeneralForbearance.pdf) or calling your loan servicer and requesting forbearance over the phone. ## Mandatory Federal Student Loan Forbearance Unlike a general forbearance, which is at the discretion of your [loan servicer](https://www.investopedia.com/find-student-loan-servicer-5322700), you must be granted a mandatory forbearance if you qualify and request it. Most mandatory forbearance uses the same form: [Service-Based Mandatory Forbearance Request](https://studentaid.gov/sites/default/files/MedicalorDentalInternshipResidencyNationalGuardandDoDStudentLoanRepayment.pdf); however, there is a different form for [Teacher Loan Forgiveness](https://studentaid.gov/sites/default/files/TeacherForbearance.pdf) and [AmeriCorps](https://my.americorps.gov/trust/help/member_portal/how_to_request_forbearance_on_your_qualified_loans.htm). Mandatory forbearance is available for the following: * Participation in a medical or dental internship or residency (Direct and FFEL loans only) * Total student loan payments of 20% or more of your monthly [gross income](https://www.investopedia.com/terms/g/grossincome.asp) (Direct, FFEL, and Perkins loans) * Service in AmeriCorps (Direct and FFEL loans only) * Qualification for Teacher Loan Forgiveness (Direct and FFEL loans only) * Qualification for partial repayment of your student loans under the U.S. Department of Defense Student Loan Repayment Program (Direct and FFEL loans only) * Activated service in the National Guard when it doesn’t provide for a military deferment (Direct and FFEL loans only) ## Private Student Loan Forbearance Your forbearance options with [private student loans](https://www.investopedia.com/articles/younginvestors/09/private-or-federal-student-loans.asp#toc-private-loans) will vary by lender, but they are generally less flexible than those available with federal student loans. Many private lenders extend a forbearance option while you are in school or taking part in an internship or medical residency. Some let you make interest-only payments while in school. In-school forbearance typically has a time limit, which could create problems if you take longer than four years to graduate. Some lenders also offer a six-month grace period after graduation. Some private lenders grant a forbearance if you are unemployed or are having difficulty making payments after you graduate. Typically, these are granted for two months at a time for no longer than 12 months in total. There may be an additional fee for each month you are in forbearance. Other types of forbearance are often granted for active-duty military service or if you have been affected by a natural disaster. With all private loans, interest accrues during forbearance and is capitalized unless you pay it as it accrues. ## Advantages and Disadvantages of Student Loan Forbearance As with many financial tools, student loan forbearance has both advantages and disadvantages. For example, if your choice is between forbearance and wage [garnishment](https://www.investopedia.com/terms/g/garnishment.asp) or loss of an income tax refund, then forbearance is a better option, both financially and in terms of the impact on your credit. It’s worth noting that accrued interest during forbearance will likely be less costly than the interest rate you would pay when taking out a [personal loan](https://www.investopedia.com/personal-loan-5076027) or, worse still, a [payday loan](https://www.investopedia.com/terms/p/payday-loans.asp). However, the fact that accrued interest is capitalized means you will pay more over the life of the loan than you would if you were able to avoid forbearance. Pros * Better than garnishment or default * Lower interest than payday or personal loan * Frees you to pay critical expenses * Has no impact on your credit score Cons * Not a long-term solution * Capitalization of accrued interest is expensive * Repeated renewal could result in loan default * Late/missing payments hurt your credit score Forbearance provides temporary breathing room to allow you to pay essential expenses, such as housing and utilities, but it can be very costly if you try to use it as a long-term solution by constantly renewing your status. This could ultimately result in loan default or worse, along with the possibility of severe damage to your [credit score](https://www.investopedia.com/terms/c/credit_score.asp). While forbearance is noted on your credit reports, it does not result in a lower credit score unless you have late or missed payments. To avoid complications and unnecessary expenses during and after forbearance, keep making payments while your application is being processed, get out of forbearance as soon as you are financially able to, and, if possible, make interest payments as they accrue. ### The [American Rescue Plan](https://www.investopedia.com/american-rescue-plan-definition-5095694) passed by Congress and signed by President Joe Biden in March 2021 included a provision that student loan forgiveness issued from Jan. 1, 2021, to Dec. 31, 2025, will not be taxable to the recipient. ## Alternatives to Forbearance Before applying for forbearance, and depending on the type of loan(s) you have, you should consider two alternatives: deferment and [income-driven repayment (IDR)](https://www.investopedia.com/income-driven-repayment-plans-7562851) plans. [Deferment, like forbearance](https://www.investopedia.com/student-loan-forbearance-vs-deferment-8607428), lets you pause payments temporarily—typically for up to three years. [If you qualify for deferment](https://www.investopedia.com/what-is-student-loan-deferment-4771251)and have subsidized federal loans, then accrued interest during deferral will be paid by the government. All you will owe at the end of the deferment period is the original loan amount. Unsubsidized federal loan deferment and private loan deferment are treated the same as forbearance, meaning that interest accrues and is capitalized at the end of the deferral period, adding to what you owe. IDR plans for federal student loans come in four forms: Saving on a Valuable Education (SAVE) (it replaced the Revised Pay as You Earn [REPAYE] Repayment plan), Pay as You Earn (PAYE) Repayment, Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). Payments are usually a percentage of your [discretionary income](https://www.investopedia.com/terms/d/discretionaryincome.asp) and can be as low as $0 per month. One disadvantage is that because [repayment](https://www.investopedia.com/terms/r/repayment.asp) typically takes longer, you will pay more interest over the life of the loan. A possible advantage is that if your loan is not totally repaid by the end of the repayment period—20 to 25 years—any balance will be forgiven then. Visit the Federal Student Aid website to learn more and [make an online request](https://studentaid.gov/idr/) for an IDR plan. ## Is It Better to Defer or Seek Forbearance? Deferment and forbearance let you pause your student loan payments temporarily—typically for up to three years. An income-driven repayment (IDR) plan will adjust your monthly payment depending on your current income. ## Is It Smart to Pay Student Loans During Forbearance? If you can afford to, it’s a very good idea to pay your student loans during a forbearance period. Paying off at least the interest that accrues each month will prevent interest capitalization (i.e., unpaid interest being added to your loan’s principal, which would result in a larger amount in interest being added each subsequent month during the forbearance period), saving you money in the long run. ## Does Forbearance Hurt Credit? Student loan forbearance won’t reduce your credit score unless you also have late or missed payments. ## The Bottom Line Student loan forbearance is almost always a last resort, not a first option. Use it if you need temporary relief and don’t qualify for deferment. For long-term problems, consider an IDR plan instead. If possible, pay the interest as it accrues to avoid paying interest on interest when you do resume repayment. Finally, when you first begin to experience financial trouble, talk to your loan servicer to explore all repayment options.

Student loan forbearance is a way to suspend or lower your student loan payments temporarily, typically for 12 months or less, during times of financial stress. Forbearance is not as desirable as deferment, in which you may not have to pay interest that accrues during the deferment period on certain types of loans. With forbearance, you are always responsible for accrued interest when the forbearance period is over. Here’s a look at the pros and cons of student loan forbearance. Key Takeaways Student loan forbearance is for temporary (typically 12 months) relief only; it is not a long-term solution.Deferment or an income-driven repayment (IDR) plan is preferable to forbearance.Forbearance for federal student loans takes two forms: general and mandatory.To avoid default, you must continue making required payments on your student loans until your forbearance application has been approved.To lower costs, try to pay interest as it accrues while the loan is in forbearance. All federal student loan payments and collections were temporarily paused due to the 2020 COVID-19 economic crisis, and interest did not accumulate. Interest on federal student loans resumed on Sept. 1, 2023, and payments resumed in October 2023. Student Loan Forbearance: An Overview With all student loan forbearance, interest on your loan continues to accrue during the deferral period and is usually capitalized (added to the loan amount owed) at the end of the deferral period unless you pay the interest as it accrues. Perkins Loans are an exception to the capitalization rule. With a Perkins Loan, your interest accrues during the deferral period but is not capitalized. Instead, it is added to the interest balance (not the principal) during repayment, unless you pay it as it accrues. (Although the U.S. government stopped offering Perkins Loans in 2017, many people are still paying back what they borrowed through these loans.) Federal student loan forbearance is usually granted for 12 months at a time and can be renewed for up to three years. Conditions and payment amounts for some types of federal student loan forbearance are mandated by law. In other instances, the loan servicer has discretion. Private student loan forbearance is typically granted for up to 12 months, but lenders rarely offer renewal. Conditions and amounts for private loan forbearance are up to the lender. If you are in default on your student loans, you are not eligible for any strategy discussed in this article. General Federal Student Loan Forbearance If you are having trouble making payments on your Direct Loan, Federal Family Education Loan (FFEL), or Perkins Loan and don’t qualify for deferment, you can request a general forbearance of up to 12 months from your student loan servicer. If your financial problems continue, you can request a new general forbearance of up to 12 months, and another 12 months after that, for a cumulative total of three years. Your loan servicer, however, may set a maximum period on an individual basis for Direct and FFEL loans. The White House’s student loan debt relief plan was overturned by the U.S. Supreme Court on June 30, 2023. Shortly after, the Biden administration announced the Saving on a Valuable Education (SAVE) plan to provide an alternative path to debt relief. Launched on Aug. 22, 2023, it aims to help more than 20 million borrowers by either reducing their monthly payments by half (from 10% to 5% of their discretionary income) or bringing payments down to $0 for qualifying individuals. General forbearance is at the discretion of the loan servicer and is typically granted due to unforeseen medical expenses, unemployment, or almost any financial difficulty that prevents you from making loan payments. You may request a general forbearance by filling out an online form or calling your loan servicer and requesting forbearance over the phone. Mandatory Federal Student Loan Forbearance Unlike a general forbearance, which is at the discretion of your loan servicer, you must be granted a mandatory forbearance if you qualify and request it. Most mandatory forbearance uses the same form: Service-Based Mandatory Forbearance Request; however, there is a different form for Teacher Loan Forgiveness and AmeriCorps. Mandatory forbearance is available for the following: Participation in a medical or dental internship or residency (Direct and FFEL loans only) Total student loan payments of 20% or more of your monthly gross income (Direct, FFEL, and Perkins loans) Service in AmeriCorps (Direct and FFEL loans only) Qualification for Teacher Loan Forgiveness (Direct and FFEL loans only) Qualification for partial repayment of your student loans under the U.S. Department of Defense Student Loan Repayment Program (Direct and FFEL loans only) Activated service in the National Guard when it doesn’t provide for a military deferment (Direct and FFEL loans only) Private Student Loan Forbearance Your forbearance options with private student loans will vary by lender, but they are generally less flexible than those available with federal student loans. Many private lenders extend a forbearance option while you are in school or taking part in an internship or medical residency. Some let you make interest-only payments while in school. In-school forbearance typically has a time limit, which could create problems if you take longer than four years to graduate. Some lenders also offer a six-month grace period after graduation. Some private lenders grant a forbearance if you are unemployed or are having difficulty making payments after you graduate. Typically, these are granted for two months at a time for no longer than 12 months in total. There may be an additional fee for each month you are in forbearance. Other types of forbearance are often granted for active-duty military service or if you have been affected by a natural disaster. With all private loans, interest accrues during forbearance and is capitalized unless you pay it as it accrues. Advantages and Disadvantages of Student Loan Forbearance As with many financial tools, student loan forbearance has both advantages and disadvantages. For example, if your choice is between forbearance and wage garnishment or loss of an income tax refund, then forbearance is a better option, both financially and in terms of the impact on your credit. It’s worth noting that accrued interest during forbearance will likely be less costly than the interest rate you would pay when taking out a personal loan or, worse still, a payday loan. However, the fact that accrued interest is capitalized means you will pay more over the life of the loan than you would if you were able to avoid forbearance. Pros Better than garnishment or default Lower interest than payday or personal loan Frees you to pay critical expenses Has no impact on your credit score Cons Not a long-term solution Capitalization of accrued interest is expensive Repeated renewal could result in loan default Late/missing payments hurt your credit score Forbearance provides temporary breathing room to allow you to pay essential expenses, such as housing and utilities, but it can be very costly if you try to use it as a long-term solution by constantly renewing your status. This could ultimately result in loan default or worse, along with the possibility of severe damage to your credit score. While forbearance is noted on your credit reports, it does not result in a lower credit score unless you have late or missed payments. To avoid complications and unnecessary expenses during and after forbearance, keep making payments while your application is being processed, get out of forbearance as soon as you are financially able to, and, if possible, make interest payments as they accrue. The American Rescue Plan passed by Congress and signed by President Joe Biden in March 2021 included a provision that student loan forgiveness issued from Jan. 1, 2021, to Dec. 31, 2025, will not be taxable to the recipient. Alternatives to Forbearance Before applying for forbearance, and depending on the type of loan(s) you have, you should consider two alternatives: deferment and income-driven repayment (IDR) plans. Deferment, like forbearance, lets you pause payments temporarily—typically for up to three years. If you qualify for deferment and have subsidized federal loans, then accrued interest during deferral will be paid by the government. All you will owe at the end of the deferment period is the original loan amount. Unsubsidized federal loan deferment and private loan deferment are treated the same as forbearance, meaning that interest accrues and is capitalized at the end of the deferral period, adding to what you owe. IDR plans for federal student loans come in four forms: Saving on a Valuable Education (SAVE) (it replaced the Revised Pay as You Earn [REPAYE] Repayment plan), Pay as You Earn (PAYE) Repayment, Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). Payments are usually a percentage of your discretionary income and can be as low as $0 per month. One disadvantage is that because repayment typically takes longer, you will pay more interest over the life of the loan. A possible advantage is that if your loan is not totally repaid by the end of the repayment period—20 to 25 years—any balance will be forgiven then. Visit the Federal Student Aid website to learn more and make an online request for an IDR plan. Is It Better to Defer or Seek Forbearance? Deferment and forbearance let you pause your student loan payments temporarily—typically for up to three years. An income-driven repayment (IDR) plan will adjust your monthly payment depending on your current income. Is It Smart to Pay Student Loans During Forbearance? If you can afford to, it’s a very good idea to pay your student loans during a forbearance period. Paying off at least the interest that accrues each month will prevent interest capitalization (i.e., unpaid interest being added to your loan’s principal, which would result in a larger amount in interest being added each subsequent month during the forbearance period), saving you money in the long run. Does Forbearance Hurt Credit? Student loan forbearance won’t reduce your credit score unless you also have late or missed payments. The Bottom Line Student loan forbearance is almost always a last resort, not a first option. Use it if you need temporary relief and don’t qualify for deferment. For long-term problems, consider an IDR plan instead. If possible, pay the interest as it accrues to avoid paying interest on interest when you do resume repayment. Finally, when you first begin to experience financial trouble, talk to your loan servicer to explore all repayment options.

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

Risk-Free Asset: Definition and Examples of Asset 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-risk-free-asset"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Risk-Free Asset? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A risk-free <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">asset</a> is one that has a certain future return—and virtually no possibility of loss. Debt obligations issued by the U.S. Department of the Treasury (bonds, notes, and especially <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybill.asp">Treasury bills)</a> are considered to be risk-free because the "full faith and credit" of the U.S. government backs them. Because they are so safe, the return on risk-free assets is very close to the current <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rate</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Many academics say that, when it comes to investing, nothing can be 100% guaranteed—and so there's no such thing as a risk-free asset. Technically, this may be correct: All <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialasset.asp">financial assets</a> carry some degree of danger—the risk they will drop in value or become worthless altogether. However, the level of risk is so small that, for the average investor, it is appropriate to consider <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybond.asp">U.S. Treasurys </a>or any government debt issued by a from stable Western nation to be risk-free. </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 risk-free <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">asset</a> is one that has a certain future return—and virtually no possibility they will drop in value or become worthless altogether.</li> <li>Risk-free assets tend to have low rates of return, since their safety means investors don't need to be compensated for taking a chance.</li> <li>Risk-free assets are guaranteed against nominal loss, but not against a loss in purchasing power.</li> <li>Over the long-term, risk-free assets may also be subject to reinvestment risk.</li> </ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-risk-free-asset"></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 Risk-Free Asset </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> When an investor takes on an investment, there is an anticipated return rate expected depending on the duration the asset is held. The risk is demonstrated by the fact that the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/actualreturn.asp">actual return</a> and the anticipated return may be very different. Since market fluctuations can be hard to predict, the unknown aspect of the future return is considered to be the risk. Generally, an increased level of risk indicates a higher chance of large fluctuations, which can translate to significant gains or losses depending on the ultimate outcome. </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"> Risk-free investments are considered to be reasonably certain to gain at the level predicted. Since this gain is essentially known, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rateofreturn.asp">rate of return</a> is often much lower to reflect the lower amount of risk. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expectedreturn.asp">expected return</a> and actual return are likely to be about the same. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> While the return on a risk-free asset is known, this does not guarantee a profit in regards to <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>. Depending on the length of time until maturity, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> can cause the asset to lose purchasing power even if the dollar value has risen as predicted. </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-risk-free-assets-and-returns"></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"> Risk-Free Assets and Returns </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk-freereturn.asp">Risk-free return i</a>s the theoretical return attributed to an investment that provides a guaranteed return with zero risk. The risk-free rate represents the interest on an investor's money that would be expected from a risk-free asset when invested over a specified period of time. For example, investors commonly use the interest rate on a three-month U.S. T-bill as a proxy for the short-term risk-free rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The risk-free return is the rate against which other returns are measured. Investors that purchase a security with some measure of risk higher than that of a risk-free asset (like a U.S. Treasury bill) will naturally demand a higher level of return, because of the greater chance they're taking. The difference between the return earned and the risk-free return represents the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskpremium.asp">risk premium</a> on the security. In other words, the return on a risk-free asset is added to a risk premium to measure the total expected return on an investment. </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-reinvestment-risk"></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"> Reinvestment Risk </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> While they're not risky in the sense of being likely to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/defaultrisk.asp">default</a>, even risk-free assets can have an Achilles' heel. And that's known as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reinvestmentrisk.asp">reinvestment risk</a>. </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 a long-term investment to continue to be risk-free, any reinvestment necessary must also be risk-free. And often, the exact rate of return may not be predictable from the beginning for the entire duration of the investment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> For example, say a person invests in six-month Treasury bills twice a year, replacing one batch as it matures with another one. The risk of achieving each specified returned rate for the six months covering a particular Treasury bill's growth is essentially nil. However, interest rates may change between each instance of reinvestment. So the rate of return on the second Treasury bill that was purchased as part of the six-month reinvestment process may not be equal to the rate on the first Treasury bill purchased; the third bill may not equal the second's, and so on. In that regard, there is some risk over the long term. Each individual T-bill's return is guaranteed, but the rate of return over a decade (or however long the investor pursues this strategy) is not. </p></div>

## What Is a Risk-Free Asset? A risk-free [asset](https://www.investopedia.com/terms/a/asset.asp) is one that has a certain future return—and virtually no possibility of loss. Debt obligations issued by the U.S. Department of the Treasury (bonds, notes, and especially [Treasury bills)](https://www.investopedia.com/terms/t/treasurybill.asp) are considered to be risk-free because the "full faith and credit" of the U.S. government backs them. Because they are so safe, the return on risk-free assets is very close to the current [interest rate](https://www.investopedia.com/terms/i/interestrate.asp). Many academics say that, when it comes to investing, nothing can be 100% guaranteed—and so there's no such thing as a risk-free asset. Technically, this may be correct: All [financial assets](https://www.investopedia.com/terms/f/financialasset.asp) carry some degree of danger—the risk they will drop in value or become worthless altogether. However, the level of risk is so small that, for the average investor, it is appropriate to consider [U.S. Treasurys](https://www.investopedia.com/terms/t/treasurybond.asp) or any government debt issued by a from stable Western nation to be risk-free. ### key takeaways * A risk-free [asset](https://www.investopedia.com/terms/a/asset.asp) is one that has a certain future return—and virtually no possibility they will drop in value or become worthless altogether. * Risk-free assets tend to have low rates of return, since their safety means investors don't need to be compensated for taking a chance. * Risk-free assets are guaranteed against nominal loss, but not against a loss in purchasing power. * Over the long-term, risk-free assets may also be subject to reinvestment risk. ## Understanding a Risk-Free Asset When an investor takes on an investment, there is an anticipated return rate expected depending on the duration the asset is held. The risk is demonstrated by the fact that the [actual return](https://www.investopedia.com/terms/a/actualreturn.asp) and the anticipated return may be very different. Since market fluctuations can be hard to predict, the unknown aspect of the future return is considered to be the risk. Generally, an increased level of risk indicates a higher chance of large fluctuations, which can translate to significant gains or losses depending on the ultimate outcome. Risk-free investments are considered to be reasonably certain to gain at the level predicted. Since this gain is essentially known, the [rate of return](https://www.investopedia.com/terms/r/rateofreturn.asp) is often much lower to reflect the lower amount of risk. The [expected return](https://www.investopedia.com/terms/e/expectedreturn.asp) and actual return are likely to be about the same. While the return on a risk-free asset is known, this does not guarantee a profit in regards to [purchasing power](https://www.investopedia.com/terms/p/purchasingpower.asp). Depending on the length of time until maturity, [inflation](https://www.investopedia.com/terms/i/inflation.asp) can cause the asset to lose purchasing power even if the dollar value has risen as predicted. ## Risk-Free Assets and Returns [Risk-free return i](https://www.investopedia.com/terms/r/risk-freereturn.asp)s the theoretical return attributed to an investment that provides a guaranteed return with zero risk. The risk-free rate represents the interest on an investor's money that would be expected from a risk-free asset when invested over a specified period of time. For example, investors commonly use the interest rate on a three-month U.S. T-bill as a proxy for the short-term risk-free rate. The risk-free return is the rate against which other returns are measured. Investors that purchase a security with some measure of risk higher than that of a risk-free asset (like a U.S. Treasury bill) will naturally demand a higher level of return, because of the greater chance they're taking. The difference between the return earned and the risk-free return represents the [risk premium](https://www.investopedia.com/terms/r/riskpremium.asp) on the security. In other words, the return on a risk-free asset is added to a risk premium to measure the total expected return on an investment. ## Reinvestment Risk While they're not risky in the sense of being likely to [default](https://www.investopedia.com/terms/d/defaultrisk.asp), even risk-free assets can have an Achilles' heel. And that's known as [reinvestment risk](https://www.investopedia.com/terms/r/reinvestmentrisk.asp). For a long-term investment to continue to be risk-free, any reinvestment necessary must also be risk-free. And often, the exact rate of return may not be predictable from the beginning for the entire duration of the investment. For example, say a person invests in six-month Treasury bills twice a year, replacing one batch as it matures with another one. The risk of achieving each specified returned rate for the six months covering a particular Treasury bill's growth is essentially nil. However, interest rates may change between each instance of reinvestment. So the rate of return on the second Treasury bill that was purchased as part of the six-month reinvestment process may not be equal to the rate on the first Treasury bill purchased; the third bill may not equal the second's, and so on. In that regard, there is some risk over the long term. Each individual T-bill's return is guaranteed, but the rate of return over a decade (or however long the investor pursues this strategy) is not.

What Is a Risk-Free Asset? A risk-free asset is one that has a certain future return—and virtually no possibility of loss. Debt obligations issued by the U.S. Department of the Treasury (bonds, notes, and especially Treasury bills) are considered to be risk-free because the "full faith and credit" of the U.S. government backs them. Because they are so safe, the return on risk-free assets is very close to the current interest rate. Many academics say that, when it comes to investing, nothing can be 100% guaranteed—and so there's no such thing as a risk-free asset. Technically, this may be correct: All financial assets carry some degree of danger—the risk they will drop in value or become worthless altogether. However, the level of risk is so small that, for the average investor, it is appropriate to consider U.S. Treasurys or any government debt issued by a from stable Western nation to be risk-free. key takeaways A risk-free asset is one that has a certain future return—and virtually no possibility they will drop in value or become worthless altogether. Risk-free assets tend to have low rates of return, since their safety means investors don't need to be compensated for taking a chance. Risk-free assets are guaranteed against nominal loss, but not against a loss in purchasing power. Over the long-term, risk-free assets may also be subject to reinvestment risk. Understanding a Risk-Free Asset When an investor takes on an investment, there is an anticipated return rate expected depending on the duration the asset is held. The risk is demonstrated by the fact that the actual return and the anticipated return may be very different. Since market fluctuations can be hard to predict, the unknown aspect of the future return is considered to be the risk. Generally, an increased level of risk indicates a higher chance of large fluctuations, which can translate to significant gains or losses depending on the ultimate outcome. Risk-free investments are considered to be reasonably certain to gain at the level predicted. Since this gain is essentially known, the rate of return is often much lower to reflect the lower amount of risk. The expected return and actual return are likely to be about the same. While the return on a risk-free asset is known, this does not guarantee a profit in regards to purchasing power. Depending on the length of time until maturity, inflation can cause the asset to lose purchasing power even if the dollar value has risen as predicted. Risk-Free Assets and Returns Risk-free return is the theoretical return attributed to an investment that provides a guaranteed return with zero risk. The risk-free rate represents the interest on an investor's money that would be expected from a risk-free asset when invested over a specified period of time. For example, investors commonly use the interest rate on a three-month U.S. T-bill as a proxy for the short-term risk-free rate. The risk-free return is the rate against which other returns are measured. Investors that purchase a security with some measure of risk higher than that of a risk-free asset (like a U.S. Treasury bill) will naturally demand a higher level of return, because of the greater chance they're taking. The difference between the return earned and the risk-free return represents the risk premium on the security. In other words, the return on a risk-free asset is added to a risk premium to measure the total expected return on an investment. Reinvestment Risk While they're not risky in the sense of being likely to default, even risk-free assets can have an Achilles' heel. And that's known as reinvestment risk. For a long-term investment to continue to be risk-free, any reinvestment necessary must also be risk-free. And often, the exact rate of return may not be predictable from the beginning for the entire duration of the investment. For example, say a person invests in six-month Treasury bills twice a year, replacing one batch as it matures with another one. The risk of achieving each specified returned rate for the six months covering a particular Treasury bill's growth is essentially nil. However, interest rates may change between each instance of reinvestment. So the rate of return on the second Treasury bill that was purchased as part of the six-month reinvestment process may not be equal to the rate on the first Treasury bill purchased; the third bill may not equal the second's, and so on. In that regard, there is some risk over the long term. Each individual T-bill's return is guaranteed, but the rate of return over a decade (or however long the investor pursues this strategy) is not.

https://www.investopedia.com/slowing-mobile-phone-sales-take-a-bite-out-of-apple-supplier-qorvo-guidance-8642543

Slowing Mobile Phone Sales Take A Bite Out Of Apple Supplier Qorvo's Guidance

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Apple semiconductor supplier Qorvo provided softer-than-expected guidance for the current quarter as mobile phone sales slide.</li><li>Qorvo said it sees "modest" revenue growth in the coming year.</li><li>The news about weakened outlook offset Qorvo's better-than-anticipated profit and sales reported for its fiscal 2024 fourth quarter.</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"> Qorvo (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=QRVO">QRVO</a>) shares slumped Thursday after the maker of radio frequency chips and a key supplier for 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>) provided weaker-than-expected current-quarter guidance in response to declining mobile phone demand.  </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"> Qorvo said Wednesday that it anticipates its fiscal 2025 first-quarter <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adjusted-earnings.asp">adjusted earnings</a> per share (EPS) will fall in a range of 60 cents to 80 cents, and revenue of about $850 million, plus or minus $25 million. Both were below estimates.  </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"> CFO Grant Brown explained that, right now, “flagship <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smartphone.asp">smartphone</a> ramps and large defense programs are down seasonally,” and added that Qorvo sees just “modest revenue growth and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profitmargin.asp">margin</a> improvement” for the full year.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Softness in the company's sales may signal concerns about <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/090315/10-major-companies-tied-apple-supply-chain.asp">Apple</a>, although the major customer of Qorvo wasn't mentioned in its most recent earnings release. According to one report, nearly half of Qorvo's revenue comes from the iPhone maker.<span class="ql-inline-citation" data-cite="1"></span> Apple reports its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/apple-q2-fy-2024-earnings-preview-what-you-need-to-know-8636823">quarterly earnings</a> after the close of trading Thursday. </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 outlook came as Qorvo reported fiscal 2024 fourth-quarter results that exceeded forecasts, with adjusted EPS of $1.39, and revenue soaring 48.7% to $941.0 million.  </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"> Thursday’s 14.45% drop to $95.72 by the last hour of trading helped send shares of Qorvo down 12% year-to-date. </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:50.6%;"> <img alt="ORVO" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/yYAkvxc5xvGMIcR6eGtGfJrLX3I=/1216x0/filters:no_upscale():max_bytes(150000):strip_icc()/QRVO_2024-05-02_13-58-35-f5874665e0654930abbf17bd54977913.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/iidXSK09FRIZVGmZUqOFokhCJug=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/QRVO_2024-05-02_13-58-35-f5874665e0654930abbf17bd54977913.png" data-srcset="https://www.investopedia.com/thmb/ruHkFxL83E7dFzlaPvirujRRjCQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/QRVO_2024-05-02_13-58-35-f5874665e0654930abbf17bd54977913.png 750w" data-tracking-container="true" height="616" id="mntl-sc-block-image_1-0" width="1216"/> <noscript> <img alt="ORVO" class="img--noscript universal-image__image" height="616" sizes="750px" src="https://www.investopedia.com/thmb/iidXSK09FRIZVGmZUqOFokhCJug=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/QRVO_2024-05-02_13-58-35-f5874665e0654930abbf17bd54977913.png" srcset="https://www.investopedia.com/thmb/ruHkFxL83E7dFzlaPvirujRRjCQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/QRVO_2024-05-02_13-58-35-f5874665e0654930abbf17bd54977913.png 750w" width="1216"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>TradingView</p></span> </figcaption></figure> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * Apple semiconductor supplier Qorvo provided softer-than-expected guidance for the current quarter as mobile phone sales slide. * Qorvo said it sees "modest" revenue growth in the coming year. * The news about weakened outlook offset Qorvo's better-than-anticipated profit and sales reported for its fiscal 2024 fourth quarter. Qorvo ([QRVO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=QRVO)) shares slumped Thursday after the maker of radio frequency chips and a key supplier for Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) provided weaker-than-expected current-quarter guidance in response to declining mobile phone demand.  Qorvo said Wednesday that it anticipates its fiscal 2025 first-quarter [adjusted earnings](https://www.investopedia.com/terms/a/adjusted-earnings.asp) per share (EPS) will fall in a range of 60 cents to 80 cents, and revenue of about $850 million, plus or minus $25 million. Both were below estimates.  CFO Grant Brown explained that, right now, “flagship [smartphone](https://www.investopedia.com/terms/s/smartphone.asp) ramps and large defense programs are down seasonally,” and added that Qorvo sees just “modest revenue growth and [margin](https://www.investopedia.com/terms/p/profitmargin.asp) improvement” for the full year. Softness in the company's sales may signal concerns about [Apple](https://www.investopedia.com/articles/investing/090315/10-major-companies-tied-apple-supply-chain.asp), although the major customer of Qorvo wasn't mentioned in its most recent earnings release. According to one report, nearly half of Qorvo's revenue comes from the iPhone maker. Apple reports its [quarterly earnings](https://www.investopedia.com/apple-q2-fy-2024-earnings-preview-what-you-need-to-know-8636823) after the close of trading Thursday. The outlook came as Qorvo reported fiscal 2024 fourth-quarter results that exceeded forecasts, with adjusted EPS of $1.39, and revenue soaring 48.7% to $941.0 million.  Thursday’s 14.45% drop to $95.72 by the last hour of trading helped send shares of Qorvo down 12% year-to-date. ![ORVO]() :max_bytes(150000):strip_icc()/QRVO_2024-05-02_13-58-35-f5874665e0654930abbf17bd54977913.png) TradingView Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Apple semiconductor supplier Qorvo provided softer-than-expected guidance for the current quarter as mobile phone sales slide.Qorvo said it sees "modest" revenue growth in the coming year.The news about weakened outlook offset Qorvo's better-than-anticipated profit and sales reported for its fiscal 2024 fourth quarter. Qorvo (QRVO) shares slumped Thursday after the maker of radio frequency chips and a key supplier for Apple (AAPL) provided weaker-than-expected current-quarter guidance in response to declining mobile phone demand.  Qorvo said Wednesday that it anticipates its fiscal 2025 first-quarter adjusted earnings per share (EPS) will fall in a range of 60 cents to 80 cents, and revenue of about $850 million, plus or minus $25 million. Both were below estimates.  CFO Grant Brown explained that, right now, “flagship smartphone ramps and large defense programs are down seasonally,” and added that Qorvo sees just “modest revenue growth and margin improvement” for the full year. Softness in the company's sales may signal concerns about Apple, although the major customer of Qorvo wasn't mentioned in its most recent earnings release. According to one report, nearly half of Qorvo's revenue comes from the iPhone maker. Apple reports its quarterly earnings after the close of trading Thursday. The outlook came as Qorvo reported fiscal 2024 fourth-quarter results that exceeded forecasts, with adjusted EPS of $1.39, and revenue soaring 48.7% to $941.0 million.  Thursday’s 14.45% drop to $95.72 by the last hour of trading helped send shares of Qorvo down 12% year-to-date. TradingView Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/palantir-oracle-team-up-cloud-ai-solutions-8624824

Palantir, Oracle Team Up To Provide Cloud and AI Solutions to Clients

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Palantir Technologies and Oracle announced a partnership to offer clients secure cloud and artificial intelligence (AI) solutions.</li><li>The agreement will shift Palantir's Foundry workloads to Oracle Cloud Infrastructure.</li><li>Palantir's Gotham and AI platforms will be deployable across Oracle's distributed cloud.</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"> 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>) and Oracle (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ORCL">ORCL</a>) on Thursday disclosed a partnership to offer secure cloud and artificial intelligence (AI) services to its government and business customers.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The technology companies said the deal would help organizations “maximize the value of their data,” allowing them to boost efficiency, address sovereignty requirements that mandate that some data stay within certain national or regional boundaries, and beat their competition.  </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 agreement calls for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/palantir-stock-surges-on-usd178-4-million-us-army-contract-focused-on-ai-8604973">Palantir</a> to move its Foundry operating system workloads to Oracle Cloud Infrastructure. Palantir calls Foundry its central platform for data-driven decision making and situational intelligence. In addition, Palantir’s Gotham software for government customers and its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">AI</a> software will be deployable across Oracle’s distributed <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cloud-computing.asp">cloud</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Palantir Executive Vice President Josh Harris said that teaming with Oracle “will increase our impact and help our global clients gain the full benefits of cloud and AI."  </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"> Palantir shares were up 0.6% at $22.83 at around 2:25 p.m. ET Thursday, while Oracle was down 0.6% at $125.45. So far this year, Palantir has gained about 33% and Oracle has added nearly 20%. </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 * Palantir Technologies and Oracle announced a partnership to offer clients secure cloud and artificial intelligence (AI) solutions. * The agreement will shift Palantir's Foundry workloads to Oracle Cloud Infrastructure. * Palantir's Gotham and AI platforms will be deployable across Oracle's distributed cloud. Palantir Technologies ([PLTR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PLTR)) and Oracle ([ORCL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ORCL)) on Thursday disclosed a partnership to offer secure cloud and artificial intelligence (AI) services to its government and business customers. The technology companies said the deal would help organizations “maximize the value of their data,” allowing them to boost efficiency, address sovereignty requirements that mandate that some data stay within certain national or regional boundaries, and beat their competition.  The agreement calls for [Palantir](https://www.investopedia.com/palantir-stock-surges-on-usd178-4-million-us-army-contract-focused-on-ai-8604973) to move its Foundry operating system workloads to Oracle Cloud Infrastructure. Palantir calls Foundry its central platform for data-driven decision making and situational intelligence. In addition, Palantir’s Gotham software for government customers and its [AI](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) software will be deployable across Oracle’s distributed [cloud](https://www.investopedia.com/terms/c/cloud-computing.asp). Palantir Executive Vice President Josh Harris said that teaming with Oracle “will increase our impact and help our global clients gain the full benefits of cloud and AI."  Palantir shares were up 0.6% at $22.83 at around 2:25 p.m. ET Thursday, while Oracle was down 0.6% at $125.45. So far this year, Palantir has gained about 33% and Oracle has added nearly 20%. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Palantir Technologies and Oracle announced a partnership to offer clients secure cloud and artificial intelligence (AI) solutions.The agreement will shift Palantir's Foundry workloads to Oracle Cloud Infrastructure.Palantir's Gotham and AI platforms will be deployable across Oracle's distributed cloud. Palantir Technologies (PLTR) and Oracle (ORCL) on Thursday disclosed a partnership to offer secure cloud and artificial intelligence (AI) services to its government and business customers. The technology companies said the deal would help organizations “maximize the value of their data,” allowing them to boost efficiency, address sovereignty requirements that mandate that some data stay within certain national or regional boundaries, and beat their competition.  The agreement calls for Palantir to move its Foundry operating system workloads to Oracle Cloud Infrastructure. Palantir calls Foundry its central platform for data-driven decision making and situational intelligence. In addition, Palantir’s Gotham software for government customers and its AI software will be deployable across Oracle’s distributed cloud. Palantir Executive Vice President Josh Harris said that teaming with Oracle “will increase our impact and help our global clients gain the full benefits of cloud and AI."  Palantir shares were up 0.6% at $22.83 at around 2:25 p.m. ET Thursday, while Oracle was down 0.6% at $125.45. So far this year, Palantir has gained about 33% and Oracle has added nearly 20%. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Broker's Call: What It is, How It Works, Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-brokers-call"></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 Broker's Call? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The broker's call, also known as the call loan rate, is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp" rel="noopener noreferrer">interest rate</a> charged by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank.asp" rel="noopener noreferrer">banks</a> on loans made to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-company.asp" rel="noopener noreferrer">brokerage firms</a>. These brokers then use these loans, called call loans, to provide leverage to traders using <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marginaccount.asp" rel="noopener noreferrer">margin accounts</a>. As their name suggests, call loans must be repaid immediately—or "on call"—if so requested by the bank. If a broker believes that their loans might be <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/callloan.asp" rel="noopener noreferrer">called</a>, they may initiate a <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margincall.asp" rel="noopener noreferrer">margin call</a> on the traders to whom they lent the funds. </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 broker's call is the interest rate charged by banks to brokers in regard to a call loan.</li><li>Their cost is determined by referencing an interest rate benchmark and making adjustments based on the perceived creditworthiness of the broker in question.</li><li>These loans are used by brokers to fund their traders' margin accounts. Like margin accounts, call loans can be retrieved, or "called back," by their lenders.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-brokers-calls"></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 Brokers' Calls </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> As you can see from the description above, the broker's call is an important part of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/supplychain.asp">supply chain</a> responsible for providing traders with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leverage</a> through their margin accounts. From the perspective of the margin trader, the loan originates from their brokerage firm, and the trader must ensure that they maintain adequate <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a> in their account in order to ensure that their margin loan does not get called by the broker. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> From the perspective of the broker, however, the money lent to the trader is a call loan borrowed from a bank. Therefore, the broker must ensure that the call loan does not appear risky to the bank, or else the bank might exercise their right to call it back. To prevent against this, the broker will closely monitor the value and collateral of the trader's margin account and will call the margin loan if they feel its risk is becoming too high.  </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 fact, even if a particular margin account is reasonably well funded, it may still be called back by the broker if that broker's own call loan is called by the bank. For this reason, a margin trader might face a margin call for reasons unrelated to the risk level of their own account. Although such instances are rare, they do occur in situations where financial anxiety spreads throughout the markets, such as in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcrunch.asp">credit crunch</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"> As with other loans, the interest rate paid on call loans fluctuates on a daily basis based on factors such as economic conditions and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/law-of-supply-demand.asp">supply and demand</a> of capital. These rates are published regularly in publications such as The Wall Street Journal and Investor's Business Daily, and they are typically based on a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a>, such as the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/libor.asp">London InterBank Offered Rate</a> (LIBOR). The broker's call then incorporates a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskpremium.asp">risk premium</a> based on the perceived <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-worthiness.asp">creditworthiness</a> of the broker, along with other factors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-real-world-example-of-a-brokers-call"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Real World Example of a Broker's Call </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> XYZ Brokerage Services recently received a broker's call loan from a large bank, ABC Financial. When calculating the interest rate on the loan, ABC took into consideration the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/opportunitycost.asp" rel="noopener noreferrer">opportunity cost</a> posed by alternative loans and investment opportunities. Given that LIBOR was 2% at the time the loan was given, and considering that XYZ was perceived as having very high creditworthiness, ABC agreed to provide the call loan with only 2.5% interest. XYZ understood that, as part of the loan terms, ABC would have the right to call back the loan at their discretion. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Once it received the call loan, XYZ then used the funds to supply several margin customers with loans for their margin trading accounts. As with ABC, XYZ considered its own opportunity cost and the creditworthiness of its account holders when deciding what interest rate to charge on the loans, settling on a 5% interest rate. The contract for these loans was clear to state that XYZ could demand repayment of the loans using a margin call, potentially with limited or no advanced notice to the trader. </p></div>

## What Is the Broker's Call? The broker's call, also known as the call loan rate, is the [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) charged by [banks](https://www.investopedia.com/terms/b/bank.asp) on loans made to [brokerage firms](https://www.investopedia.com/terms/b/brokerage-company.asp). These brokers then use these loans, called call loans, to provide leverage to traders using [margin accounts](https://www.investopedia.com/terms/m/marginaccount.asp). As their name suggests, call loans must be repaid immediately—or "on call"—if so requested by the bank. If a broker believes that their loans might be [called](https://www.investopedia.com/terms/c/callloan.asp), they may initiate a [margin call](https://www.investopedia.com/terms/m/margincall.asp) on the traders to whom they lent the funds. ### Key Takeaways * The broker's call is the interest rate charged by banks to brokers in regard to a call loan. * Their cost is determined by referencing an interest rate benchmark and making adjustments based on the perceived creditworthiness of the broker in question. * These loans are used by brokers to fund their traders' margin accounts. Like margin accounts, call loans can be retrieved, or "called back," by their lenders. ## Understanding Brokers' Calls As you can see from the description above, the broker's call is an important part of the [supply chain](https://www.investopedia.com/terms/s/supplychain.asp) responsible for providing traders with [leverage](https://www.investopedia.com/terms/l/leverage.asp) through their margin accounts. From the perspective of the margin trader, the loan originates from their brokerage firm, and the trader must ensure that they maintain adequate [collateral](https://www.investopedia.com/terms/c/collateral.asp) in their account in order to ensure that their margin loan does not get called by the broker. From the perspective of the broker, however, the money lent to the trader is a call loan borrowed from a bank. Therefore, the broker must ensure that the call loan does not appear risky to the bank, or else the bank might exercise their right to call it back. To prevent against this, the broker will closely monitor the value and collateral of the trader's margin account and will call the margin loan if they feel its risk is becoming too high.  In fact, even if a particular margin account is reasonably well funded, it may still be called back by the broker if that broker's own call loan is called by the bank. For this reason, a margin trader might face a margin call for reasons unrelated to the risk level of their own account. Although such instances are rare, they do occur in situations where financial anxiety spreads throughout the markets, such as in a [credit crunch](https://www.investopedia.com/terms/c/creditcrunch.asp). As with other loans, the interest rate paid on call loans fluctuates on a daily basis based on factors such as economic conditions and the [supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp) of capital. These rates are published regularly in publications such as The Wall Street Journal and Investor's Business Daily, and they are typically based on a [benchmark](https://www.investopedia.com/terms/b/benchmark.asp), such as the [London InterBank Offered Rate](https://www.investopedia.com/terms/l/libor.asp) (LIBOR). The broker's call then incorporates a [risk premium](https://www.investopedia.com/terms/r/riskpremium.asp) based on the perceived [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp) of the broker, along with other factors. ## Real World Example of a Broker's Call XYZ Brokerage Services recently received a broker's call loan from a large bank, ABC Financial. When calculating the interest rate on the loan, ABC took into consideration the [opportunity cost](https://www.investopedia.com/terms/o/opportunitycost.asp) posed by alternative loans and investment opportunities. Given that LIBOR was 2% at the time the loan was given, and considering that XYZ was perceived as having very high creditworthiness, ABC agreed to provide the call loan with only 2.5% interest. XYZ understood that, as part of the loan terms, ABC would have the right to call back the loan at their discretion. Once it received the call loan, XYZ then used the funds to supply several margin customers with loans for their margin trading accounts. As with ABC, XYZ considered its own opportunity cost and the creditworthiness of its account holders when deciding what interest rate to charge on the loans, settling on a 5% interest rate. The contract for these loans was clear to state that XYZ could demand repayment of the loans using a margin call, potentially with limited or no advanced notice to the trader.

What Is the Broker's Call? The broker's call, also known as the call loan rate, is the interest rate charged by banks on loans made to brokerage firms. These brokers then use these loans, called call loans, to provide leverage to traders using margin accounts. As their name suggests, call loans must be repaid immediately—or "on call"—if so requested by the bank. If a broker believes that their loans might be called, they may initiate a margin call on the traders to whom they lent the funds. Key Takeaways The broker's call is the interest rate charged by banks to brokers in regard to a call loan.Their cost is determined by referencing an interest rate benchmark and making adjustments based on the perceived creditworthiness of the broker in question.These loans are used by brokers to fund their traders' margin accounts. Like margin accounts, call loans can be retrieved, or "called back," by their lenders. Understanding Brokers' Calls As you can see from the description above, the broker's call is an important part of the supply chain responsible for providing traders with leverage through their margin accounts. From the perspective of the margin trader, the loan originates from their brokerage firm, and the trader must ensure that they maintain adequate collateral in their account in order to ensure that their margin loan does not get called by the broker. From the perspective of the broker, however, the money lent to the trader is a call loan borrowed from a bank. Therefore, the broker must ensure that the call loan does not appear risky to the bank, or else the bank might exercise their right to call it back. To prevent against this, the broker will closely monitor the value and collateral of the trader's margin account and will call the margin loan if they feel its risk is becoming too high.  In fact, even if a particular margin account is reasonably well funded, it may still be called back by the broker if that broker's own call loan is called by the bank. For this reason, a margin trader might face a margin call for reasons unrelated to the risk level of their own account. Although such instances are rare, they do occur in situations where financial anxiety spreads throughout the markets, such as in a credit crunch. As with other loans, the interest rate paid on call loans fluctuates on a daily basis based on factors such as economic conditions and the supply and demand of capital. These rates are published regularly in publications such as The Wall Street Journal and Investor's Business Daily, and they are typically based on a benchmark, such as the London InterBank Offered Rate (LIBOR). The broker's call then incorporates a risk premium based on the perceived creditworthiness of the broker, along with other factors. Real World Example of a Broker's Call XYZ Brokerage Services recently received a broker's call loan from a large bank, ABC Financial. When calculating the interest rate on the loan, ABC took into consideration the opportunity cost posed by alternative loans and investment opportunities. Given that LIBOR was 2% at the time the loan was given, and considering that XYZ was perceived as having very high creditworthiness, ABC agreed to provide the call loan with only 2.5% interest. XYZ understood that, as part of the loan terms, ABC would have the right to call back the loan at their discretion. Once it received the call loan, XYZ then used the funds to supply several margin customers with loans for their margin trading accounts. As with ABC, XYZ considered its own opportunity cost and the creditworthiness of its account holders when deciding what interest rate to charge on the loans, settling on a 5% interest rate. The contract for these loans was clear to state that XYZ could demand repayment of the loans using a margin call, potentially with limited or no advanced notice to the trader.

https://www.investopedia.com/terms/u/unearned-premium.asp

Unearned Premium

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-unearned-premiums"></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 Unearned Premiums? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An unearned premium is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/premium.asp" rel="noopener noreferrer">premium</a> amount that corresponds to the time period remaining on an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance.asp" rel="noopener noreferrer">insurance</a> policy. In other words, it is the portion of the policy premium that has not yet been "earned" by the insurance company because the policy still has some time before it expires. </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"> Unearned premiums appear as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liability.asp" rel="noopener noreferrer">liability</a> on the insurer's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balancesheet.asp" rel="noopener noreferrer">balance sheet</a> because they would be paid back upon cancellation of the policy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> For example, at the end of the first year of a fully prepaid five-year insurance policy with insurance premiums of $2,000 per year, the insurer has earned a premium of $2,000 and has an unearned premium of $8,000. </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>Unearned premium is the portion of the policy premium that has not yet been "earned" by the insurance company because the policy still has some time before it expires. </li><li>Provisions in the insurance contract govern the terms for unearned premium.</li><li>In certain circumstances, an insurance company may not have to issue a refund for unearned premium.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-unearned-premiums"></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 Unearned Premiums </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> An unearned premium is the portion of an insurer's total premiums that is collected in advance by an insurance company. Unearned premiums may be subject to return if a client ends coverage before the term covered by the premium is complete. An unearned premium may be returned when an insured item is declared a total loss and coverage is no longer required, or when the insurance provider cancels the coverage. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> For example, consider a client who paid an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/auto-insurance.asp" rel="noopener noreferrer">auto insurance</a> premium one year in advance who experiences the complete destruction of his vehicle four months into the coverage period. The insurance company keeps one-third of the annual premium for coverage provided and returns the other two-thirds as unearned premium. </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"> Provisions in the insurance contract govern the terms for unearned premium. The provisions must follow regulations related to the area where the coverage is offered. A specific formula for calculating the amount of the unearned premium may be required. </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 <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> that a policyholder pays for an insurance contract is not immediately recognized as earnings by the insurer. In certain circumstances, an insurance company may not have to issue a refund for unearned premium. </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, if the policyholder has falsified information on the application for obtaining insurance coverage, the provider may not be required to refund any part of the earned or unearned premiums collected. Policies typically outline the conditions that must be met when applying for and receiving the unearned portion of a premium. </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"> Insurance providers may not have to return a portion of unearned premium when a policyholder terminates the coverage for no given reason, or for reasons such as securing a similar policy with a different provider. It is best for the policyholder to wait until the coverage period of the last paid premium is close before switching insurance companies. </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, if the insured can prove the provider did not honor the terms and conditions described in the provisions of the policy, any unused portion of the premium should be refunded. </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-unearned-premium-vs-earned-premium"></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"> Unearned Premium vs. Earned Premium </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> An unearned premium on an insurance policy can be contrasted with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnedpremium.asp" rel="noopener noreferrer">earned premium</a>. Earned premium is a pro-rated amount of paid-in-advance premiums that has been "earned" and now belongs to the insurer. The amount of the earned premium equates to the sum of the total premiums collected by an insurance company over a period of time.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> In other words, the earned premium is the portion of an insurance premium that paid for a portion of time in which the insurance policy was in effect, but has now passed and expired. Since the insurance company covered the risk during that time, it can now consider the associated premium payments it took from the insured as "earned." </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-example-of-unearned-premium"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Example of Unearned Premium </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Because canceling a policy may mean issuing a refund, unearned premiums appear as liabilities on an insurance company’s balance sheet. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> For example, an insurance company receives $600 on January 27 for coverage from February 1 to July 31, but as of January 31, the $600 has not been earned. The insurance company reports the $600 in its cash account and reports $600 as a current liability in its unearned premium revenue account. As the company earns the premium, the provider moves the amount earned from the liability account to a revenue account on its income statement. </p></div>

## What Are Unearned Premiums? An unearned premium is the [premium](https://www.investopedia.com/terms/p/premium.asp) amount that corresponds to the time period remaining on an [insurance](https://www.investopedia.com/terms/i/insurance.asp) policy. In other words, it is the portion of the policy premium that has not yet been "earned" by the insurance company because the policy still has some time before it expires. Unearned premiums appear as a [liability](https://www.investopedia.com/terms/l/liability.asp) on the insurer's [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp) because they would be paid back upon cancellation of the policy. For example, at the end of the first year of a fully prepaid five-year insurance policy with insurance premiums of $2,000 per year, the insurer has earned a premium of $2,000 and has an unearned premium of $8,000. ### Key Takeaways * Unearned premium is the portion of the policy premium that has not yet been "earned" by the insurance company because the policy still has some time before it expires. * Provisions in the insurance contract govern the terms for unearned premium. * In certain circumstances, an insurance company may not have to issue a refund for unearned premium. ## Understanding Unearned Premiums An unearned premium is the portion of an insurer's total premiums that is collected in advance by an insurance company. Unearned premiums may be subject to return if a client ends coverage before the term covered by the premium is complete. An unearned premium may be returned when an insured item is declared a total loss and coverage is no longer required, or when the insurance provider cancels the coverage. For example, consider a client who paid an [auto insurance](https://www.investopedia.com/terms/a/auto-insurance.asp) premium one year in advance who experiences the complete destruction of his vehicle four months into the coverage period. The insurance company keeps one-third of the annual premium for coverage provided and returns the other two-thirds as unearned premium. Provisions in the insurance contract govern the terms for unearned premium. The provisions must follow regulations related to the area where the coverage is offered. A specific formula for calculating the amount of the unearned premium may be required. The [premium](https://www.investopedia.com/terms/i/insurance-premium.asp) that a policyholder pays for an insurance contract is not immediately recognized as earnings by the insurer. In certain circumstances, an insurance company may not have to issue a refund for unearned premium. For example, if the policyholder has falsified information on the application for obtaining insurance coverage, the provider may not be required to refund any part of the earned or unearned premiums collected. Policies typically outline the conditions that must be met when applying for and receiving the unearned portion of a premium. Insurance providers may not have to return a portion of unearned premium when a policyholder terminates the coverage for no given reason, or for reasons such as securing a similar policy with a different provider. It is best for the policyholder to wait until the coverage period of the last paid premium is close before switching insurance companies. However, if the insured can prove the provider did not honor the terms and conditions described in the provisions of the policy, any unused portion of the premium should be refunded. ## Unearned Premium vs. Earned Premium An unearned premium on an insurance policy can be contrasted with [earned premium](https://www.investopedia.com/terms/e/earnedpremium.asp). Earned premium is a pro-rated amount of paid-in-advance premiums that has been "earned" and now belongs to the insurer. The amount of the earned premium equates to the sum of the total premiums collected by an insurance company over a period of time.  In other words, the earned premium is the portion of an insurance premium that paid for a portion of time in which the insurance policy was in effect, but has now passed and expired. Since the insurance company covered the risk during that time, it can now consider the associated premium payments it took from the insured as "earned." ## Example of Unearned Premium Because canceling a policy may mean issuing a refund, unearned premiums appear as liabilities on an insurance company’s balance sheet. For example, an insurance company receives $600 on January 27 for coverage from February 1 to July 31, but as of January 31, the $600 has not been earned. The insurance company reports the $600 in its cash account and reports $600 as a current liability in its unearned premium revenue account. As the company earns the premium, the provider moves the amount earned from the liability account to a revenue account on its income statement.

What Are Unearned Premiums? An unearned premium is the premium amount that corresponds to the time period remaining on an insurance policy. In other words, it is the portion of the policy premium that has not yet been "earned" by the insurance company because the policy still has some time before it expires. Unearned premiums appear as a liability on the insurer's balance sheet because they would be paid back upon cancellation of the policy. For example, at the end of the first year of a fully prepaid five-year insurance policy with insurance premiums of $2,000 per year, the insurer has earned a premium of $2,000 and has an unearned premium of $8,000. Key Takeaways Unearned premium is the portion of the policy premium that has not yet been "earned" by the insurance company because the policy still has some time before it expires. Provisions in the insurance contract govern the terms for unearned premium.In certain circumstances, an insurance company may not have to issue a refund for unearned premium. Understanding Unearned Premiums An unearned premium is the portion of an insurer's total premiums that is collected in advance by an insurance company. Unearned premiums may be subject to return if a client ends coverage before the term covered by the premium is complete. An unearned premium may be returned when an insured item is declared a total loss and coverage is no longer required, or when the insurance provider cancels the coverage. For example, consider a client who paid an auto insurance premium one year in advance who experiences the complete destruction of his vehicle four months into the coverage period. The insurance company keeps one-third of the annual premium for coverage provided and returns the other two-thirds as unearned premium. Provisions in the insurance contract govern the terms for unearned premium. The provisions must follow regulations related to the area where the coverage is offered. A specific formula for calculating the amount of the unearned premium may be required. The premium that a policyholder pays for an insurance contract is not immediately recognized as earnings by the insurer. In certain circumstances, an insurance company may not have to issue a refund for unearned premium. For example, if the policyholder has falsified information on the application for obtaining insurance coverage, the provider may not be required to refund any part of the earned or unearned premiums collected. Policies typically outline the conditions that must be met when applying for and receiving the unearned portion of a premium. Insurance providers may not have to return a portion of unearned premium when a policyholder terminates the coverage for no given reason, or for reasons such as securing a similar policy with a different provider. It is best for the policyholder to wait until the coverage period of the last paid premium is close before switching insurance companies. However, if the insured can prove the provider did not honor the terms and conditions described in the provisions of the policy, any unused portion of the premium should be refunded. Unearned Premium vs. Earned Premium An unearned premium on an insurance policy can be contrasted with earned premium. Earned premium is a pro-rated amount of paid-in-advance premiums that has been "earned" and now belongs to the insurer. The amount of the earned premium equates to the sum of the total premiums collected by an insurance company over a period of time.  In other words, the earned premium is the portion of an insurance premium that paid for a portion of time in which the insurance policy was in effect, but has now passed and expired. Since the insurance company covered the risk during that time, it can now consider the associated premium payments it took from the insured as "earned." Example of Unearned Premium Because canceling a policy may mean issuing a refund, unearned premiums appear as liabilities on an insurance company’s balance sheet. For example, an insurance company receives $600 on January 27 for coverage from February 1 to July 31, but as of January 31, the $600 has not been earned. The insurance company reports the $600 in its cash account and reports $600 as a current liability in its unearned premium revenue account. As the company earns the premium, the provider moves the amount earned from the liability account to a revenue account on its income statement.

https://www.investopedia.com/terms/t/technical-analysis-of-stocks-and-trends.asp

Technical Analysis of Stocks and Trends Definition

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-technical-analysis"></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 Technical Analysis? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Technical analysis is the use of historical market data to predict future price movements. Using insights from market psychology, <a data-component="link" data-ordinal="1" 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="2" 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. The two most common forms of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalanalysis.asp">technical analysis</a> are chart patterns and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/122314/what-exponential-moving-average-ema-formula-and-how-ema-calculated.asp">technical (statistical) indicators</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>Technical analysis attempts to predict future price movements, providing traders with the information needed to make a profit.</li><li>Traders apply technical analysis tools to charts in order to identify entry and exit points for potential trades.</li><li>An underlying assumption of technical analysis is that the market has processed all available information and that it is reflected in the price chart.</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="Technical Analysis" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/C-FqrNXlsJr5ubDS2_scjeOMj7U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_technical-analysis-of-stocks-and-trends-6a4cc1cf851047c0a149f495292ef11c.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/C-FqrNXlsJr5ubDS2_scjeOMj7U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_technical-analysis-of-stocks-and-trends-6a4cc1cf851047c0a149f495292ef11c.jpg" data-srcset="https://www.investopedia.com/thmb/NDBN5R9xslTy1NmPzPhySvO_IFY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_technical-analysis-of-stocks-and-trends-6a4cc1cf851047c0a149f495292ef11c.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Technical Analysis" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/C-FqrNXlsJr5ubDS2_scjeOMj7U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_technical-analysis-of-stocks-and-trends-6a4cc1cf851047c0a149f495292ef11c.jpg" srcset="https://www.investopedia.com/thmb/NDBN5R9xslTy1NmPzPhySvO_IFY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_technical-analysis-of-stocks-and-trends-6a4cc1cf851047c0a149f495292ef11c.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 / Jessica Olah</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-technical-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Understanding Technical Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Technical analysis is a blanket term for a variety of strategies that depend on interpretation of price action in a stock. Most technical analysis is focused on determining whether or not a current trend will continue and, if not, when it will reverse. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Some technical analysts swear by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trendline.asp">trendlines</a>, others use candlestick formations, and yet others prefer bands and boxes created through a mathematical visualization. Most technical analysts use some combination of tools to recognize potential entry and exit points for trades. A chart formation may indicate an entry point for a short seller, for example, but the trader will look at moving averages for different time periods to confirm that a breakdown is likely. </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-a-brief-history-of-technical-analysis"></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"> A Brief History of Technical Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The technical analysis of stocks and trends has been used for hundreds of years. In Europe, Joseph de la Vega adopted early technical analysis techniques to predict Dutch markets in the 17th century. In its modern form, however, technical analysis owes heavily to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/08/charles-dow.asp">Charles Dow</a>, William P. Hamilton, Robert Rhea, Edson Gould, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/10/pioneers-technical-analysis.asp">many others</a>—including a ballroom dancer named Nicolas Darvas. </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"> These people represented a new perspective on the market as a tide that is best measured in highs and lows on a chart rather than by the particulars of the underlying company. The diverse collection of theories from early technical analysts were brought together and formalized in 1948 with the publishing of <em>Technical Analysis of Stock Trends</em> by Robert D. Edwards and John Magee.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Candlestick patterns date back to Japanese merchants eager to detect trading patterns for their rice harvests. Studying these ancient patterns became popular in the 1990s in the U.S. with the advent of internet day trading. Investors analyzed historical stock charts eager to discover new patterns for use when recommending trades. Candlestick reversal patterns in particular are critically important for investors to identify, and there are several other commonly used candlestick charting patterns. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/doji.asp">doji</a> and the engulfing pattern are all used to predict an imminent bearish reversal. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Technical analysis uses historical market behavior to anticipate future movements. While it can often be effective, past performance is no guarantee of future results, and traders should be careful not to over-rely on any one analytical tool.</p></div></div></div> <span class="heading-toc" id="toc-how-to-use-technical-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> How to Use Technical Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The core principle underlying technical analysis is that the market price reflects all available information that could impact a market. As a result, there's no need to look at economic, fundamental, or new developments since they're already priced into a given security. Technical analysts generally believe that prices move in trends and history tends to repeat itself when it comes to the market's overall psychology. The two major types of technical analysis are chart patterns and technical (statistical) indicators. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pattern.asp" rel="noopener noreferrer">Chart patterns</a> are a subjective form of technical analysis where technicians attempt to identify areas of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/support.asp" rel="noopener noreferrer">support</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/resistance.asp" rel="noopener noreferrer">resistance</a> on a chart by looking at specific patterns. These patterns, underpinned by psychological factors, are designed to predict where prices are headed, following a breakout or breakdown from a specific price point and time. For example, an <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/ascendingtriangle.asp" rel="noopener noreferrer">ascending triangle</a> chart pattern is a bullish chart pattern that shows a key area of resistance. A breakout from this resistance could lead to a significant, high-volume move higher. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalindicator.asp" rel="noopener noreferrer">Technical indicators</a> are a statistical form of technical analysis where technicians apply various mathematical formulas to prices and volumes. The most common technical indicators are moving averages, which smooth price data to help make it easier to spot trends. More complex technical indicators include the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macd.asp" rel="noopener noreferrer">moving average convergence divergence (MACD)</a>, which looks at the interplay between several moving averages. Many trading systems are based on technical indicators since they can be quantitatively calculated. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-the-difference-between-technical-analysis-and-fundamental-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-heading__text"> The Difference Between Technical Analysis and Fundamental Analysis </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/f/fundamentalanalysis.asp" rel="noopener noreferrer">Fundamental analysis</a> and technical analysis are the two big factions in finance. Whereas technical analysts believe the best approach is to follow the trend as it forms through market action, fundamental analysts believe the market often overlooks value. Fundamental analysts will ignore chart trends in favor of digging through the balance sheet and the market profile of a company in search of intrinsic value not currently reflected in the price. There are many examples of successful investors using fundamental or technical analysis to guide their trading and even those who incorporate elements of both. On the whole, however, technical analysis lends itself to a faster investing pace, whereas fundamental analysis generally has a longer decision timeline and holding period by virtue of the time required for the extra due diligence. </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-limitations-of-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"> Limitations of Technical Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Technical analysis has the same limitation of any strategy based on particular trade triggers. The chart can be misinterpreted. The formation may be predicated on low volume. The periods being used for the moving averages may be too long or too short for the type of trade you are looking to make. Leaving those aside, the technical analysis of stocks and trends has a fascinating limitation unique to itself. </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"> As more technical analysis strategies, tools, and techniques become widely adopted, these have a material impact on the price action. For example, are those <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/three_black_crows.asp" rel="noopener noreferrer">three black crows</a> forming because the priced-in information is justifying a bearish reversal or because traders universally agree that they should be followed by a bearish reversal and bring that about by taking up short positions? Although this is an interesting question, a true technical analyst doesn't actually care as long as the trading model continues to work. </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-further-reading"></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"> Further Reading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Investopedia has several articles and tutorials on the topic of technical analysis. Follow the links to articles in this journey on the menu bar to the left of this page. In addition, for further reading you may want to check out the following: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/102914/technical-analysis-strategies-beginners.asp" rel="noopener noreferrer">Technical Analysis Strategies for Beginners</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/best-ways-learn-technical-analysis/" rel="noopener noreferrer">Best Ways to Learn Technical Analysis</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/090916/top-5-books-learn-technical-analysis.asp" rel="noopener noreferrer">Top 7 Books to Learn Technical Analysis</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/technical/112601.asp" rel="noopener noreferrer">Introduction to Technical Analysis Price Patterns</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/difference-between-fundamental-and-technical-analysis/" rel="noopener noreferrer">Fundamental vs. Technical Analysis: What's the Difference?</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/062215/debunking-8-myths-about-technical-analysis.asp" rel="noopener noreferrer">Debunking 8 Myths About Technical Analysis</a></li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/05/selffulfillingprophecy.asp" rel="noopener noreferrer">Is Technical Analysis a Self-Fulfilling Prophecy?</a></li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/121014/best-technical-analysis-trading-software.asp" rel="noopener noreferrer">Top Technical Analysis Tools for Traders</a></li> </ul> <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-is-the-best-technical-indicator"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Best Technical Indicator?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While there is no "best" technical analysis tool, the most popular indicators are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/movingaverage.asp">moving averages</a>. These lines represent the average price of an asset over several trading sessions, without the noise of daily price movements. By comparing longer-term moving averages with shorter-term ones, traders can anticipate changes in market sentiment.</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-technical-analysis-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does Technical Analysis Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Technical analysis is premised on the belief that most traders will behave in predictable ways, due to herd dynamics and group psychology. For example, many traders will tend to exit a position after a sharp drop in market price, or to take profits when the asset gains a certain level. Since all traders have access to the same market information, and many of them are using the same technical analysis tools, there is also an element of self-fulfillment in technical predictions.</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-does-technical-analysis-look-for"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does Technical Analysis Look for?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Technical analysis examines volume and price movements to predict the behavior of other traders in the market. Because these trades cause price movements, technical analysts hope to predict future price movements based on current market behavior.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Technical analysis refers to a variety of methods to forecast future price movements in an asset or security. By watching chart patterns and sentiment indicators, these traders hope to anticipate the behavior of the wider market. </p></div>

## What Is Technical Analysis? Technical analysis is the use of historical market data to predict future price movements. Using insights from market psychology, [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. The two most common forms of [technical analysis](https://www.investopedia.com/terms/t/technicalanalysis.asp) are chart patterns and [technical (statistical) indicators](https://www.investopedia.com/ask/answers/122314/what-exponential-moving-average-ema-formula-and-how-ema-calculated.asp). ### Key Takeaways * Technical analysis attempts to predict future price movements, providing traders with the information needed to make a profit. * Traders apply technical analysis tools to charts in order to identify entry and exit points for potential trades. * An underlying assumption of technical analysis is that the market has processed all available information and that it is reflected in the price chart. ![Technical Analysis]() :max_bytes(150000):strip_icc()/Term-Definitions_technical-analysis-of-stocks-and-trends-6a4cc1cf851047c0a149f495292ef11c.jpg) Investopedia / Jessica Olah ## Understanding Technical Analysis Technical analysis is a blanket term for a variety of strategies that depend on interpretation of price action in a stock. Most technical analysis is focused on determining whether or not a current trend will continue and, if not, when it will reverse. Some technical analysts swear by [trendlines](https://www.investopedia.com/terms/t/trendline.asp), others use candlestick formations, and yet others prefer bands and boxes created through a mathematical visualization. Most technical analysts use some combination of tools to recognize potential entry and exit points for trades. A chart formation may indicate an entry point for a short seller, for example, but the trader will look at moving averages for different time periods to confirm that a breakdown is likely. ## A Brief History of Technical Analysis The technical analysis of stocks and trends has been used for hundreds of years. In Europe, Joseph de la Vega adopted early technical analysis techniques to predict Dutch markets in the 17th century. In its modern form, however, technical analysis owes heavily to [Charles Dow](https://www.investopedia.com/articles/financial-theory/08/charles-dow.asp), William P. Hamilton, Robert Rhea, Edson Gould, and [many others](https://www.investopedia.com/articles/financial-theory/10/pioneers-technical-analysis.asp)—including a ballroom dancer named Nicolas Darvas. These people represented a new perspective on the market as a tide that is best measured in highs and lows on a chart rather than by the particulars of the underlying company. The diverse collection of theories from early technical analysts were brought together and formalized in 1948 with the publishing of *Technical Analysis of Stock Trends* by Robert D. Edwards and John Magee. Candlestick patterns date back to Japanese merchants eager to detect trading patterns for their rice harvests. Studying these ancient patterns became popular in the 1990s in the U.S. with the advent of internet day trading. Investors analyzed historical stock charts eager to discover new patterns for use when recommending trades. Candlestick reversal patterns in particular are critically important for investors to identify, and there are several other commonly used candlestick charting patterns. The [doji](https://www.investopedia.com/terms/d/doji.asp) and the engulfing pattern are all used to predict an imminent bearish reversal. ### Technical analysis uses historical market behavior to anticipate future movements. While it can often be effective, past performance is no guarantee of future results, and traders should be careful not to over-rely on any one analytical tool. ## How to Use Technical Analysis The core principle underlying technical analysis is that the market price reflects all available information that could impact a market. As a result, there's no need to look at economic, fundamental, or new developments since they're already priced into a given security. Technical analysts generally believe that prices move in trends and history tends to repeat itself when it comes to the market's overall psychology. The two major types of technical analysis are chart patterns and technical (statistical) indicators. [Chart patterns](https://www.investopedia.com/terms/p/pattern.asp) are a subjective form of technical analysis where technicians attempt to identify areas of [support](https://www.investopedia.com/terms/s/support.asp) and [resistance](https://www.investopedia.com/terms/r/resistance.asp) on a chart by looking at specific patterns. These patterns, underpinned by psychological factors, are designed to predict where prices are headed, following a breakout or breakdown from a specific price point and time. For example, an [ascending triangle](https://www.investopedia.com/terms/a/ascendingtriangle.asp) chart pattern is a bullish chart pattern that shows a key area of resistance. A breakout from this resistance could lead to a significant, high-volume move higher. [Technical indicators](https://www.investopedia.com/terms/t/technicalindicator.asp) are a statistical form of technical analysis where technicians apply various mathematical formulas to prices and volumes. The most common technical indicators are moving averages, which smooth price data to help make it easier to spot trends. More complex technical indicators include the [moving average convergence divergence (MACD)](https://www.investopedia.com/terms/m/macd.asp), which looks at the interplay between several moving averages. Many trading systems are based on technical indicators since they can be quantitatively calculated. ## The Difference Between Technical Analysis and Fundamental Analysis [Fundamental analysis](https://www.investopedia.com/terms/f/fundamentalanalysis.asp) and technical analysis are the two big factions in finance. Whereas technical analysts believe the best approach is to follow the trend as it forms through market action, fundamental analysts believe the market often overlooks value. Fundamental analysts will ignore chart trends in favor of digging through the balance sheet and the market profile of a company in search of intrinsic value not currently reflected in the price. There are many examples of successful investors using fundamental or technical analysis to guide their trading and even those who incorporate elements of both. On the whole, however, technical analysis lends itself to a faster investing pace, whereas fundamental analysis generally has a longer decision timeline and holding period by virtue of the time required for the extra due diligence. ## Limitations of Technical Analysis Technical analysis has the same limitation of any strategy based on particular trade triggers. The chart can be misinterpreted. The formation may be predicated on low volume. The periods being used for the moving averages may be too long or too short for the type of trade you are looking to make. Leaving those aside, the technical analysis of stocks and trends has a fascinating limitation unique to itself. As more technical analysis strategies, tools, and techniques become widely adopted, these have a material impact on the price action. For example, are those [three black crows](https://www.investopedia.com/terms/t/three_black_crows.asp) forming because the priced-in information is justifying a bearish reversal or because traders universally agree that they should be followed by a bearish reversal and bring that about by taking up short positions? Although this is an interesting question, a true technical analyst doesn't actually care as long as the trading model continues to work. ## Further Reading Investopedia has several articles and tutorials on the topic of technical analysis. Follow the links to articles in this journey on the menu bar to the left of this page. In addition, for further reading you may want to check out the following: * [Technical Analysis Strategies for Beginners](https://www.investopedia.com/articles/active-trading/102914/technical-analysis-strategies-beginners.asp) * [Best Ways to Learn Technical Analysis](https://www.investopedia.com/trading/best-ways-learn-technical-analysis/) * [Top 7 Books to Learn Technical Analysis](https://www.investopedia.com/articles/personal-finance/090916/top-5-books-learn-technical-analysis.asp) * [Introduction to Technical Analysis Price Patterns](https://www.investopedia.com/articles/technical/112601.asp) * [Fundamental vs. Technical Analysis: What's the Difference?](https://www.investopedia.com/ask/answers/difference-between-fundamental-and-technical-analysis/) * [Debunking 8 Myths About Technical Analysis](https://www.investopedia.com/articles/active-trading/062215/debunking-8-myths-about-technical-analysis.asp) * [Is Technical Analysis a Self-Fulfilling Prophecy?](https://www.investopedia.com/ask/answers/05/selffulfillingprophecy.asp) * [Top Technical Analysis Tools for Traders](https://www.investopedia.com/articles/active-trading/121014/best-technical-analysis-trading-software.asp) ## What Is the Best Technical Indicator? While there is no "best" technical analysis tool, the most popular indicators are [moving averages](https://www.investopedia.com/terms/m/movingaverage.asp). These lines represent the average price of an asset over several trading sessions, without the noise of daily price movements. By comparing longer-term moving averages with shorter-term ones, traders can anticipate changes in market sentiment. ## How Does Technical Analysis Work? Technical analysis is premised on the belief that most traders will behave in predictable ways, due to herd dynamics and group psychology. For example, many traders will tend to exit a position after a sharp drop in market price, or to take profits when the asset gains a certain level. Since all traders have access to the same market information, and many of them are using the same technical analysis tools, there is also an element of self-fulfillment in technical predictions. ## What Does Technical Analysis Look for? Technical analysis examines volume and price movements to predict the behavior of other traders in the market. Because these trades cause price movements, technical analysts hope to predict future price movements based on current market behavior. ## The Bottom Line Technical analysis refers to a variety of methods to forecast future price movements in an asset or security. By watching chart patterns and sentiment indicators, these traders hope to anticipate the behavior of the wider market.

What Is Technical Analysis? Technical analysis is the use of historical market data to predict future price movements. Using insights from market psychology, behavioral economics, and quantitative analysis, technical analysts aim to use past performance to predict future market behavior. The two most common forms of technical analysis are chart patterns and technical (statistical) indicators. Key Takeaways Technical analysis attempts to predict future price movements, providing traders with the information needed to make a profit.Traders apply technical analysis tools to charts in order to identify entry and exit points for potential trades.An underlying assumption of technical analysis is that the market has processed all available information and that it is reflected in the price chart. Investopedia / Jessica Olah Understanding Technical Analysis Technical analysis is a blanket term for a variety of strategies that depend on interpretation of price action in a stock. Most technical analysis is focused on determining whether or not a current trend will continue and, if not, when it will reverse. Some technical analysts swear by trendlines, others use candlestick formations, and yet others prefer bands and boxes created through a mathematical visualization. Most technical analysts use some combination of tools to recognize potential entry and exit points for trades. A chart formation may indicate an entry point for a short seller, for example, but the trader will look at moving averages for different time periods to confirm that a breakdown is likely. A Brief History of Technical Analysis The technical analysis of stocks and trends has been used for hundreds of years. In Europe, Joseph de la Vega adopted early technical analysis techniques to predict Dutch markets in the 17th century. In its modern form, however, technical analysis owes heavily to Charles Dow, William P. Hamilton, Robert Rhea, Edson Gould, and many others—including a ballroom dancer named Nicolas Darvas. These people represented a new perspective on the market as a tide that is best measured in highs and lows on a chart rather than by the particulars of the underlying company. The diverse collection of theories from early technical analysts were brought together and formalized in 1948 with the publishing of Technical Analysis of Stock Trends by Robert D. Edwards and John Magee. Candlestick patterns date back to Japanese merchants eager to detect trading patterns for their rice harvests. Studying these ancient patterns became popular in the 1990s in the U.S. with the advent of internet day trading. Investors analyzed historical stock charts eager to discover new patterns for use when recommending trades. Candlestick reversal patterns in particular are critically important for investors to identify, and there are several other commonly used candlestick charting patterns. The doji and the engulfing pattern are all used to predict an imminent bearish reversal. Technical analysis uses historical market behavior to anticipate future movements. While it can often be effective, past performance is no guarantee of future results, and traders should be careful not to over-rely on any one analytical tool. How to Use Technical Analysis The core principle underlying technical analysis is that the market price reflects all available information that could impact a market. As a result, there's no need to look at economic, fundamental, or new developments since they're already priced into a given security. Technical analysts generally believe that prices move in trends and history tends to repeat itself when it comes to the market's overall psychology. The two major types of technical analysis are chart patterns and technical (statistical) indicators. Chart patterns are a subjective form of technical analysis where technicians attempt to identify areas of support and resistance on a chart by looking at specific patterns. These patterns, underpinned by psychological factors, are designed to predict where prices are headed, following a breakout or breakdown from a specific price point and time. For example, an ascending triangle chart pattern is a bullish chart pattern that shows a key area of resistance. A breakout from this resistance could lead to a significant, high-volume move higher. Technical indicators are a statistical form of technical analysis where technicians apply various mathematical formulas to prices and volumes. The most common technical indicators are moving averages, which smooth price data to help make it easier to spot trends. More complex technical indicators include the moving average convergence divergence (MACD), which looks at the interplay between several moving averages. Many trading systems are based on technical indicators since they can be quantitatively calculated. The Difference Between Technical Analysis and Fundamental Analysis Fundamental analysis and technical analysis are the two big factions in finance. Whereas technical analysts believe the best approach is to follow the trend as it forms through market action, fundamental analysts believe the market often overlooks value. Fundamental analysts will ignore chart trends in favor of digging through the balance sheet and the market profile of a company in search of intrinsic value not currently reflected in the price. There are many examples of successful investors using fundamental or technical analysis to guide their trading and even those who incorporate elements of both. On the whole, however, technical analysis lends itself to a faster investing pace, whereas fundamental analysis generally has a longer decision timeline and holding period by virtue of the time required for the extra due diligence. Limitations of Technical Analysis Technical analysis has the same limitation of any strategy based on particular trade triggers. The chart can be misinterpreted. The formation may be predicated on low volume. The periods being used for the moving averages may be too long or too short for the type of trade you are looking to make. Leaving those aside, the technical analysis of stocks and trends has a fascinating limitation unique to itself. As more technical analysis strategies, tools, and techniques become widely adopted, these have a material impact on the price action. For example, are those three black crows forming because the priced-in information is justifying a bearish reversal or because traders universally agree that they should be followed by a bearish reversal and bring that about by taking up short positions? Although this is an interesting question, a true technical analyst doesn't actually care as long as the trading model continues to work. Further Reading Investopedia has several articles and tutorials on the topic of technical analysis. Follow the links to articles in this journey on the menu bar to the left of this page. In addition, for further reading you may want to check out the following: Technical Analysis Strategies for Beginners Best Ways to Learn Technical Analysis Top 7 Books to Learn Technical Analysis Introduction to Technical Analysis Price Patterns Fundamental vs. Technical Analysis: What's the Difference? Debunking 8 Myths About Technical Analysis Is Technical Analysis a Self-Fulfilling Prophecy? Top Technical Analysis Tools for Traders What Is the Best Technical Indicator? While there is no "best" technical analysis tool, the most popular indicators are moving averages. These lines represent the average price of an asset over several trading sessions, without the noise of daily price movements. By comparing longer-term moving averages with shorter-term ones, traders can anticipate changes in market sentiment. How Does Technical Analysis Work? Technical analysis is premised on the belief that most traders will behave in predictable ways, due to herd dynamics and group psychology. For example, many traders will tend to exit a position after a sharp drop in market price, or to take profits when the asset gains a certain level. Since all traders have access to the same market information, and many of them are using the same technical analysis tools, there is also an element of self-fulfillment in technical predictions. What Does Technical Analysis Look for? Technical analysis examines volume and price movements to predict the behavior of other traders in the market. Because these trades cause price movements, technical analysts hope to predict future price movements based on current market behavior. The Bottom Line Technical analysis refers to a variety of methods to forecast future price movements in an asset or security. By watching chart patterns and sentiment indicators, these traders hope to anticipate the behavior of the wider market.

https://www.investopedia.com/carmax-auto-loan-review-7642717

CarMax Auto Loan Review 2024

<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <svg class="mntl-svg-resource is-hidden"> <defs> <symbol id="star-icon"><svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg></symbol> </defs> </svg> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp product-review-content product-review-content--finance product-review--base" id="product-review-content--finance_1-0"> <div class="comp js-toc-appear article-container article-intro mntl-block" id="article-intro_1-0"> <div class="comp product-card" data-tracking-container="true" data-tracking-id="product-card" id="product-card_1-0" style="--imgWidth: 0px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp figure-article figure-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="CarMax logo" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/XBDIDaJboTvyjbg3o_ZyjWfjM3M=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Carmex-logo-b7b8c559ed564fe8906b5d4558438eca.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhEgAEAPIAAABVowBWo0uFvv/CAP/LAPn7+v/9/v///ywAAAAAEgAEAEIIKwABADgwUKDBAAYHHlgokGBChw0VDhRwwMBDgwUULty4cYDHAQcGEPg4ICAAOw==')" width="1500"/> <noscript> <img alt="CarMax logo" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/XBDIDaJboTvyjbg3o_ZyjWfjM3M=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Carmex-logo-b7b8c559ed564fe8906b5d4558438eca.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_1-0"> <span class="figure-article-caption-owner"><p>CarMax</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp product-card__rating card-rating--finance product-rating" id="product-card__rating_1-0"> <span class="product-rating__rating-label noskim"> Investopedia’s Rating </span> <div alt="3.8 out of 5 stars" class="comp star-rating" id="star-rating_1-0"> <span class="star-rating__label">3.8</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_1-0" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="70%" stop-color="#333e8b"></stop> <stop offset="70%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-empty star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: url(#linear-star-rating_1-0);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp product-card__rating card-rating--finance product-rating --> <div class="comp js-sticky-riser-show product-card__cta commerce-block mntl-block" id="product-card__cta_1-0"> <a class="commerce-button mntl-text-link" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&amp;pub_param_2=${REQUEST_ID}" data-tracking-container="false" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&amp;ts=investopedia&amp;p=carmax&amp;bwid_id=6385e804ca097c71ee1e23c1" id="commerce-button_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Apply Now</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp js-sticky-riser-show product-card__cta commerce-block mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> <strong>Our Take</strong> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-1"> CarMax offers a streamlined, easy way to buy a car entirely online if you choose—complete with an auto loan financing package and everything. It’s a good choice if you’re not too picky about the car or the customer service, but for most people, we’d recommend keeping your options open because some customers indicate warning flags about how the company operates.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block" data-click-action="Product Tab Click" data-tracking-container="true" data-tracking-id="Full Product Review"> <ul class="tabbed-sc-block__tabs"> <li class="tabbed-sc-block__tab js-tabbed-tab is-active is-initial-load" data-tab-index="1"><span class="tabbed-sc-block__title">Pros and Cons</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="2"><span class="tabbed-sc-block__title">Key Takeaways</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="3"><span class="tabbed-sc-block__title">Company Overview</span></li> </ul> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Pros and Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content is-active is-initial-load" data-tab-index="1"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_1-0-3"> <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>Works with partner lenders</p></li> <li><p>No payments for up to first 45 days</p></li> <li><p>Flexible online car-buying experience</p></li> <li><p>Limited purchase and financing warranties</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>Not available in all states</p></li> <li><p>Negative company reputation</p></li> <li><p>Can only be used to buy CarMax cars</p></li> <li><p>No co-signers allowed; only co-borrowers</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Key Takeaways</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="2"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-5"> <li>CarMax is the largest used car dealership chain in the country and is based out of Richmond, Virginia.<span class="ql-inline-citation" data-cite="1"></span></li><li>You can line up your own financing to buy a car from CarMax or use its in-house financing department, which may finance your loan directly or use a partner lender.<span class="ql-inline-citation" data-cite="2"></span></li><li>CarMax offers pre-qualification for its loans, which allows you to see whether you’d be likely to qualify and what your estimated loan costs would be before you apply.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Company Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-7"> CarMax was founded in 1993 by Rick Sharp, who at the time was concurrently serving as CEO of Circuit City.<span class="ql-inline-citation" data-cite="3"></span> Circuit City may have closed, but CarMax persisted and grew.<span class="ql-inline-citation" data-cite="4"></span> Today, it’s the largest online retailer of used cars, operating 241 stores in 41 U.S. states, mostly sprinkled in a U shape around the country with a noticeable gap across the Dakotas, Wyoming, and Montana.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="1"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-8"> As a dealership, CarMax sells its own used vehicles and works with a network of partner lenders to finance them, although you can opt to use your own financing.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="7"></span> That means you won’t be able to use CarMax financing to purchase a non-CarMax car, of course. In recent years the company has come under fire for its poor quality control and service practices, with several class-action lawsuits filed against the company.<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><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_1-0-9"> <div class="comp product-spec-tool definition-list" id="product-spec-tool_1-0"> <ul class="definition-list__container"> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Loan Types Offered</span> <span class="definition-list__item-content definition-list__item-content-0"> Used </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Used APR Range</span> <span class="definition-list__item-content definition-list__item-content-1"> Not disclosed </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Used Loan Amounts</span> <span class="definition-list__item-content definition-list__item-content-2"> $5,000–$100,000 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Used Loan Terms</span> <span class="definition-list__item-content definition-list__item-content-3"> 36–72 months </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Recommended Minimum Credit Score</span> <span class="definition-list__item-content definition-list__item-content-4"> 500 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Maximum Accepted Mileage</span> <span class="definition-list__item-content definition-list__item-content-5"> Not disclosed </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="CarMax logo" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/XBDIDaJboTvyjbg3o_ZyjWfjM3M=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Carmex-logo-b7b8c559ed564fe8906b5d4558438eca.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhEgAEAPIAAABVowBWo0uFvv/CAP/LAPn7+v/9/v///ywAAAAAEgAEAEIIKwABADgwUKDBAAYHHlgokGBChw0VDhRwwMBDgwUULty4cYDHAQcGEPg4ICAAOw==')" width="1500"/> <noscript> <img alt="CarMax logo" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/XBDIDaJboTvyjbg3o_ZyjWfjM3M=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Carmex-logo-b7b8c559ed564fe8906b5d4558438eca.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_2-0"> <span class="figure-article-caption-owner"><p>CarMax</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__rating product-rating" id="sticky-toc-widget__rating_1-0"> <span class="product-rating__rating-label noskim"> overall rating </span> <div alt="3.8 out of 5 stars" class="comp star-rating" id="star-rating_1-0-1"> <span class="star-rating__label">3.8</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_1-0-1" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="70%" stop-color="#d17000"></stop> <stop offset="70%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-empty star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: url(#linear-star-rating_1-0-1);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp sticky-toc-widget__rating product-rating --> <div class="comp sticky-toc-widget__cta commerce-block mntl-block" id="sticky-toc-widget__cta_1-0"> <a class="commerce-button mntl-text-link" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&amp;pub_param_2=${REQUEST_ID}" data-tracking-container="false" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&amp;ts=investopedia&amp;p=carmax&amp;bwid_id=6385e804ca097c71ee1e23c1" id="commerce-button_2-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Apply Now</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp sticky-toc-widget__cta commerce-block mntl-block --> </div><!-- end: comp sticky-toc-widget__product-container mntl-block --> <div class="comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="sticky-toc-widget__toc_3-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_3-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_3-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_5-0"> Table of Contents</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_3-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="View All" id="mntl-toc-toggle__btn_3-0"> View All</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-CarMax Auto Loan Review 2024" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_6-0"> CarMax Auto Loan Review 2024</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_3-0"> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pros Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-explained" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Pros Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-cons-explained" id="mntl-toc__list-item-link_3-0-1" rel="nocaes"><span class="link__wrapper">Cons Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Loan Types" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-types-of-auto-loans-offered-by-carmax" id="mntl-toc__list-item-link_3-0-2" rel="nocaes"><span class="link__wrapper">Loan Types</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Time to Receive Funds" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-time-to-receive-funds" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">Time to Receive Funds</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Borrower Requirements" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-borrower-requirements" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Borrower Requirements</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Vehicle Requirements" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-vehicle-requirements" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">Vehicle Requirements</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Loan Features" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-carmax-auto-loan-features" id="mntl-toc__list-item-link_3-0-6" rel="nocaes"><span class="link__wrapper">Loan Features</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-7"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-7"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Service" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-customer-service" id="mntl-toc__list-item-link_3-0-7" rel="nocaes"><span class="link__wrapper">Customer Service</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-8"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-8"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Satisfaction" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-customer-satisfaction" id="mntl-toc__list-item-link_3-0-8" rel="nocaes"><span class="link__wrapper">Customer Satisfaction</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-9"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-9"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Apply" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-apply-for-a-carmax-auto-loan" id="mntl-toc__list-item-link_3-0-9" rel="nocaes"><span class="link__wrapper">How to Apply</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-10"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-10"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Alternatives" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-alternatives-to-carmax" id="mntl-toc__list-item-link_3-0-10" rel="nocaes"><span class="link__wrapper">Alternatives</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-11"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-11"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_3-0-11" rel="nocaes"><span class="link__wrapper">Final Verdict</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-12"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-12"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_3-0-12" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block --> </div><!-- end: comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block --> </div><!-- end: comp left-nav js-sticky-container product-review__left-nav mntl-block --> <div class="comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block" data-tracking-container="true" id="product-review__content_1-0"> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>See our picks for the best auto loans in a variety of categories:</p> <ul> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">Best Auto Loan Rates</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-used-car-loans-7373705">Best Used Car Loans</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-refinance-loans-5069118">Best Auto Refinance Loans</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-car-loans-for-bad-credit-7372351">Best Car Loans for Bad Credit</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loans-for-fair-credit-7486579">Best Car Loans for Fair Credit</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-car-loans-for-first-time-buyers-7373461">Best Car Loans for First Time Buyers</a></li> </ul></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-pros-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-1"> <span class="mntl-sc-block-heading__text"> Pros Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-2"> <li><strong>Works with partner lenders:</strong> CarMax underwrites some loans directly, or it may fund your loan through one of its partner lenders. That increases your options and may help you find a lower-cost loan.<span class="ql-inline-citation" data-cite="2"></span></li><li><strong>No payments for up to first 45 days:</strong> You can choose your first payment due date when you finalize your loan, up to 45 days out.<span class="ql-inline-citation" data-cite="12"></span> </li><li><strong>Flexible online car-buying experience:</strong> CarMax allows you to test-drive a car for 24 hours if you choose, and when you’re ready to buy, you can have it delivered to your home or pick it up from a dealership location. The entire process can be completed online, aside from the test drive.</li><li><strong>Limited purchase and financing warranties:</strong> You can get a full-cost refund on your CarMax loan if you line up another financing source within three days, and you have a full 30-day period to return the car you’ve purchased if you don’t like it. </li> </ul><!-- 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_2-0-3"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>A three-day loan refund sounds nice, but in reality, lining up another auto loan may take longer than that unless you already have one in the works as you’re purchasing the car.<span class="ql-inline-citation" data-cite="13"></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 --> <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_2-0-4"> <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_2-0-5"> <li><strong>Not available in all states:</strong> CarMax operates locations across the country in 41 states.<span class="ql-inline-citation" data-cite="6"></span> Importantly, if you’re hoping to have your new car delivered to your home, you’ll need to live within 60 miles of a CarMax location.<span class="ql-inline-citation" data-cite="14"></span> </li><li><strong>Negative company reputation:</strong> CarMax does not have a good reputation online among customers who’ve left reviews of the company, and it’s the subject of several class-action lawsuits for shady behavior.<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><span class="ql-inline-citation" data-cite="16"></span><span class="ql-inline-citation" data-cite="15"></span> </li><li><strong>Can only be used to buy CarMax cars:</strong> CarMax is a used car dealership, and as such, you can only use a CarMax auto loan to purchase a used car from CarMax.<span class="ql-inline-citation" data-cite="14"></span> </li><li><strong>No co-signers allowed; only co-borrowers:</strong> You can apply with someone else if you’re looking to share ownership of the loan <em>and</em> the car too, or if you’re otherwise not able to qualify for a loan on your own. Anyone listed on your loan will be a co-owner of the car, however. </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-types-of-auto-loans-offered-by-carmax"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-6"> <span class="mntl-sc-block-heading__text"> Types of Auto Loans Offered by CarMax </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_2-0-7"> Since CarMax sells used cars, it only offers one type of auto loan. </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_2-0-8"> <span class="mntl-sc-block-subheading__text"> Used Auto Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-9"> <li><strong>APR:</strong> Not disclosed</li><li><strong>Loan amounts:</strong> $5,000–$100,00</li><li><strong>Loan terms:</strong> 36–72 months</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-time-to-receive-funds"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-10"> <span class="mntl-sc-block-heading__text"> Time to Receive Funds </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-11"> It only takes five minutes or less to get pre-qualified for a CarMax loan, but the company doesn’t disclose how long it takes for a full application after that.<span class="ql-inline-citation" data-cite="2"></span> If you are approved, your loan may be funded on the same day.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-borrower-requirements"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-12"> <span class="mntl-sc-block-heading__text"> Borrower Requirements </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-13"> CarMax doesn’t provide very many details about the qualifications you’ll need to meet in order to qualify. However, credit is a barrier to many would-be car buyers, and CarMax is relatively forgiving of low credit scores.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-14"> <li><strong>Minimum recommended credit score: </strong>500</li><li><strong>State availability:</strong> 41 states; not available in Alaska, Arkansas, Hawaii, Montana, North Dakota, South Dakota, Vermont, West Virginia, and Wyoming.<span class="ql-inline-citation" data-cite="6"></span> </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-vehicle-requirements"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-15"> <span class="mntl-sc-block-heading__text"> Vehicle Requirements </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-16"> CarMax loans can only be used to purchase CarMax cars, so you’ll be limited to whatever you can find in its online catalog.<span class="ql-inline-citation" data-cite="13"></span>  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-17"> <li><strong>Maximum age:</strong> Not disclosed</li><li><strong>Maximum accepted mileage:</strong> Not disclosed</li><li><strong>Maximum loan-to-value ratio:</strong> Not disclosed</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-carmax-auto-loan-features"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-18"> <span class="mntl-sc-block-heading__text"> CarMax Auto Loan Features </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_2-0-19"> CarMax offers a few nice touches for its loans, including:<br/> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-20"> <li><strong>Origination fee:</strong> $0</li><li><strong>Can change due date:</strong> You can change your monthly due date to better align with your finances, such as setting it for after you receive your paycheck. </li><li><strong>Mobile app:</strong> You can use CarMax’s app to complete your entire auto loan application, locate a car and finalize its purchase, and even manage your loan payoff afterward.<span class="ql-inline-citation" data-cite="17"></span></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_2-0-21"> <span class="mntl-sc-block-subheading__text"> Co-Signers and Co-Applicants </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"> If you need help in qualifying for a car loan or if you want someone else to be listed as a co-owner of the car, CarMax allows you to apply with a co-borrower. It does not, however, allow you to apply with a co-signer.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-23"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-2"> <p>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/co_borrowers.asp">co-signer and a co-borrower</a> are not the same thing; a co-borrower will be listed on the title as a co-owner of your car, while a co-signer will not share ownership rights to your ride.<span class="ql-inline-citation" data-cite="18"></span> </p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-customer-service"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-24"> <span class="mntl-sc-block-heading__text"> Customer Service </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-25"> CarMax offers a useful suite of customer support channels. You can get help through regular routes like a phone call or email, but you can also reach the company via live online chat or even social media.<span class="ql-inline-citation" data-cite="19"></span> However, many customers on publicly available review websites, like Trustpilot, have complained that reaching specific team members during their car purchase can be difficult.<span class="ql-inline-citation" data-cite="16"></span>  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-customer-satisfaction"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-26"> <span class="mntl-sc-block-heading__text"> Customer Satisfaction </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-27"> CarMax does not have the best reputation for customer satisfaction, at least according to reviews from customers on some websites.  </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"> Customers frequently complain that CarMax representatives are often hard to get ahold of and the vehicles they purchased don’t show up as advertised, although there are many happy customers as well.<span class="ql-inline-citation" data-cite="16"></span>  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-29"> The company has also been the target of multiple class-action lawsuits. In one case regarding CarMax’s 125+ Point Inspection, claimants alleged that CarMax didn’t disclose certain important vehicle problems before purchase.<span class="ql-inline-citation" data-cite="8"></span> In another lawsuit, CarMax is alleged to have knowingly sold cars that failed to meet emissions standards to unlicensed dealers, who then sold them to CarMax customers.<span class="ql-inline-citation" data-cite="9"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-apply-for-a-carmax-auto-loan"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-30"> <span class="mntl-sc-block-heading__text"> How to Apply for a CarMax Auto Loan </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-31"> CarMax makes buying a car super simple—a little <em>too</em> simple, in fact. In order to get the most out of your car-buying experience, we recommend taking a few extra steps during CarMax’s application process. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ol class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-32"> <li><strong>Check your credit:</strong> Get a copy of your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-your-annual-credit-report-5224898">three credit reports</a> (one from each major bureau) and scan them over. Check whether there’s anything you can do to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-improve-your-credit-score-4590097">improve your credit score</a> before you apply. </li> <li><strong>Check your budget:</strong> Draft up a comprehensive list of your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/budgeting-calculator-5101411">income and expenses</a>, if you don’t already have one. See what <em>you </em>can afford for a monthly payment, rather than relying on what CarMax or any other lender tells you. </li> <li><strong>Gather documents:</strong> You’ll typically need proof of identity, income, and address. Scan these ahead of time so you have them on hand. </li> <li><strong>Get pre-qualified:</strong> You’ll need to create a CarMax account in order to get access to its loan pre-qualification tools.</li> <li><strong>Check your rates with other lenders:</strong> CarMax may or may not have the best financing offer for you, so it pays—literally—to shop around with other <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-used-car-loans-7373705">used auto loan lenders</a> too.</li> <li><strong>Complete your application:</strong> If you decide to go with CarMax’s financing offer for your CarMax vehicle purchase, simply log back in to your account to finalize your loan application. You may need to provide your documents at this time. </li> <li><strong>Get a loan decision:</strong> CarMax will notify you if your application has been approved, and if so, it’ll be in touch with the next steps about how to complete your used car purchase.<span class="ql-inline-citation" data-cite="2"></span> </li> </ol><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-alternatives-to-carmax"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-33"> <span class="mntl-sc-block-heading__text"> Alternatives to CarMax </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-34"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th></th> <th><b><a class="null" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&amp;pub_param_2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&amp;ts=investopedia&amp;p=carmax&amp;bwid_id=6385e804ca097c71ee1e23c1" rel="nofollow">CarMax</a></b></th> <th><b><a class="null" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&amp;pub_param_2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&amp;ts=investopedia&amp;p=carvana&amp;bwid_id=6385e804ca097c71ee1e23c1" rel="nofollow">Carvana</a></b></th> <th><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://og.services.apex.prod.autopay.com/api/2.0/lead/inbound/organization/DOTDASH/channel/DOTDASH_A/event/LEAD_REFERRED_FOR_REDIRECT/version/1.0.0" rel="sponsored nofollow">AUTOPAY</a></b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Loan Types Offered</b></td> <td>Used</td> <td>Used</td> <td>New, used, refinance, cash-out refinance, lease buyout, motorcycle</td> </tr> <tr> <td><b>States Available</b></td> <td>All states and D.C. except AK, AR, HI, MT, SD, ND, WV, WY, VT</td> <td>All states and D.C. except AK, HI</td> <td>All states and D.C.</td> </tr> <tr> <td><b>Used APR Range</b></td> <td>Not disclosed</td> <td>Not disclosed</td> <td>2.99% and up</td> </tr> <tr> <td><b>Used Loan Amounts</b></td> <td>$5,000–$100,000</td> <td>Not disclosed</td> <td>$2,500–$100,000</td> </tr> <tr> <td><b>Used Loan Terms</b></td> <td>36–72 months</td> <td>36–72 months</td> <td>24–96 months</td> </tr> <tr> <td><b>Minimum Time to Receive Loan</b></td> <td>Same day</td> <td>1 day</td> <td>Not disclosed</td> </tr> <tr> <td><b>Recommended Minimum Credit Score</b></td> <td>500</td> <td>500</td> <td>500</td> </tr> <tr> <td><b>Maximum Accepted Mileage</b></td> <td>Not disclosed</td> <td>140,000 miles</td> <td>150,000</td> </tr> <tr> <td><b>Maximum Accepted Age</b></td> <td>Not disclosed</td> <td>Varies</td> <td>10 years</td> </tr> <tr> <td><b>Maximum Accepted Loan-to-Value Ratio</b></td> <td>Not disclosed</td> <td>Not disclosed</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 --> <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_2-0-35"> <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_2-0-36"> CarMax isn’t one of our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">top-rated auto loan lenders</a>, and given its recent history of legal problems and customer complaints, we’d recommend considering other dealerships and auto loan lenders first. But if you don’t care too much about that and just want <em>a</em> car—any car—quickly and easily, CarMax may be your best bet.  </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_2-0-37"> <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_2-0-38"> Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. 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"<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.carmax.com/car-financing">Get Financing Results Without Impacting Your Credit</a>."</p></li> <li class="mntl-sources__source" id="citation-6"><p>CarMax. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://s27.q4cdn.com/743947716/files/doc_financials/2023/ar/FY23-Annual-Report-FINAL-WEBSITE-version.pdf">Annual Report Fiscal Year 2023</a>."</p></li> <li class="mntl-sources__source" id="citation-11"><p>Office of the Attorney General, State of Florida. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.myfloridalegal.com/newsrelease/multistate-action-against-carmax">Multistate Action Against CarMax</a>."</p></li> <li class="mntl-sources__source" id="citation-9"><p>ClassAction.org. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.classaction.org/news/carmax-knowingly-sold-cars-that-failed-inspection-to-unlicensed-dealers-class-action-claims#embedded-document">CarMax Knowingly Sold Cars That Failed Inspection to Unlicensed Dealers, Class Action Claims</a>."</p></li> <li class="mntl-sources__source" id="citation-8"><p>Truth in Advertising. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://truthinadvertising.org/class-action/carmaxs-125-point-inspection/">Class Action: CarMax’s 125+ Point Inspection</a>."</p></li> <li class="mntl-sources__source" id="citation-12"><p>CarMax. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.carmax.com/car-financing/carmax-auto-finance">Manage Your CarMax Auto Finance Account</a>."</p></li> <li class="mntl-sources__source" id="citation-13"><p>CarMax. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.carmax.com/buying-online">Find the One, Buy It Online</a>."</p></li> <li class="mntl-sources__source" id="citation-14"><p>CarMax. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.carmax.com/why-carmax">Why CarMax</a>."</p></li> <li class="mntl-sources__source" id="citation-16"><p>Trustpilot. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.trustpilot.com/review/www.carmax.com">CarMax Reviews</a>."</p></li> <li class="mntl-sources__source" id="citation-15"><p>Better Business Bureau. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bbb.org/us/va/richmond/profile/used-car-dealers/carmax-inc-0603-4008970">CarMax, Inc</a>."</p></li> <li class="mntl-sources__source" id="citation-17"><p>CarMax. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.carmax.com/apps">The Ultimate App for the Used Car Shopper</a>."</p></li> <li class="mntl-sources__source" id="citation-18"><p>Upsolve. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://upsolve.org/learn/cosigners-rights/">Co-signer Rights, Responsibilities, and Considerations</a>."</p></li> <li class="mntl-sources__source" id="citation-19"><p>CarMax. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.carmax.com/help-center#contact-us">FAQ &amp; Support</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="7486579" data-ordinal="1" data-tax-levels="" href="https://www.investopedia.com/best-auto-loans-for-fair-credit-7486579" id="mntl-card-list-items_1-0"> <div class="card__media" data-tag="Car Loans"> <img alt="Mother and son examining new car in dealership" class="lazyload card__img" data-dim-ratio="1.5" data-src="https://www.investopedia.com/thmb/j8Lw49s1l-YYnx2WYtRRKjHfUF4=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-auto-loans-for-fair-credit-of-2023-7486579-1cd0386e642a41a083a27049a2646f5b.jpg" height="300" width="400"/> <noscript> <img alt="Mother and son examining new car in dealership" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/j8Lw49s1l-YYnx2WYtRRKjHfUF4=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-auto-loans-for-fair-credit-of-2023-7486579-1cd0386e642a41a083a27049a2646f5b.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Car Loans"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">Best Auto Loans for Fair Credit of 2024</span></span> <div class="card__byline mntl-card__byline" data-byline="By Kat Tretina"></div> </div> </a> <a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" data-doc-id="8599916" data-ordinal="2" data-tax-levels="" href="https://www.investopedia.com/what-is-a-private-party-auto-loan-financing-your-car-purchase-from-individuals-8599916" id="mntl-card-list-items_2-0"> <div class="card__media" data-tag="Car Loans"> <img alt="Private party auto sale" class="lazyload card__img" data-dim-ratio="1.615" data-src="https://www.investopedia.com/thmb/AUotVccJSSYIFvqNE6vP0t8hZtg=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1321856816-84ec23c02e21414aa8d82d81bc233970.jpg" height="300" width="400"/> <noscript> <img alt="Private party auto sale" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/AUotVccJSSYIFvqNE6vP0t8hZtg=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1321856816-84ec23c02e21414aa8d82d81bc233970.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Car Loans"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">Private Party Auto Loan: What It Is, How It Works, How to Get One</span></span> <div class="card__byline mntl-card__byline" data-byline="By Sarah Li Cain"></div> </div> </a> <a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" data-doc-id="4846394" data-ordinal="3" data-tax-levels="" href="https://www.investopedia.com/best-auto-loan-rates-4846394" id="mntl-card-list-items_3-0"> <div class="card__media" data-tag="Car Loans"> <img alt="Compare Best Auto Loan Rates, Lenders, &amp; 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:fill(white):max_bytes(150000):strip_icc()/Carmex-logo-b7b8c559ed564fe8906b5d4558438eca.jpg) :fill(white):max_bytes(150000):strip_icc()/Carmex-logo-b7b8c559ed564fe8906b5d4558438eca.jpg) CarMax Investopedia’s Rating 3.8 [Apply Now](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=carmax&bwid_id=6385e804ca097c71ee1e23c1) **Our Take** CarMax offers a streamlined, easy way to buy a car entirely online if you choose—complete with an auto loan financing package and everything. It’s a good choice if you’re not too picky about the car or the customer service, but for most people, we’d recommend keeping your options open because some customers indicate warning flags about how the company operates.  * Pros and Cons * Key Takeaways * Company Overview Pros and Cons Pros * Works with partner lenders * No payments for up to first 45 days * Flexible online car-buying experience * Limited purchase and financing warranties Cons * Not available in all states * Negative company reputation * Can only be used to buy CarMax cars * No co-signers allowed; only co-borrowers Key Takeaways * CarMax is the largest used car dealership chain in the country and is based out of Richmond, Virginia. * You can line up your own financing to buy a car from CarMax or use its in-house financing department, which may finance your loan directly or use a partner lender. * CarMax offers pre-qualification for its loans, which allows you to see whether you’d be likely to qualify and what your estimated loan costs would be before you apply. Company Overview CarMax was founded in 1993 by Rick Sharp, who at the time was concurrently serving as CEO of Circuit City. Circuit City may have closed, but CarMax persisted and grew. Today, it’s the largest online retailer of used cars, operating 241 stores in 41 U.S. states, mostly sprinkled in a U shape around the country with a noticeable gap across the Dakotas, Wyoming, and Montana. As a dealership, CarMax sells its own used vehicles and works with a network of partner lenders to finance them, although you can opt to use your own financing. That means you won’t be able to use CarMax financing to purchase a non-CarMax car, of course. In recent years the company has come under fire for its poor quality control and service practices, with several class-action lawsuits filed against the company. * Loan Types Offered Used * Used APR Range Not disclosed * Used Loan Amounts $5,000–$100,000 * Used Loan Terms 36–72 months * Recommended Minimum Credit Score 500 * Maximum Accepted Mileage Not disclosed :fill(white):max_bytes(150000):strip_icc()/Carmex-logo-b7b8c559ed564fe8906b5d4558438eca.jpg) :fill(white):max_bytes(150000):strip_icc()/Carmex-logo-b7b8c559ed564fe8906b5d4558438eca.jpg) CarMax overall rating 3.8 [Apply Now](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=carmax&bwid_id=6385e804ca097c71ee1e23c1) Table of Contents View All CarMax Auto Loan Review 2024 * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Loan Types](#toc-types-of-auto-loans-offered-by-carmax) * [Time to Receive Funds](#toc-time-to-receive-funds) * [Borrower Requirements](#toc-borrower-requirements) * [Vehicle Requirements](#toc-vehicle-requirements) * [Loan Features](#toc-carmax-auto-loan-features) * [Customer Service](#toc-customer-service) * [Customer Satisfaction](#toc-customer-satisfaction) * [How to Apply](#toc-how-to-apply-for-a-carmax-auto-loan) * [Alternatives](#toc-alternatives-to-carmax) * [Final Verdict](#toc-final-verdict) * [Methodology](#toc-methodology) See our picks for the best auto loans in a variety of categories: * [Best Auto Loan Rates](https://www.investopedia.com/best-auto-loan-rates-4846394) * [Best Used Car Loans](https://www.investopedia.com/best-used-car-loans-7373705) * [Best Auto Refinance Loans](https://www.investopedia.com/best-auto-refinance-loans-5069118) * [Best Car Loans for Bad Credit](https://www.investopedia.com/best-car-loans-for-bad-credit-7372351) * [Best Car Loans for Fair Credit](https://www.investopedia.com/best-auto-loans-for-fair-credit-7486579) * [Best Car Loans for First Time Buyers](https://www.investopedia.com/best-car-loans-for-first-time-buyers-7373461) ## Pros Explained * **Works with partner lenders:** CarMax underwrites some loans directly, or it may fund your loan through one of its partner lenders. That increases your options and may help you find a lower-cost loan. * **No payments for up to first 45 days:** You can choose your first payment due date when you finalize your loan, up to 45 days out. * **Flexible online car-buying experience:** CarMax allows you to test-drive a car for 24 hours if you choose, and when you’re ready to buy, you can have it delivered to your home or pick it up from a dealership location. The entire process can be completed online, aside from the test drive. * **Limited purchase and financing warranties:** You can get a full-cost refund on your CarMax loan if you line up another financing source within three days, and you have a full 30-day period to return the car you’ve purchased if you don’t like it. A three-day loan refund sounds nice, but in reality, lining up another auto loan may take longer than that unless you already have one in the works as you’re purchasing the car.   ## Cons Explained * **Not available in all states:** CarMax operates locations across the country in 41 states. Importantly, if you’re hoping to have your new car delivered to your home, you’ll need to live within 60 miles of a CarMax location. * **Negative company reputation:** CarMax does not have a good reputation online among customers who’ve left reviews of the company, and it’s the subject of several class-action lawsuits for shady behavior. * **Can only be used to buy CarMax cars:** CarMax is a used car dealership, and as such, you can only use a CarMax auto loan to purchase a used car from CarMax. * **No co-signers allowed; only co-borrowers:** You can apply with someone else if you’re looking to share ownership of the loan *and* the car too, or if you’re otherwise not able to qualify for a loan on your own. Anyone listed on your loan will be a co-owner of the car, however. ## Types of Auto Loans Offered by CarMax Since CarMax sells used cars, it only offers one type of auto loan. ### Used Auto Loans * **APR:** Not disclosed * **Loan amounts:** $5,000–$100,00 * **Loan terms:** 36–72 months ## Time to Receive Funds It only takes five minutes or less to get pre-qualified for a CarMax loan, but the company doesn’t disclose how long it takes for a full application after that. If you are approved, your loan may be funded on the same day.  ## Borrower Requirements CarMax doesn’t provide very many details about the qualifications you’ll need to meet in order to qualify. However, credit is a barrier to many would-be car buyers, and CarMax is relatively forgiving of low credit scores.  * **Minimum recommended credit score:** 500 * **State availability:** 41 states; not available in Alaska, Arkansas, Hawaii, Montana, North Dakota, South Dakota, Vermont, West Virginia, and Wyoming. ## Vehicle Requirements CarMax loans can only be used to purchase CarMax cars, so you’ll be limited to whatever you can find in its online catalog.  * **Maximum age:** Not disclosed * **Maximum accepted mileage:** Not disclosed * **Maximum loan-to-value ratio:** Not disclosed ## CarMax Auto Loan Features CarMax offers a few nice touches for its loans, including: * **Origination fee:** $0 * **Can change due date:** You can change your monthly due date to better align with your finances, such as setting it for after you receive your paycheck. * **Mobile app:** You can use CarMax’s app to complete your entire auto loan application, locate a car and finalize its purchase, and even manage your loan payoff afterward. ### Co-Signers and Co-Applicants If you need help in qualifying for a car loan or if you want someone else to be listed as a co-owner of the car, CarMax allows you to apply with a co-borrower. It does not, however, allow you to apply with a co-signer.  A [co-signer and a co-borrower](https://www.investopedia.com/terms/c/co_borrowers.asp) are not the same thing; a co-borrower will be listed on the title as a co-owner of your car, while a co-signer will not share ownership rights to your ride.  ## Customer Service CarMax offers a useful suite of customer support channels. You can get help through regular routes like a phone call or email, but you can also reach the company via live online chat or even social media. However, many customers on publicly available review websites, like Trustpilot, have complained that reaching specific team members during their car purchase can be difficult.  ## Customer Satisfaction CarMax does not have the best reputation for customer satisfaction, at least according to reviews from customers on some websites.  Customers frequently complain that CarMax representatives are often hard to get ahold of and the vehicles they purchased don’t show up as advertised, although there are many happy customers as well.  The company has also been the target of multiple class-action lawsuits. In one case regarding CarMax’s 125+ Point Inspection, claimants alleged that CarMax didn’t disclose certain important vehicle problems before purchase. In another lawsuit, CarMax is alleged to have knowingly sold cars that failed to meet emissions standards to unlicensed dealers, who then sold them to CarMax customers. ## How to Apply for a CarMax Auto Loan CarMax makes buying a car super simple—a little *too* simple, in fact. In order to get the most out of your car-buying experience, we recommend taking a few extra steps during CarMax’s application process. 1. **Check your credit:** Get a copy of your [three credit reports](https://www.investopedia.com/how-to-get-your-annual-credit-report-5224898) (one from each major bureau) and scan them over. Check whether there’s anything you can do to [improve your credit score](https://www.investopedia.com/how-to-improve-your-credit-score-4590097) before you apply. 2. **Check your budget:** Draft up a comprehensive list of your [income and expenses](https://www.investopedia.com/budgeting-calculator-5101411), if you don’t already have one. See what *you* can afford for a monthly payment, rather than relying on what CarMax or any other lender tells you. 3. **Gather documents:** You’ll typically need proof of identity, income, and address. Scan these ahead of time so you have them on hand. 4. **Get pre-qualified:** You’ll need to create a CarMax account in order to get access to its loan pre-qualification tools. 5. **Check your rates with other lenders:** CarMax may or may not have the best financing offer for you, so it pays—literally—to shop around with other [used auto loan lenders](https://www.investopedia.com/best-used-car-loans-7373705) too. 6. **Complete your application:** If you decide to go with CarMax’s financing offer for your CarMax vehicle purchase, simply log back in to your account to finalize your loan application. You may need to provide your documents at this time. 7. **Get a loan decision:** CarMax will notify you if your application has been approved, and if so, it’ll be in touch with the next steps about how to complete your used car purchase. ## Alternatives to CarMax | | **[CarMax](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=carmax&bwid_id=6385e804ca097c71ee1e23c1)** | **[Carvana](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=carvana&bwid_id=6385e804ca097c71ee1e23c1)** | **[AUTOPAY](https://og.services.apex.prod.autopay.com/api/2.0/lead/inbound/organization/DOTDASH/channel/DOTDASH_A/event/LEAD_REFERRED_FOR_REDIRECT/version/1.0.0)** | | --- | --- | --- | --- | | **Loan Types Offered** | Used | Used | New, used, refinance, cash-out refinance, lease buyout, motorcycle | | **States Available** | All states and D.C. except AK, AR, HI, MT, SD, ND, WV, WY, VT | All states and D.C. except AK, HI | All states and D.C. | | **Used APR Range** | Not disclosed | Not disclosed | 2.99% and up | | **Used Loan Amounts** | $5,000–$100,000 | Not disclosed | $2,500–$100,000 | | **Used Loan Terms** | 36–72 months | 36–72 months | 24–96 months | | **Minimum Time to Receive Loan** | Same day | 1 day | Not disclosed | | **Recommended Minimum Credit Score** | 500 | 500 | 500 | | **Maximum Accepted Mileage** | Not disclosed | 140,000 miles | 150,000 | | **Maximum Accepted Age** | Not disclosed | Varies | 10 years | | **Maximum Accepted Loan-to-Value Ratio** | Not disclosed | Not disclosed | Not disclosed | ## Final Verdict CarMax isn’t one of our [top-rated auto loan lenders](https://www.investopedia.com/best-auto-loan-rates-4846394), and given its recent history of legal problems and customer complaints, we’d recommend considering other dealerships and auto loan lenders first. But if you don’t care too much about that and just want *a* car—any car—quickly and easily, CarMax may be your best bet.  ## Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. See our [full auto loan review methodology](https://www.investopedia.com/auto-loan-review-methodology-7552736) for more information. [Apply Now](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=carmax&bwid_id=6385e804ca097c71ee1e23c1) 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. CarMax. "[Get Financing Results Without Impacting Your Credit](https://www.carmax.com/car-financing)." 2. CarMax. "[Annual Report Fiscal Year 2023](https://s27.q4cdn.com/743947716/files/doc_financials/2023/ar/FY23-Annual-Report-FINAL-WEBSITE-version.pdf)." 3. Office of the Attorney General, State of Florida. "[Multistate Action Against CarMax](https://www.myfloridalegal.com/newsrelease/multistate-action-against-carmax)." 4. ClassAction.org. "[CarMax Knowingly Sold Cars That Failed Inspection to Unlicensed Dealers, Class Action Claims](https://www.classaction.org/news/carmax-knowingly-sold-cars-that-failed-inspection-to-unlicensed-dealers-class-action-claims#embedded-document)." 5. Truth in Advertising. "[Class Action: CarMax’s 125+ Point Inspection](https://truthinadvertising.org/class-action/carmaxs-125-point-inspection/)." 6. CarMax. "[Manage Your CarMax Auto Finance Account](https://www.carmax.com/car-financing/carmax-auto-finance)." 7. CarMax. "[Find the One, Buy It Online](https://www.carmax.com/buying-online)." 8. CarMax. "[Why CarMax](https://www.carmax.com/why-carmax)." 9. Trustpilot. "[CarMax Reviews](https://www.trustpilot.com/review/www.carmax.com)." 10. Better Business Bureau. "[CarMax, Inc](https://www.bbb.org/us/va/richmond/profile/used-car-dealers/carmax-inc-0603-4008970)." 11. CarMax. "[The Ultimate App for the Used Car Shopper](https://www.carmax.com/apps)." 12. Upsolve. "[Co-signer Rights, Responsibilities, and Considerations](https://upsolve.org/learn/cosigners-rights/)." 13. CarMax. "[FAQ & Support](https://www.carmax.com/help-center#contact-us)." Related Articles [![Mother and son examining new car in dealership]() :max_bytes(150000):strip_icc()/Primary-Image-best-auto-loans-for-fair-credit-of-2023-7486579-1cd0386e642a41a083a27049a2646f5b.jpg) Best Auto Loans for Fair Credit of 2024](https://www.investopedia.com/best-auto-loans-for-fair-credit-7486579) [![Private party auto sale]() :max_bytes(150000):strip_icc()/GettyImages-1321856816-84ec23c02e21414aa8d82d81bc233970.jpg) Private Party Auto Loan: What It Is, How It Works, How to Get One](https://www.investopedia.com/what-is-a-private-party-auto-loan-financing-your-car-purchase-from-individuals-8599916) [![Compare Best Auto Loan Rates, Lenders, & Financing for April 2024 - Rates From 1.99%]() :max_bytes(150000):strip_icc()/Best-auto-loan-rates-4846394_final-b7456e74b9574f56b09258598d31164e.png) Compare Best Auto Loan Rates, Lenders, & Financing for May 2024 - Rates From 1.99%](https://www.investopedia.com/best-auto-loan-rates-4846394) [![Consumers-Credit-Union-logo]() :max_bytes(150000):strip_icc()/consumers-credit-union-logo-ffb7633baac644dd984bb8b66cb3a13f.jpeg) Consumers Credit Union Auto Loan Review 2024](https://www.investopedia.com/consumers-credit-union-auto-loan-review-8357871) [![Capital One]() :max_bytes(150000):strip_icc()/capital-one-360-88da4ba5f07946ccac0a88887b7ef019.png) Capital One Auto Loans Review 2024](https://www.investopedia.com/capital-one-auto-loans-review-7968929) [![ LightStream]() :max_bytes(150000):strip_icc()/Light_Stream_Loans-b2073c2598614be6908a497d523969b2.jpg) LightStream Auto Loans Review](https://www.investopedia.com/lightstream-auto-loans-review-7853022)

CarMax Investopedia’s Rating 3.8 Apply Now Our Take CarMax offers a streamlined, easy way to buy a car entirely online if you choose—complete with an auto loan financing package and everything. It’s a good choice if you’re not too picky about the car or the customer service, but for most people, we’d recommend keeping your options open because some customers indicate warning flags about how the company operates.  Pros and Cons Key Takeaways Company Overview Pros and Cons Pros Works with partner lenders No payments for up to first 45 days Flexible online car-buying experience Limited purchase and financing warranties Cons Not available in all states Negative company reputation Can only be used to buy CarMax cars No co-signers allowed; only co-borrowers Key Takeaways CarMax is the largest used car dealership chain in the country and is based out of Richmond, Virginia.You can line up your own financing to buy a car from CarMax or use its in-house financing department, which may finance your loan directly or use a partner lender.CarMax offers pre-qualification for its loans, which allows you to see whether you’d be likely to qualify and what your estimated loan costs would be before you apply. Company Overview CarMax was founded in 1993 by Rick Sharp, who at the time was concurrently serving as CEO of Circuit City. Circuit City may have closed, but CarMax persisted and grew. Today, it’s the largest online retailer of used cars, operating 241 stores in 41 U.S. states, mostly sprinkled in a U shape around the country with a noticeable gap across the Dakotas, Wyoming, and Montana. As a dealership, CarMax sells its own used vehicles and works with a network of partner lenders to finance them, although you can opt to use your own financing. That means you won’t be able to use CarMax financing to purchase a non-CarMax car, of course. In recent years the company has come under fire for its poor quality control and service practices, with several class-action lawsuits filed against the company. Loan Types Offered Used Used APR Range Not disclosed Used Loan Amounts $5,000–$100,000 Used Loan Terms 36–72 months Recommended Minimum Credit Score 500 Maximum Accepted Mileage Not disclosed CarMax overall rating 3.8 Apply Now Table of Contents View All CarMax Auto Loan Review 2024 Pros Explained Cons Explained Loan Types Time to Receive Funds Borrower Requirements Vehicle Requirements Loan Features Customer Service Customer Satisfaction How to Apply Alternatives Final Verdict Methodology See our picks for the best auto loans in a variety of categories: Best Auto Loan Rates Best Used Car Loans Best Auto Refinance Loans Best Car Loans for Bad Credit Best Car Loans for Fair Credit Best Car Loans for First Time Buyers Pros Explained Works with partner lenders: CarMax underwrites some loans directly, or it may fund your loan through one of its partner lenders. That increases your options and may help you find a lower-cost loan.No payments for up to first 45 days: You can choose your first payment due date when you finalize your loan, up to 45 days out. Flexible online car-buying experience: CarMax allows you to test-drive a car for 24 hours if you choose, and when you’re ready to buy, you can have it delivered to your home or pick it up from a dealership location. The entire process can be completed online, aside from the test drive.Limited purchase and financing warranties: You can get a full-cost refund on your CarMax loan if you line up another financing source within three days, and you have a full 30-day period to return the car you’ve purchased if you don’t like it.  A three-day loan refund sounds nice, but in reality, lining up another auto loan may take longer than that unless you already have one in the works as you’re purchasing the car.   Cons Explained Not available in all states: CarMax operates locations across the country in 41 states. Importantly, if you’re hoping to have your new car delivered to your home, you’ll need to live within 60 miles of a CarMax location. Negative company reputation: CarMax does not have a good reputation online among customers who’ve left reviews of the company, and it’s the subject of several class-action lawsuits for shady behavior. Can only be used to buy CarMax cars: CarMax is a used car dealership, and as such, you can only use a CarMax auto loan to purchase a used car from CarMax. No co-signers allowed; only co-borrowers: You can apply with someone else if you’re looking to share ownership of the loan and the car too, or if you’re otherwise not able to qualify for a loan on your own. Anyone listed on your loan will be a co-owner of the car, however.  Types of Auto Loans Offered by CarMax Since CarMax sells used cars, it only offers one type of auto loan. Used Auto Loans APR: Not disclosedLoan amounts: $5,000–$100,00Loan terms: 36–72 months Time to Receive Funds It only takes five minutes or less to get pre-qualified for a CarMax loan, but the company doesn’t disclose how long it takes for a full application after that. If you are approved, your loan may be funded on the same day.  Borrower Requirements CarMax doesn’t provide very many details about the qualifications you’ll need to meet in order to qualify. However, credit is a barrier to many would-be car buyers, and CarMax is relatively forgiving of low credit scores.  Minimum recommended credit score: 500State availability: 41 states; not available in Alaska, Arkansas, Hawaii, Montana, North Dakota, South Dakota, Vermont, West Virginia, and Wyoming.  Vehicle Requirements CarMax loans can only be used to purchase CarMax cars, so you’ll be limited to whatever you can find in its online catalog.  Maximum age: Not disclosedMaximum accepted mileage: Not disclosedMaximum loan-to-value ratio: Not disclosed CarMax Auto Loan Features CarMax offers a few nice touches for its loans, including: Origination fee: $0Can change due date: You can change your monthly due date to better align with your finances, such as setting it for after you receive your paycheck. Mobile app: You can use CarMax’s app to complete your entire auto loan application, locate a car and finalize its purchase, and even manage your loan payoff afterward. Co-Signers and Co-Applicants If you need help in qualifying for a car loan or if you want someone else to be listed as a co-owner of the car, CarMax allows you to apply with a co-borrower. It does not, however, allow you to apply with a co-signer.  A co-signer and a co-borrower are not the same thing; a co-borrower will be listed on the title as a co-owner of your car, while a co-signer will not share ownership rights to your ride.  Customer Service CarMax offers a useful suite of customer support channels. You can get help through regular routes like a phone call or email, but you can also reach the company via live online chat or even social media. However, many customers on publicly available review websites, like Trustpilot, have complained that reaching specific team members during their car purchase can be difficult.  Customer Satisfaction CarMax does not have the best reputation for customer satisfaction, at least according to reviews from customers on some websites.  Customers frequently complain that CarMax representatives are often hard to get ahold of and the vehicles they purchased don’t show up as advertised, although there are many happy customers as well.  The company has also been the target of multiple class-action lawsuits. In one case regarding CarMax’s 125+ Point Inspection, claimants alleged that CarMax didn’t disclose certain important vehicle problems before purchase. In another lawsuit, CarMax is alleged to have knowingly sold cars that failed to meet emissions standards to unlicensed dealers, who then sold them to CarMax customers. How to Apply for a CarMax Auto Loan CarMax makes buying a car super simple—a little too simple, in fact. In order to get the most out of your car-buying experience, we recommend taking a few extra steps during CarMax’s application process. Check your credit: Get a copy of your three credit reports (one from each major bureau) and scan them over. Check whether there’s anything you can do to improve your credit score before you apply.  Check your budget: Draft up a comprehensive list of your income and expenses, if you don’t already have one. See what you can afford for a monthly payment, rather than relying on what CarMax or any other lender tells you.  Gather documents: You’ll typically need proof of identity, income, and address. Scan these ahead of time so you have them on hand.  Get pre-qualified: You’ll need to create a CarMax account in order to get access to its loan pre-qualification tools. Check your rates with other lenders: CarMax may or may not have the best financing offer for you, so it pays—literally—to shop around with other used auto loan lenders too. Complete your application: If you decide to go with CarMax’s financing offer for your CarMax vehicle purchase, simply log back in to your account to finalize your loan application. You may need to provide your documents at this time.  Get a loan decision: CarMax will notify you if your application has been approved, and if so, it’ll be in touch with the next steps about how to complete your used car purchase.  Alternatives to CarMax CarMax Carvana AUTOPAY Loan Types Offered Used Used New, used, refinance, cash-out refinance, lease buyout, motorcycle States Available All states and D.C. except AK, AR, HI, MT, SD, ND, WV, WY, VT All states and D.C. except AK, HI All states and D.C. Used APR Range Not disclosed Not disclosed 2.99% and up Used Loan Amounts $5,000–$100,000 Not disclosed $2,500–$100,000 Used Loan Terms 36–72 months 36–72 months 24–96 months Minimum Time to Receive Loan Same day 1 day Not disclosed Recommended Minimum Credit Score 500 500 500 Maximum Accepted Mileage Not disclosed 140,000 miles 150,000 Maximum Accepted Age Not disclosed Varies 10 years Maximum Accepted Loan-to-Value Ratio Not disclosed Not disclosed Not disclosed Final Verdict CarMax isn’t one of our top-rated auto loan lenders, and given its recent history of legal problems and customer complaints, we’d recommend considering other dealerships and auto loan lenders first. But if you don’t care too much about that and just want a car—any car—quickly and easily, CarMax may be your best bet.  Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. See our full auto loan review methodology for more information. Apply Now 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. CarMax. "Get Financing Results Without Impacting Your Credit." CarMax. "Annual Report Fiscal Year 2023." Office of the Attorney General, State of Florida. "Multistate Action Against CarMax." ClassAction.org. "CarMax Knowingly Sold Cars That Failed Inspection to Unlicensed Dealers, Class Action Claims." Truth in Advertising. "Class Action: CarMax’s 125+ Point Inspection." CarMax. "Manage Your CarMax Auto Finance Account." CarMax. "Find the One, Buy It Online." CarMax. "Why CarMax." Trustpilot. "CarMax Reviews." Better Business Bureau. "CarMax, Inc." CarMax. "The Ultimate App for the Used Car Shopper." Upsolve. "Co-signer Rights, Responsibilities, and Considerations." CarMax. "FAQ & Support." Related Articles Best Auto Loans for Fair Credit of 2024 Private Party Auto Loan: What It Is, How It Works, How to Get One Compare Best Auto Loan Rates, Lenders, & Financing for May 2024 - Rates From 1.99% Consumers Credit Union Auto Loan Review 2024 Capital One Auto Loans Review 2024 LightStream Auto Loans Review

https://www.investopedia.com/kraken-vs-coinbase-5120700

Kraken vs. Coinbase

<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"> Kraken and Coinbase are two of the most high-profile crypto exchange platforms in the world. Each allows you to buy various currencies using fiat money (U.S. dollars or Euro for example) and is geared toward experienced and novice investors. Both high- and low-volume traders enjoy Kraken’s low-fee services and high trading limits. New investors based in the United States appreciate the convenience of Coinbase’s digital wallet and funding options. Unlike Kraken, Coinbase caters to U.S.-based traders, and you can learn more about this platform by reading our in-depth <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 review</a>.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-1"> In this article, we weigh the pros and cons of Kraken and Coinbase and explore their distinctive features, security, fees, ease of use, and more. While both platforms offer appealing elements like mobile apps and 24/7 customer service, each has advantages that will appeal to different investors. Kraken offers flat purchasing fees, which is an excellent benefit for lower-volume traders. Coinbase provides easy funding options like PayPal and debit cards, ideal for U.S. traders. </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 class="comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>On Nov. 21, 2023, the Securities and Exchange Commission (SEC) <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-sec-sues-kraken-again-this-time-for-running-an-illegal-crypto-exchange-8405171">sued Kraken</a> for allegedly violating multiple infractions. Kraken is accused of commingling customer funds with company funds and operating an unregistered securities exchange, clearing agency, dealer, and broker. Both allegations may impact the operation of the cryptocurrency exchange and its customers' investments. To go with the lawsuit, on Feb. 9, 2023, Kraken agreed to pay $30 million in fines and closed its staking operation to settle with the SEC. However, Kraken is allowed to continue its staking process through its subsidiary for non-U.S. clients.<span class="ql-inline-citation" data-cite="21"></span></p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> </div><!-- end: comp mntl-sc-page--commerce post-intro prm-sc-page mntl-sc-page mntl-block --> </div> <div class="article-body"> <div class="loc article-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-kraken"></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">Kraken</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Kraken" 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/SJDLkTsSgCii5p1O86tBTCEpZXw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Kraken-148ac3fcdb3e416088a575d8e4a6bedc.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Kraken" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/SJDLkTsSgCii5p1O86tBTCEpZXw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Kraken-148ac3fcdb3e416088a575d8e4a6bedc.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> Kraken</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-1"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="with Kraken" data-retailer-type="other" data-tracking-container="true" href="https://kraken.pxf.io/c/2104074/1589189/10583" id="button_1-0" rel="noskim noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-2"> <li><strong>Main platform features: </strong>Low fees, strong security protections, and many currency options</li><li><strong>Fees: </strong>0% to 0.26% per trade, 3.75% + €0.25 for credit card purchases, and 0.5% plus 0.9% or 1.5% for ACH purchases</li><li><strong>Number of cryptocurrencies supported: </strong>97</li><li><strong>Security features: </strong>2FA withdrawal email confirmation, air-gapped cold storage, strict surveillance, precise API key permission control, SSL encryption</li><li><strong>Types of transactions supported: </strong>Buy, sell, send, receive, exchange, futures trading, and Cryptowatch</li><li><strong>Maximum deposit and withdrawal: </strong>$100,000 daily (intermediate-level members)<br/></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-3"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Secure and reliable</p></li> <li><p>Low fees</p></li> <li><p>High deposit and withdrawal limits</p></li> <li><p>Accepts some fiat currency</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>Many options not available to U.S. users</p></li> <li><p>Long verification times</p></li> <li><p>Possibly challenging user interface</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </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-coinbase"></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">Coinbase</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-1"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-1"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-1"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-4" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Coinbase" 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/5vxm2WD25BX7DwA00POoSvVSrFw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Coinbase_Wordmark-719a982e55e945fc93a3b1770b6a9aa9.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-1" width="1500"/> <noscript> <img alt="Coinbase" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/5vxm2WD25BX7DwA00POoSvVSrFw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Coinbase_Wordmark-719a982e55e945fc93a3b1770b6a9aa9.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>Coinbase</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-5"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-1"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="with Coinbase" data-retailer-type="other" data-tracking-container="true" href="https://coinbase-consumer.sjv.io/c/2104074/1175448/9251" id="button_1-0-1" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-6"> <li><strong>Main platform features: </strong>Easy to use for beginners and can use PayPal to withdraw or sell</li><li><strong>Fees: </strong>0.50% per trade maker-taker, 3.99% for credit card purchases, and 1.49% for Coinbase USD wallet or bank account purchases</li><li><strong>Number of cryptocurrencies supported: </strong>120+</li><li><strong>Security features: </strong>Two-step verification, biometric fingerprint logins, insurance in the event Coinbase is breached, FDIC-insured USD balances, AES-256 encryption for digital wallets</li><li><strong>Types of transactions supported: </strong>Buy, sell, send, receive, and exchange</li><li><strong>Maximum deposit and withdrawal: </strong>$25,000 daily via ACH</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-7"> <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>Excellent user experience</p></li> <li><p>Easy funding options</p></li> <li><p>Fiat currencies accepted</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>Not available in all countries</p></li> <li><p>Some coins aren’t accepted</p></li> <li><p>High fees</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </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"> Kraken vs. Coinbase</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-Kraken vs. Coinbase" 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"> Kraken vs. Coinbase</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-Kraken" 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-Kraken" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-kraken" rel="nocaes"> <span class="link__wrapper">Kraken</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-Coinbase" 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-Coinbase" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-coinbase" rel="nocaes"> <span class="link__wrapper">Coinbase</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-At a Glance" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-at-a-glance" id="mntl-toc__list-item-link_2-0" rel="nocaes"><span class="link__wrapper">At a Glance</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-Features" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-kraken-vs-coinbase-features" id="mntl-toc__list-item-link_2-0-1" rel="nocaes"><span class="link__wrapper">Features</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-2"> <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-Currencies" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-kraken-vs-coinbase-currencies" id="mntl-toc__list-item-link_2-0-2" rel="nocaes"><span class="link__wrapper">Currencies</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-Security" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-kraken-vs-coinbase-security" id="mntl-toc__list-item-link_2-0-3" rel="nocaes"><span class="link__wrapper">Security</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-Fees" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-kraken-vs-coinbase-fees" id="mntl-toc__list-item-link_2-0-4" rel="nocaes"><span class="link__wrapper">Fees</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-Ease of Use" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-kraken-vs-coinbase-ease-of-use" id="mntl-toc__list-item-link_2-0-5" rel="nocaes"><span class="link__wrapper">Ease of Use</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-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_2-0-6" rel="nocaes"><span class="link__wrapper">Final Verdict</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-7"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_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-methodology" 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-at-a-glance"></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"> At a Glance </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_4-0-1"> <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></th> <th>Kraken</th> <th>Coinbase</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Main platform features</td> <td>Low fees, strong security protections, and more currency options</td> <td>Easy to use for beginners and can use PayPal to withdraw or sell</td> </tr> <tr> <td>Fees </td> <td>0% to 0.26% per trade, 3.75% + €0.25 for credit card purchases, and 1.7% + $0.10 for online banking processing </td> <td>0.50% per trade, 3.99% for credit card purchases, and 1.49% for Coinbase wallet or bank account purchases</td> </tr> <tr> <td>Number of cryptocurrencies supported </td> <td>97</td> <td>120+</td> </tr> <tr> <td>Security features </td> <td>2FA withdrawal email confirmation, air-gapped cold storage, strict surveillance, precise API key permission control, SSL encryption</td> <td>Two-step verification, biometric fingerprint logins, insurance in the event Coinbase is breached, FDIC-insured USD balances, AES-256 encryption for digital wallets</td> </tr> <tr> <td>Types of transactions supported </td> <td>Buy, sell, send, receive, exchange, futures trading, and Cryptowatch</td> <td>Buy, sell, send, receive, and exchange</td> </tr> <tr> <td>Maximum deposit and withdrawal amount </td> <td>$100,000</td> <td>$25,000</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-kraken-vs-coinbase-features"></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"> Kraken vs. Coinbase: Features </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_4-0-3"> Each <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin-exchange.asp">cryptocurrency exchange</a> caters to industry investors and first-timers alike. Still, Kraken offers features ideal for worldwide investors or U.S. traders who don’t mind giving up convenience for lower fees and additional services. Coinbase’s digital options facilitate processes for U.S. investors. With both Kraken and Coinbase, you’ll get:    </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-4"> <li><strong>Availability:</strong> Coinbase offers trading in over 100 countries and Kraken in 176. Both provide varying functions depending on location. For instance, Coinbase isn’t available to Hawaii residents, and Kraken isn’t available in New York or Washington. </li> <li><strong>Customer service:</strong> Global service is available around the clock for both platforms via live chat. Support availability can decrease, and wait times increase, during high-traffic trading times. Both offer help center guides and question-and-answer centers.</li> <li><strong>Margin trading:</strong> Kraken offers <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/short-bitcoin/">margin trading</a> with up to five times leverage, which is average in the industry.<span class="ql-inline-citation" data-cite="17"></span> Coinbase added the feature in early 2020, offering limited availability at three times leverage, but promptly disabled it by November 2020.<span class="ql-inline-citation" data-cite="16"></span></li> <li><strong>Mobile apps:</strong> Each exchange has a highly rated mobile application, offering all the features available on a web browser. However, Kraken’s app isn’t available in five countries and one territory.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-5"> Kraken offers Cryptowatch, a trading terminal that analyzes and generates data on over 2,000 cryptocurrency markets. The free service allows traders to monitor price movements and market trends across various platforms and set price alerts. Investors can upgrade this service by paying one credit per alert for more timely notice.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-6"> Coinbase has an added feature, as well. They provide users with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hot-wallet.asp">hot wallet</a> they can use to deposit, store, and withdraw currency. You don’t need to be a Coinbase user to use the wallet, making it ideal for traders that transfer between various fiat currencies and cryptocurrencies. Kraken offers clients a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/digital-wallet.asp">digital wallet</a> to store coins between purchases but does not provide a personal wallet service. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-kraken-vs-coinbase-currencies"></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"> Kraken vs. Coinbase: Currencies </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"> Both exchanges support USD, EUR, CAD, AUD, GBP, CHF, and JPY <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiatmoney.asp">fiat currencies</a>. Coinbase has over 120 cryptocurrencies available for trade, while Kraken has 97. Each provider offers different choices, so users looking for something specific can search both to find what they want.  </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"> For instance, Kraken offers Flow (FLOW) and Icon (ICX). You can trade Filecoin (FIL) and Yearn Finance (YFI) on Coinbase but not Tron (TRX) or Siacoin (SC).  </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"> In addition to Bitcoin, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/">most popular cryptocurrencies</a> supported by Kraken and Coinbase include: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-11"> <li>Cardano (ADA)</li><li>Bitcoin Cash (BCH) </li><li>Chainlink (LINK)</li><li>Ethereum (ETH)</li><li>Litecoin (LTC)</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-kraken-vs-coinbase-security"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-12"> <span class="mntl-sc-block-heading__text"> Kraken vs. Coinbase: Security </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-13"> Security measures are crucial when considering which exchange to use. Both platforms have solid security track records, and neither has had any significant breaches. Kraken stores 95% of its assets in guarded air-gapped <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/030515/what-cold-storage-bitcoin.asp">cold storage</a> and has strict surveillance across the entire platform and multiple checkpoints throughout the signup process.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-14"> Coinbase keeps 98% of deposits in offline, geographically distributed cold storage.<span class="ql-inline-citation" data-cite="18"></span> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">Federal Deposit Insurance Corporation (FDIC)</a> insures up to $250,000 of an individual’s USD cash balances, a plus for U.S. traders.<span class="ql-inline-citation" data-cite="19"></span><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_4-0-15"> On the user side, Kraken and Coinbase offer these multi-layered security features: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-16"> <li><strong>Security keys:</strong> When inserted into your computer drive, physical security keys authenticate your login and generate a one-time passcode. You can create several keys and store them in secure locations. </li><li><strong>Pretty good privacy (PGP):</strong> Each platform guides you through setting up PGP encryption for online communications with the exchange. This precaution will help ensure all cryptocurrency correspondences are kept private and secure. </li><li><strong>Two-factor authentication (2FA):</strong> Kraken and Coinbase offer 2FA when making withdrawals and transfers. The Coinbase system defaults to 2FA for SMS verification during login.</li><li><strong>Authenticator apps:</strong> Another option for 2FA is authenticator apps. Both companies allow you to use these instead of a text message or email form of 2FA. Popular apps such as Google Authenticator are supported.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-kraken-vs-coinbase-fees"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-17"> <span class="mntl-sc-block-heading__text"> Kraken vs. Coinbase: Fees </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-18"> One significant divide between Kraken and Coinbase comes in the form of transaction fee structures. Kraken's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/042414/what-makertaker-fees-mean-you.asp">maker-taker</a> fees are amongst the lowest in the industry. Coinbase's maker-taker fees are nearly double, maxing out at 0.50% vs. Kraken's 0.26%. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-19"> Kraken calculates transaction fees according to the volume you trade in a 30-day rolling period. The fee schedule includes:<span class="ql-inline-citation" data-cite="20"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-20"> <li>Transactions $0 to $50,000 pay a 0.16% maker fee or a 0.26% taker fee</li><li>Transactions $50,001 to $100,00 pay a 0.14% maker fee or a 0.24% taker fee</li><li>Transactions $100,001 to $250,000 pay a 0.12% maker fee or a 0.22% taker fee</li><li>Transactions $250,001 to $500,000 pay a 0.10% maker fee or a 0.20% taker fee</li><li>Transactions $500,001 to $1,000,000 pay a 0.08% maker fee or a 0.18% taker fee</li><li>Transactions $1,000,001 to $2,500,000 pay a 0.06% maker fee or a 0.16% taker fee</li><li>Transactions $2,500,001 to $5,000,000 pay a 0.04% maker fee or a 0.14% taker fee</li><li>Transactions over $5,000,001 to $10,000,000 pay a 0.02% maker fee and a 0.12% taker fee</li><li>Transactions over $10,000,000 pay a 0% maker fee and a 0.10% taker fee</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-21"> Coinbase's maker-taker schedule is considerably more expensive topping out at 0.50%. For example, a $1000 trade would cost $5 dollars with Coinbase. The same trade would cost $2.60 with Kraken, charged at 0.26%. </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="PRM Roundup | Table Block" id="mntl-sc-block_4-0-22"> <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> </th> <th>Kraken</th> <th>Coinbase</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Bank account </td> <td>$0 to $10</td> <td>1.49%</td> </tr> <tr> <td>Wallet</td> <td>Free</td> <td>1.49% </td> </tr> <tr> <td>Debit/credit cards</td> <td>3.75% + €0.25</td> <td>3.99%</td> </tr> <tr> <td>ACH transfer</td> <td>0.50% + 0.9% to 1.5%</td> <td>Free </td> </tr> <tr> <td>Wire transfer</td> <td>Free to $10 deposit, $4 to $35 withdrawal</td> <td>$10 deposit, $25 withdrawal </td> </tr> <tr> <td>Crypto conversion</td> <td>Volume based</td> <td>0.50%</td> </tr> <tr> <td>Purchases</td> <td>0% to 0.26%</td> <td>0% to 0.50% </td> </tr> <tr> <td>Trades</td> <td>0% to 0.26% based on rolling 30-day volume</td> <td>0% to 0.50%</td> </tr> <tr> <td>Extra fees</td> <td> None</td> <td>May Apply</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-kraken-vs-coinbase-ease-of-use"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-23"> <span class="mntl-sc-block-heading__text"> Kraken vs. Coinbase: Ease of Use </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-24"> The user experience for Kraken and Coinbase ranks high. They both provide a reliable experience on desktops and mobile devices. Kraken’s stringent security measures are a bonus for large-sum investors, but the added precautions can be trying for users who want to start trading quickly.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-25"> Coinbase offers a quick startup process and keeps trading features and funding options simple, allowing inexperienced investors to trade right away. Coinbase enables new users to start trading with only a phone number verification. With added verification steps users can unlock higher account levels and limits. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_4-0-26"> <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_4-0-27"> While both Coinbase and Kraken are highly trusted cryptocurrency exchange platforms, Coinbase's benefits are more specific to U.S. traders, while Kraken is the best for international traders overall. It has some of the lowest fees in the industry and offers robust security for users. Additionally, the platform offers support for customers in 190 countries, whereas Coinbase is available in a little more than 100. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-28"> However, as a result of a 2023 settlement with the U.S. Securities and Exchange Commission, Kraken is ending staking services to U.S. clients. Therefore, U.S. traders will need to look to other platforms, such as Coinbase, for those services. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-29"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-30"> We compared Kraken and Coinbase side-by-side to uncover the overall cost of trading on the platform, including deposit and withdrawal fees, while considering supported fiat currencies. For both platforms, we looked at multi-layer security options and past incidences of security breaches. We also reviewed transaction types and how options differ for people living in different locations. Furthermore, we explored the quantity and popularity of supported cryptocurrencies while giving points for advanced features, such as offering a digital wallet or market watch tools. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-31"> <em>Investing in cryptocurrencies, Decentralized Finance (DeFi), and other Initial Coin Offerings (ICOs) is highly risky and speculative, and the markets can be extremely volatile. Consult with a qualified professional before making any financial decisions. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies nor can the accuracy or timeliness of the information be guaranteed.</em> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp mntl-sc-page--commerce structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block --> </div> <figure class="comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image" id="primary-image--roundup_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Kraken Vs. 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"<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://blog.kraken.com/news/settlement" rel="nofollow sponsored">Kraken to end on-chain staking services for U.S. clients.</a>" </p></li> <li class="mntl-sources__source" id="citation-17"><p>Kraken. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.kraken.com/features/margin-trading" rel="nofollow sponsored">Margin Trading</a>."</p></li> <li class="mntl-sources__source" id="citation-16"><p>Coinbase. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.coinbase.com/blog/margin-trading-is-now-available-on-coinbase-pro" rel="nofollow sponsored">Margin Trading Is Now Available on Coinbase Pro</a>."</p></li> <li class="mntl-sources__source" id="citation-18"><p>Coinbase. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.coinbase.com/blog/a-behind-the-scenes-look-at-the-biggest-and-quietest-crypto-transfer-on" rel="nofollow sponsored">A Behind the Scenes Look at the Biggest (and Quietest) Crypto Transfer on Record</a>."</p></li> <li class="mntl-sources__source" id="citation-19"><p>Coinbase. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://help.coinbase.com/en/coinbase/other-topics/legal-policies/how-is-coinbase-insured" rel="nofollow sponsored">How Is Coinbase Insured?</a>"</p></li> <li class="mntl-sources__source" id="citation-13"><p>Federal Deposit Insurance Corporation. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fdic.gov/resources/deposit-insurance/faq/index.html">Deposit Insurance FAQs</a>."</p></li> <li class="mntl-sources__source" id="citation-20"><p>Kraken. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.kraken.com/features/fee-schedule" rel="nofollow sponsored">Fee Schedule</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="5188428" data-ordinal="1" data-tax-levels="" href="https://www.investopedia.com/crypto-com-vs-coinbase-5188428" id="mntl-card-list-items_1-0"> <div class="card__media" data-tag="Buying &amp; 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Kraken and Coinbase are two of the most high-profile crypto exchange platforms in the world. Each allows you to buy various currencies using fiat money (U.S. dollars or Euro for example) and is geared toward experienced and novice investors. Both high- and low-volume traders enjoy Kraken’s low-fee services and high trading limits. New investors based in the United States appreciate the convenience of Coinbase’s digital wallet and funding options. Unlike Kraken, Coinbase caters to U.S.-based traders, and you can learn more about this platform by reading our in-depth [Coinbase review](https://www.investopedia.com/tech/coinbase-what-it-and-how-do-you-use-it/).  In this article, we weigh the pros and cons of Kraken and Coinbase and explore their distinctive features, security, fees, ease of use, and more. While both platforms offer appealing elements like mobile apps and 24/7 customer service, each has advantages that will appeal to different investors. Kraken offers flat purchasing fees, which is an excellent benefit for lower-volume traders. Coinbase provides easy funding options like PayPal and debit cards, ideal for U.S. traders. On Nov. 21, 2023, the Securities and Exchange Commission (SEC) [sued Kraken](https://www.investopedia.com/the-sec-sues-kraken-again-this-time-for-running-an-illegal-crypto-exchange-8405171) for allegedly violating multiple infractions. Kraken is accused of commingling customer funds with company funds and operating an unregistered securities exchange, clearing agency, dealer, and broker. Both allegations may impact the operation of the cryptocurrency exchange and its customers' investments. To go with the lawsuit, on Feb. 9, 2023, Kraken agreed to pay $30 million in fines and closed its staking operation to settle with the SEC. However, Kraken is allowed to continue its staking process through its subsidiary for non-U.S. clients. ### Kraken --- ![Kraken]() :fill(white):max_bytes(150000):strip_icc()/Kraken-148ac3fcdb3e416088a575d8e4a6bedc.jpg)  Kraken [Sign Up Now](https://kraken.pxf.io/c/2104074/1589189/10583) * **Main platform features:** Low fees, strong security protections, and many currency options * **Fees:** 0% to 0.26% per trade, 3.75% + €0.25 for credit card purchases, and 0.5% plus 0.9% or 1.5% for ACH purchases * **Number of cryptocurrencies supported:** 97 * **Security features:** 2FA withdrawal email confirmation, air-gapped cold storage, strict surveillance, precise API key permission control, SSL encryption * **Types of transactions supported:** Buy, sell, send, receive, exchange, futures trading, and Cryptowatch * **Maximum deposit and withdrawal:** $100,000 daily (intermediate-level members) Pros * Secure and reliable * Low fees * High deposit and withdrawal limits * Accepts some fiat currency Cons * Many options not available to U.S. users * Long verification times * Possibly challenging user interface ### Coinbase --- ![Coinbase]() :fill(white):max_bytes(150000):strip_icc()/Coinbase_Wordmark-719a982e55e945fc93a3b1770b6a9aa9.jpg) Coinbase [Sign Up Now](https://coinbase-consumer.sjv.io/c/2104074/1175448/9251) * **Main platform features:** Easy to use for beginners and can use PayPal to withdraw or sell * **Fees:** 0.50% per trade maker-taker, 3.99% for credit card purchases, and 1.49% for Coinbase USD wallet or bank account purchases * **Number of cryptocurrencies supported:** 120+ * **Security features:** Two-step verification, biometric fingerprint logins, insurance in the event Coinbase is breached, FDIC-insured USD balances, AES-256 encryption for digital wallets * **Types of transactions supported:** Buy, sell, send, receive, and exchange * **Maximum deposit and withdrawal:** $25,000 daily via ACH Pros * Excellent user experience * Easy funding options * Fiat currencies accepted Cons * Not available in all countries * Some coins aren’t accepted * High fees Kraken vs. Coinbase Expand Kraken vs. Coinbase * [Kraken](#toc-kraken) * [Coinbase](#toc-coinbase) * [At a Glance](#toc-at-a-glance) * [Features](#toc-kraken-vs-coinbase-features) * [Currencies](#toc-kraken-vs-coinbase-currencies) * [Security](#toc-kraken-vs-coinbase-security) * [Fees](#toc-kraken-vs-coinbase-fees) * [Ease of Use](#toc-kraken-vs-coinbase-ease-of-use) * [Final Verdict](#toc-final-verdict) * [Methodology](#toc-methodology) ## At a Glance | | Kraken | Coinbase | | --- | --- | --- | | Main platform features | Low fees, strong security protections, and more currency options | Easy to use for beginners and can use PayPal to withdraw or sell | | Fees | 0% to 0.26% per trade, 3.75% + €0.25 for credit card purchases, and 1.7% + $0.10 for online banking processing | 0.50% per trade, 3.99% for credit card purchases, and 1.49% for Coinbase wallet or bank account purchases | | Number of cryptocurrencies supported | 97 | 120+ | | Security features | 2FA withdrawal email confirmation, air-gapped cold storage, strict surveillance, precise API key permission control, SSL encryption | Two-step verification, biometric fingerprint logins, insurance in the event Coinbase is breached, FDIC-insured USD balances, AES-256 encryption for digital wallets | | Types of transactions supported | Buy, sell, send, receive, exchange, futures trading, and Cryptowatch | Buy, sell, send, receive, and exchange | | Maximum deposit and withdrawal amount | $100,000 | $25,000 | ## Kraken vs. Coinbase: Features Each [cryptocurrency exchange](https://www.investopedia.com/terms/b/bitcoin-exchange.asp) caters to industry investors and first-timers alike. Still, Kraken offers features ideal for worldwide investors or U.S. traders who don’t mind giving up convenience for lower fees and additional services. Coinbase’s digital options facilitate processes for U.S. investors. With both Kraken and Coinbase, you’ll get:    * **Availability:** Coinbase offers trading in over 100 countries and Kraken in 176. Both provide varying functions depending on location. For instance, Coinbase isn’t available to Hawaii residents, and Kraken isn’t available in New York or Washington. * **Customer service:** Global service is available around the clock for both platforms via live chat. Support availability can decrease, and wait times increase, during high-traffic trading times. Both offer help center guides and question-and-answer centers. * **Margin trading:** Kraken offers [margin trading](https://www.investopedia.com/news/short-bitcoin/) with up to five times leverage, which is average in the industry. Coinbase added the feature in early 2020, offering limited availability at three times leverage, but promptly disabled it by November 2020. * **Mobile apps:** Each exchange has a highly rated mobile application, offering all the features available on a web browser. However, Kraken’s app isn’t available in five countries and one territory. Kraken offers Cryptowatch, a trading terminal that analyzes and generates data on over 2,000 cryptocurrency markets. The free service allows traders to monitor price movements and market trends across various platforms and set price alerts. Investors can upgrade this service by paying one credit per alert for more timely notice.  Coinbase has an added feature, as well. They provide users with a [hot wallet](https://www.investopedia.com/terms/h/hot-wallet.asp) they can use to deposit, store, and withdraw currency. You don’t need to be a Coinbase user to use the wallet, making it ideal for traders that transfer between various fiat currencies and cryptocurrencies. Kraken offers clients a [digital wallet](https://www.investopedia.com/terms/d/digital-wallet.asp) to store coins between purchases but does not provide a personal wallet service. ## Kraken vs. Coinbase: Currencies Both exchanges support USD, EUR, CAD, AUD, GBP, CHF, and JPY [fiat currencies](https://www.investopedia.com/terms/f/fiatmoney.asp). Coinbase has over 120 cryptocurrencies available for trade, while Kraken has 97. Each provider offers different choices, so users looking for something specific can search both to find what they want.  For instance, Kraken offers Flow (FLOW) and Icon (ICX). You can trade Filecoin (FIL) and Yearn Finance (YFI) on Coinbase but not Tron (TRX) or Siacoin (SC).  In addition to Bitcoin, the [most popular cryptocurrencies](https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/) supported by Kraken and Coinbase include: * Cardano (ADA) * Bitcoin Cash (BCH) * Chainlink (LINK) * Ethereum (ETH) * Litecoin (LTC) ## Kraken vs. Coinbase: Security Security measures are crucial when considering which exchange to use. Both platforms have solid security track records, and neither has had any significant breaches. Kraken stores 95% of its assets in guarded air-gapped [cold storage](https://www.investopedia.com/articles/investing/030515/what-cold-storage-bitcoin.asp) and has strict surveillance across the entire platform and multiple checkpoints throughout the signup process.  Coinbase keeps 98% of deposits in offline, geographically distributed cold storage. The [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic-insured-account.asp) insures up to $250,000 of an individual’s USD cash balances, a plus for U.S. traders. On the user side, Kraken and Coinbase offer these multi-layered security features: * **Security keys:** When inserted into your computer drive, physical security keys authenticate your login and generate a one-time passcode. You can create several keys and store them in secure locations. * **Pretty good privacy (PGP):** Each platform guides you through setting up PGP encryption for online communications with the exchange. This precaution will help ensure all cryptocurrency correspondences are kept private and secure. * **Two-factor authentication (2FA):** Kraken and Coinbase offer 2FA when making withdrawals and transfers. The Coinbase system defaults to 2FA for SMS verification during login. * **Authenticator apps:** Another option for 2FA is authenticator apps. Both companies allow you to use these instead of a text message or email form of 2FA. Popular apps such as Google Authenticator are supported. ## Kraken vs. Coinbase: Fees One significant divide between Kraken and Coinbase comes in the form of transaction fee structures. Kraken's [maker-taker](https://www.investopedia.com/articles/active-trading/042414/what-makertaker-fees-mean-you.asp) fees are amongst the lowest in the industry. Coinbase's maker-taker fees are nearly double, maxing out at 0.50% vs. Kraken's 0.26%. Kraken calculates transaction fees according to the volume you trade in a 30-day rolling period. The fee schedule includes: * Transactions $0 to $50,000 pay a 0.16% maker fee or a 0.26% taker fee * Transactions $50,001 to $100,00 pay a 0.14% maker fee or a 0.24% taker fee * Transactions $100,001 to $250,000 pay a 0.12% maker fee or a 0.22% taker fee * Transactions $250,001 to $500,000 pay a 0.10% maker fee or a 0.20% taker fee * Transactions $500,001 to $1,000,000 pay a 0.08% maker fee or a 0.18% taker fee * Transactions $1,000,001 to $2,500,000 pay a 0.06% maker fee or a 0.16% taker fee * Transactions $2,500,001 to $5,000,000 pay a 0.04% maker fee or a 0.14% taker fee * Transactions over $5,000,001 to $10,000,000 pay a 0.02% maker fee and a 0.12% taker fee * Transactions over $10,000,000 pay a 0% maker fee and a 0.10% taker fee Coinbase's maker-taker schedule is considerably more expensive topping out at 0.50%. For example, a $1000 trade would cost $5 dollars with Coinbase. The same trade would cost $2.60 with Kraken, charged at 0.26%. | | Kraken | Coinbase | | --- | --- | --- | | Bank account | $0 to $10 | 1.49% | | Wallet | Free | 1.49% | | Debit/credit cards | 3.75% + €0.25 | 3.99% | | ACH transfer | 0.50% + 0.9% to 1.5% | Free | | Wire transfer | Free to $10 deposit, $4 to $35 withdrawal | $10 deposit, $25 withdrawal | | Crypto conversion | Volume based | 0.50% | | Purchases | 0% to 0.26% | 0% to 0.50% | | Trades | 0% to 0.26% based on rolling 30-day volume | 0% to 0.50% | | Extra fees | None | May Apply | ## Kraken vs. Coinbase: Ease of Use The user experience for Kraken and Coinbase ranks high. They both provide a reliable experience on desktops and mobile devices. Kraken’s stringent security measures are a bonus for large-sum investors, but the added precautions can be trying for users who want to start trading quickly.  Coinbase offers a quick startup process and keeps trading features and funding options simple, allowing inexperienced investors to trade right away. Coinbase enables new users to start trading with only a phone number verification. With added verification steps users can unlock higher account levels and limits. ## Final Verdict While both Coinbase and Kraken are highly trusted cryptocurrency exchange platforms, Coinbase's benefits are more specific to U.S. traders, while Kraken is the best for international traders overall. It has some of the lowest fees in the industry and offers robust security for users. Additionally, the platform offers support for customers in 190 countries, whereas Coinbase is available in a little more than 100. However, as a result of a 2023 settlement with the U.S. Securities and Exchange Commission, Kraken is ending staking services to U.S. clients. Therefore, U.S. traders will need to look to other platforms, such as Coinbase, for those services. ## Methodology We compared Kraken and Coinbase side-by-side to uncover the overall cost of trading on the platform, including deposit and withdrawal fees, while considering supported fiat currencies. For both platforms, we looked at multi-layer security options and past incidences of security breaches. We also reviewed transaction types and how options differ for people living in different locations. Furthermore, we explored the quantity and popularity of supported cryptocurrencies while giving points for advanced features, such as offering a digital wallet or market watch tools. *Investing in cryptocurrencies, Decentralized Finance (DeFi), and other Initial Coin Offerings (ICOs) is highly risky and speculative, and the markets can be extremely volatile. Consult with a qualified professional before making any financial decisions. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies nor can the accuracy or timeliness of the information be guaranteed.* :max_bytes(150000):strip_icc()/GettyImages-1349260491-18092c0321b34681ba47ec016ad097ba.jpg) :max_bytes(150000):strip_icc()/GettyImages-1349260491-18092c0321b34681ba47ec016ad097ba.jpg) Oscar Wong / 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. Kraken. "[Kraken to end on-chain staking services for U.S. clients.](https://blog.kraken.com/news/settlement)" 2. Kraken. "[Margin Trading](https://www.kraken.com/features/margin-trading)." 3. Coinbase. "[Margin Trading Is Now Available on Coinbase Pro](https://www.coinbase.com/blog/margin-trading-is-now-available-on-coinbase-pro)." 4. Coinbase. "[A Behind the Scenes Look at the Biggest (and Quietest) Crypto Transfer on Record](https://www.coinbase.com/blog/a-behind-the-scenes-look-at-the-biggest-and-quietest-crypto-transfer-on)." 5. Coinbase. "[How Is Coinbase Insured?](https://help.coinbase.com/en/coinbase/other-topics/legal-policies/how-is-coinbase-insured)" 6. Federal Deposit Insurance Corporation. "[Deposit Insurance FAQs](https://www.fdic.gov/resources/deposit-insurance/faq/index.html)." 7. Kraken. "[Fee Schedule](https://www.kraken.com/features/fee-schedule)." 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Kraken and Coinbase are two of the most high-profile crypto exchange platforms in the world. Each allows you to buy various currencies using fiat money (U.S. dollars or Euro for example) and is geared toward experienced and novice investors. Both high- and low-volume traders enjoy Kraken’s low-fee services and high trading limits. New investors based in the United States appreciate the convenience of Coinbase’s digital wallet and funding options. Unlike Kraken, Coinbase caters to U.S.-based traders, and you can learn more about this platform by reading our in-depth Coinbase review.  In this article, we weigh the pros and cons of Kraken and Coinbase and explore their distinctive features, security, fees, ease of use, and more. While both platforms offer appealing elements like mobile apps and 24/7 customer service, each has advantages that will appeal to different investors. Kraken offers flat purchasing fees, which is an excellent benefit for lower-volume traders. Coinbase provides easy funding options like PayPal and debit cards, ideal for U.S. traders. On Nov. 21, 2023, the Securities and Exchange Commission (SEC) sued Kraken for allegedly violating multiple infractions. Kraken is accused of commingling customer funds with company funds and operating an unregistered securities exchange, clearing agency, dealer, and broker. Both allegations may impact the operation of the cryptocurrency exchange and its customers' investments. To go with the lawsuit, on Feb. 9, 2023, Kraken agreed to pay $30 million in fines and closed its staking operation to settle with the SEC. However, Kraken is allowed to continue its staking process through its subsidiary for non-U.S. clients. Kraken  Kraken Sign Up Now Main platform features: Low fees, strong security protections, and many currency optionsFees: 0% to 0.26% per trade, 3.75% + €0.25 for credit card purchases, and 0.5% plus 0.9% or 1.5% for ACH purchasesNumber of cryptocurrencies supported: 97Security features: 2FA withdrawal email confirmation, air-gapped cold storage, strict surveillance, precise API key permission control, SSL encryptionTypes of transactions supported: Buy, sell, send, receive, exchange, futures trading, and CryptowatchMaximum deposit and withdrawal: $100,000 daily (intermediate-level members) Pros Secure and reliable Low fees High deposit and withdrawal limits Accepts some fiat currency Cons Many options not available to U.S. users Long verification times Possibly challenging user interface Coinbase Coinbase Sign Up Now Main platform features: Easy to use for beginners and can use PayPal to withdraw or sellFees: 0.50% per trade maker-taker, 3.99% for credit card purchases, and 1.49% for Coinbase USD wallet or bank account purchasesNumber of cryptocurrencies supported: 120+Security features: Two-step verification, biometric fingerprint logins, insurance in the event Coinbase is breached, FDIC-insured USD balances, AES-256 encryption for digital walletsTypes of transactions supported: Buy, sell, send, receive, and exchangeMaximum deposit and withdrawal: $25,000 daily via ACH Pros Excellent user experience Easy funding options Fiat currencies accepted Cons Not available in all countries Some coins aren’t accepted High fees Kraken vs. Coinbase Expand Kraken vs. Coinbase Kraken Coinbase At a Glance Features Currencies Security Fees Ease of Use Final Verdict Methodology At a Glance Kraken Coinbase Main platform features Low fees, strong security protections, and more currency options Easy to use for beginners and can use PayPal to withdraw or sell Fees  0% to 0.26% per trade, 3.75% + €0.25 for credit card purchases, and 1.7% + $0.10 for online banking processing  0.50% per trade, 3.99% for credit card purchases, and 1.49% for Coinbase wallet or bank account purchases Number of cryptocurrencies supported  97 120+ Security features  2FA withdrawal email confirmation, air-gapped cold storage, strict surveillance, precise API key permission control, SSL encryption Two-step verification, biometric fingerprint logins, insurance in the event Coinbase is breached, FDIC-insured USD balances, AES-256 encryption for digital wallets Types of transactions supported  Buy, sell, send, receive, exchange, futures trading, and Cryptowatch Buy, sell, send, receive, and exchange Maximum deposit and withdrawal amount  $100,000 $25,000 Kraken vs. Coinbase: Features Each cryptocurrency exchange caters to industry investors and first-timers alike. Still, Kraken offers features ideal for worldwide investors or U.S. traders who don’t mind giving up convenience for lower fees and additional services. Coinbase’s digital options facilitate processes for U.S. investors. With both Kraken and Coinbase, you’ll get:    Availability: Coinbase offers trading in over 100 countries and Kraken in 176. Both provide varying functions depending on location. For instance, Coinbase isn’t available to Hawaii residents, and Kraken isn’t available in New York or Washington.  Customer service: Global service is available around the clock for both platforms via live chat. Support availability can decrease, and wait times increase, during high-traffic trading times. Both offer help center guides and question-and-answer centers. Margin trading: Kraken offers margin trading with up to five times leverage, which is average in the industry. Coinbase added the feature in early 2020, offering limited availability at three times leverage, but promptly disabled it by November 2020. Mobile apps: Each exchange has a highly rated mobile application, offering all the features available on a web browser. However, Kraken’s app isn’t available in five countries and one territory. Kraken offers Cryptowatch, a trading terminal that analyzes and generates data on over 2,000 cryptocurrency markets. The free service allows traders to monitor price movements and market trends across various platforms and set price alerts. Investors can upgrade this service by paying one credit per alert for more timely notice.  Coinbase has an added feature, as well. They provide users with a hot wallet they can use to deposit, store, and withdraw currency. You don’t need to be a Coinbase user to use the wallet, making it ideal for traders that transfer between various fiat currencies and cryptocurrencies. Kraken offers clients a digital wallet to store coins between purchases but does not provide a personal wallet service. Kraken vs. Coinbase: Currencies Both exchanges support USD, EUR, CAD, AUD, GBP, CHF, and JPY fiat currencies. Coinbase has over 120 cryptocurrencies available for trade, while Kraken has 97. Each provider offers different choices, so users looking for something specific can search both to find what they want.  For instance, Kraken offers Flow (FLOW) and Icon (ICX). You can trade Filecoin (FIL) and Yearn Finance (YFI) on Coinbase but not Tron (TRX) or Siacoin (SC).  In addition to Bitcoin, the most popular cryptocurrencies supported by Kraken and Coinbase include: Cardano (ADA)Bitcoin Cash (BCH) Chainlink (LINK)Ethereum (ETH)Litecoin (LTC) Kraken vs. Coinbase: Security Security measures are crucial when considering which exchange to use. Both platforms have solid security track records, and neither has had any significant breaches. Kraken stores 95% of its assets in guarded air-gapped cold storage and has strict surveillance across the entire platform and multiple checkpoints throughout the signup process.  Coinbase keeps 98% of deposits in offline, geographically distributed cold storage. The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 of an individual’s USD cash balances, a plus for U.S. traders. On the user side, Kraken and Coinbase offer these multi-layered security features: Security keys: When inserted into your computer drive, physical security keys authenticate your login and generate a one-time passcode. You can create several keys and store them in secure locations. Pretty good privacy (PGP): Each platform guides you through setting up PGP encryption for online communications with the exchange. This precaution will help ensure all cryptocurrency correspondences are kept private and secure. Two-factor authentication (2FA): Kraken and Coinbase offer 2FA when making withdrawals and transfers. The Coinbase system defaults to 2FA for SMS verification during login.Authenticator apps: Another option for 2FA is authenticator apps. Both companies allow you to use these instead of a text message or email form of 2FA. Popular apps such as Google Authenticator are supported. Kraken vs. Coinbase: Fees One significant divide between Kraken and Coinbase comes in the form of transaction fee structures. Kraken's maker-taker fees are amongst the lowest in the industry. Coinbase's maker-taker fees are nearly double, maxing out at 0.50% vs. Kraken's 0.26%. Kraken calculates transaction fees according to the volume you trade in a 30-day rolling period. The fee schedule includes: Transactions $0 to $50,000 pay a 0.16% maker fee or a 0.26% taker feeTransactions $50,001 to $100,00 pay a 0.14% maker fee or a 0.24% taker feeTransactions $100,001 to $250,000 pay a 0.12% maker fee or a 0.22% taker feeTransactions $250,001 to $500,000 pay a 0.10% maker fee or a 0.20% taker feeTransactions $500,001 to $1,000,000 pay a 0.08% maker fee or a 0.18% taker feeTransactions $1,000,001 to $2,500,000 pay a 0.06% maker fee or a 0.16% taker feeTransactions $2,500,001 to $5,000,000 pay a 0.04% maker fee or a 0.14% taker feeTransactions over $5,000,001 to $10,000,000 pay a 0.02% maker fee and a 0.12% taker feeTransactions over $10,000,000 pay a 0% maker fee and a 0.10% taker fee Coinbase's maker-taker schedule is considerably more expensive topping out at 0.50%. For example, a $1000 trade would cost $5 dollars with Coinbase. The same trade would cost $2.60 with Kraken, charged at 0.26%.   Kraken Coinbase Bank account  $0 to $10 1.49% Wallet Free 1.49%  Debit/credit cards 3.75% + €0.25 3.99% ACH transfer 0.50% + 0.9% to 1.5% Free  Wire transfer Free to $10 deposit, $4 to $35 withdrawal $10 deposit, $25 withdrawal  Crypto conversion Volume based 0.50% Purchases 0% to 0.26% 0% to 0.50%  Trades 0% to 0.26% based on rolling 30-day volume 0% to 0.50% Extra fees  None May Apply Kraken vs. Coinbase: Ease of Use The user experience for Kraken and Coinbase ranks high. They both provide a reliable experience on desktops and mobile devices. Kraken’s stringent security measures are a bonus for large-sum investors, but the added precautions can be trying for users who want to start trading quickly.  Coinbase offers a quick startup process and keeps trading features and funding options simple, allowing inexperienced investors to trade right away. Coinbase enables new users to start trading with only a phone number verification. With added verification steps users can unlock higher account levels and limits. Final Verdict While both Coinbase and Kraken are highly trusted cryptocurrency exchange platforms, Coinbase's benefits are more specific to U.S. traders, while Kraken is the best for international traders overall. It has some of the lowest fees in the industry and offers robust security for users. Additionally, the platform offers support for customers in 190 countries, whereas Coinbase is available in a little more than 100. However, as a result of a 2023 settlement with the U.S. Securities and Exchange Commission, Kraken is ending staking services to U.S. clients. Therefore, U.S. traders will need to look to other platforms, such as Coinbase, for those services. Methodology We compared Kraken and Coinbase side-by-side to uncover the overall cost of trading on the platform, including deposit and withdrawal fees, while considering supported fiat currencies. For both platforms, we looked at multi-layer security options and past incidences of security breaches. We also reviewed transaction types and how options differ for people living in different locations. Furthermore, we explored the quantity and popularity of supported cryptocurrencies while giving points for advanced features, such as offering a digital wallet or market watch tools. Investing in cryptocurrencies, Decentralized Finance (DeFi), and other Initial Coin Offerings (ICOs) is highly risky and speculative, and the markets can be extremely volatile. Consult with a qualified professional before making any financial decisions. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies nor can the accuracy or timeliness of the information be guaranteed. Oscar Wong / 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. Kraken. "Kraken to end on-chain staking services for U.S. clients."  Kraken. "Margin Trading." Coinbase. "Margin Trading Is Now Available on Coinbase Pro." Coinbase. "A Behind the Scenes Look at the Biggest (and Quietest) Crypto Transfer on Record." Coinbase. "How Is Coinbase Insured?" Federal Deposit Insurance Corporation. "Deposit Insurance FAQs." Kraken. "Fee Schedule." Related Articles Crypto.com vs. Coinbase Gemini vs. Coinbase Kraken vs. Binance Kraken Review Binance vs. Coinbase Uphold vs. Coinbase: Which Should You Choose? Related Terms What Was FTX? An Overview of the Exchange FTX was the third-largest centralized cryptocurrency exchange. Its founder now faces a lengthy prison sentence for contributing to its bankruptcy. more What Is a Bitcoin Exchange? How It Works, Fees, and Example A Bitcoin exchange is a digital marketplace where traders can buy and sell Bitcoins using different fiat currencies or altcoins. more Coinbase Commerce: What It Is, How It Works, and Benefits Coinbase Commerce allows merchants to accept multiple cryptocurrency payments from global customers. more What Is Coinme? Coinme is a digital currency exchange and mobile app that allows you to buy and sell cryptocurrency through ATM kiosks and MoneyGram locations. more GDAX: What It Was, Rebranding As Coinbase Pro GDAX was the former name of a digital currency exchange linked to Coinbase. It changed its name to Coinbase Pro in 2018, and then to Coinbase Advanced Trade in 2022. more Gemini Exchange: Meaning, Products, Plans Gemini is a digital asset exchange founded by Cameron and Tyler Winklevoss in 2014. more

https://www.investopedia.com/student-loan-debt-by-race-5193137

Student Loan Debt by Race

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Americans collectively owe $1.63 trillion in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loans-4689727">student loan</a> debt, an amount larger than the <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 most countries on Earth.<span class="ql-inline-citation" data-cite="50"></span><span class="ql-inline-citation" data-cite="77"></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"> It’s a huge financial burden that not only continues to grow but it also places substantial pressure on an already economically vulnerable populace. This is especially true for young people and others just getting started with their careers and their families. Those from lower-income backgrounds are particularly affected. </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"> Looking at student loan debt by race, it becomes apparent that while this issue affects almost everyone in the United States to some extent, some groups are having a harder time than others. </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>Student loan debt affects more than 43 million Americans.</li><li>The cost of student loan repayments can make it difficult to save money for long-term goals, such as buying a house or saving for retirement.</li><li>Changes in median income and student debt since 2009 show an ever-widening gap between what people are earning and what they owe for their education, especially for Black students.</li><li>Black, Hispanic, and Native American borrowers generally had higher unmet financial needs and incurred more student loan debt</li><li>Black, Hispanic, and Native American borrowers were more likely to struggle financially to stay in school.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-student-loan-debt"></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 Student Loan Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/student-debt.asp">Student loan debt</a> is the end result of taking out money to pay for an education. It includes the costs of any tuition not covered by scholarships, textbooks, and living and other associated expenses. The escalating price of higher education has made it extremely difficult to afford without some form of financial assistance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> In the likely event that a student cannot find a sufficiently high-paying job after graduation, they may find it challenging to pay back their loans. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/delinquent.asp">Delinquency</a> is the consequence of missing a repayment due date by even one day. </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 is a risk of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">defaulting</a> after a certain period of delinquency, depending on the type of loan. Each of these conditions can have a substantial impact on a person’s financial circumstances, particularly when it comes to their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a>. </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"> As of Q3 2023, 43.4 million Americans have student loan debt.<span class="ql-inline-citation" data-cite="77"></span> Costly student debt repayments can make it difficult for young people to save money for long-term goals, such as raising children, buying a house, or funding a retirement plan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> However, student debt is not equally distributed across Americans. Members of some racial or ethnic groups are more likely to have larger student loan debt balances on average. </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>In Aug. 2022, President Biden announced his <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/student-loan-forgiveness.asp">student loan relief</a> for eligible borrowers, but federal courts blocked that plan, and the Supreme Court ruled it unconstitutional.<span class="ql-inline-citation" data-cite="76"></span><span class="ql-inline-citation" data-cite="59"></span> After the Supreme Court overturned the initial student debt relief plan, the Biden White House announced the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bidens-save-student-loan-relief-plan-7556263">Saving on a Valuable Education (SAVE) plan</a>. Its provisions include lowering income-driven repayment plans from 10% to 5% of discretionary income and forgiving loan balances after 10 years of payments for borrowers whose original loan balances were $12,000 or less. The plan went into effect on Aug. 22, 2023.<span class="ql-inline-citation" data-cite="74"></span><br/></p></div></div></div> <span class="heading-toc" id="toc-factors-affecting-student-loan-debt"></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"> Factors Affecting Student Loan Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> While student loan differences can be both a symptom of greater socioeconomic inequities and a reinforcement of them, other factors also can influence how much debt a group will collectively owe: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <li><strong>Differences in Income</strong>: Students and families with less income will have less money to pay for college leading to more borrowing and larger loan balances. Additionally, those with higher incomes after graduating will have an easier time paying down their debt, and those with lower incomes will have more trouble paying off student loans. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bls.asp">Bureau of Labor Statistics (BLS)</a> releases a quarterly report that shows a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wage-gaps-by-race-5073258">wage gap by race</a> does indeed exist.<span class="ql-inline-citation" data-cite="28"></span></li> <li><strong>Career Distribution</strong>: Similarly, if more members of a particular group have careers in high-paying industries—such as <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/why-colleges-want-economics-be-stem-major/">science, technology, engineering, and mathematics (STEM)</a> fields—they will be able to repay their student loans more easily. The inverse is also true: Groups with a disproportionately large presence in low-wage positions, such as food service, will likely take longer to fully repay their debt or have more trouble meeting minimum required payments.</li> <li><strong>Credit and Lending Issues</strong>: The bulk of student loan balances are federal loans, which don't check credit scores and have preset below-market interest rates that are the same for everyone. However, these loans have borrowing limits, which may lead to the need for private student loans. It takes at least decent credit to secure a private student loan, and good credit to secure a lower interest rate. Additionally, those with bad credit or belonging to certain groups may fall victim to predatory lending, making their student loan situation even more difficult.<span class="ql-inline-citation" data-cite="78"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Familial Wealth</strong>: Affluent families may choose to finance the entirety of their child’s education, leaving them debt-free upon graduation. Conversely, those who are struggling financially, likely won't have funds to pay for their children's college education. This obviously leads to the children financing all or most of the cost of college. Additionally, if the family's income is low, recent graduates may begin helping their family financially after securing a better-paying job. This takes away from funds for student loan payments.</li> <li><strong>Parental Obligations</strong>: Young parents, particularly single ones, must factor child care into their <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/budget.asp">budgets</a>. Depending on their income, they may be unable to afford this expense, basic necessities, and paying down their debt.</li> <li><strong>Local Cost of Living</strong>:<strong> </strong>The affordability of basic necessities, such as housing, can vary substantially. Those who study in areas with a higher <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cost-of-living.asp">cost of living</a> will, of course, need to borrow more money to afford their living expenses.</li> <li><strong>Type of Institution</strong>: The cost of attendance at an institution can vary based on whether it’s public or private, for-profit or nonprofit, and two-year or four-year. These differences show up in tuition, fees, room and board, books, and other academic supplies.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Type of Loan</strong>:<strong> </strong>There are two basic types of student loans: federal loans funded by the U.S. government and private loans issued by banks and other non-federal lenders. Multiple factors can determine how difficult each one is to repay. For example, private loans lack flexible repayment terms or forbearance options that federal loans have. They also tend to have higher interest rates.</li> <li><strong>Graduation Status</strong>:<strong> </strong>If a student takes out a loan for college but doesn’t graduate, they’re stuck with a significant debt without the economic benefits that come with a degree. Additionally, those seeking a postgraduate education may need to take out additional money on top of the debt accumulated from undergraduate education.</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-special-considerations"></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"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Before we share our findings on how student loan debt differs by race, there’s one more issue to discuss: Much of the available research on the differences in student loan debt by race compares Black and White borrowers only. </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"> There is less information that includes the full range of racial groups within the United States. Certain data sets covering one or more group(s) don’t include others. Or the information on the wider range of groups may originate from a different (and sometimes less recent) source. </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"> Note that the names of certain groups used below may not be entirely consistent throughout the article to match the terminology used by our sources. For example, although Investopedia prefers the identifier “Latinx,” this article uses categories such as “Hispanic” to provide an accurate representation of how the study that we quote reported the information. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_34-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/vqHD8/3/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Average Student Loan Debt by Race or Ethnicity (2019)"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-size-of-student-loan-debt-by-race"></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"> Size of Student Loan Debt by Race </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> According to a report from the Board of Governors of 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 System</a> (which compares Black, White, and Latinx borrowers to a large group labeled "Other"), Black borrowers took out the largest amount of federal student loan money in 2022. This amount averaged $53,430 per borrower. Although “Other” was technically the second highest at $51,810, the Fed includes several groups in this category: Asian, American Indian, Alaska Native, Native Hawaiian, Pacific Islander, other races, and those with more than one racial identity. This limits the categories' effectiveness in comparisons. White borrowers accounted for the second-largest amount for a single group. Finally, Hispanic borrowers took out the smallest amount on average, at $26,460.<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_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> This information is from the Fed's "Survey of Consumer Finances," which is conducted every three years.<span class="ql-inline-citation" data-cite="70"></span> The most recent survey is from 2022.<span class="ql-inline-citation" data-cite="69"></span> However, here are a few surprising points to note: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <li>When the Fed began recording this data in 1989, Black borrowers had the smallest amount of student loan money. They overtook all other categories (excluding “Other”) after 2010, with one dip in 2013.<span class="ql-inline-citation" data-cite="14"></span></li><li>In 2019, the Institute on Assets and Social Policy found that the average Black borrower still owed 95% of their original loan amount after two decades, compared to White borrowers who, on average, have paid off most of their student debt.<span class="ql-inline-citation" data-cite="53"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_43-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/ZhWVR/5/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Average Student Loan Debt by Gender &amp; Race"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> The general trends are relatively similar to what the Fed reported when you look at the intersection of race and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-debt-by-gender-5194243">gender</a>. Here’s what the American Association of University Women found: </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>Black women had the largest average student loan debt, at $41,466.05.</li><li>The next largest group was the Pacific Islanders/Hawaiian women at $38,747.44, then American Indian/Alaska Native women at $36,184.40, then White women at $33,851.98.</li><li>Hispanic/Latina borrowers were the next highest group at $29,302.45.</li><li>Asian women borrowers owed the lowest amounts.<span class="ql-inline-citation" data-cite="27"></span></li> </ul> <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/0hLjT/6/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Percent of Graduates With Debt by Race"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Additional discrepancies can be seen in how loans are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/distribution.asp">distributed</a>, depending on both race and where the student studied. This is what the Student Borrower Protection Center reported (also visible in the above chart): </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>Black/African American graduates across all types of institutions constituted the highest percentage of borrowers to finance higher education in 2020.</li><li>Asian borrowers had the lowest percentages<strong> </strong>across all categories, meaning they were the most likely to graduate without any student loan debt.</li><li>White borrowers had the second highest percentage in public two-year universities, the third highest in both public four-year and private nonprofit two-year universities, and the fourth highest in private nonprofit four-year universities.</li><li>Percentages for both Hispanic/Latinx and American Indian/Alaska Native graduates were generally on the higher side, excluding public two-year institutions.</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"> It’s also worth noting that, across all five groups, the percentages of borrowers for private nonprofit two-year universities were both the highest and had the least amount of difference among the groups.<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_56-0"></div> <span class="heading-toc" id="toc-impact-of-race-on-student-loan-debt"></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"> Impact of Race on Student Loan Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> It’s no secret that student loan debt is a major problem for most borrowers, regardless of their background. Looking at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/median.asp">median</a> income and student debt from 2009 to 2019, the Brookings Institution found an ever-widening gap between what people earn and what they owe for their education. While the difference has diminished over time for Asian borrowers, the gap has grown wider for Black borrowers.<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_59-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-subheading__text"> Black Borrowers </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Racial differences in family wealth<strong> </strong>exacerbate the debt issue for all students of color, but especially for Black borrowers. According to the Student Borrower Protection Center, Black students had less household wealth and took on more loans to finance their education in 2020 than other groups.<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_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Additionally, a 2017 report from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal-reserve-bank-of-stlouis.asp">Federal Reserve Bank of St. Louis</a> found that postgraduate White households generally receive financial support from their family, whereas their Black counterparts instead contribute portions of their income to help their family.<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_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> These contributions limit the ability to build <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wealth.asp">wealth</a>. As a result, when these borrowers have children of their own who eventually enroll in college, the cycle often begins anew. Carrying larger amounts of student loan debt can also damage the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-worthiness.asp">creditworthiness</a> of Black households.<span class="ql-inline-citation" data-cite="25"></span> <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-debt-affect-economy-8550501">This also can impact future wealth-building</a>, such as the ability to qualify for a mortgage and buy a house. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_67-0"> <span class="mntl-sc-block-subheading__text"> Latinx Borrowers </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> This population also faces financial difficulties as a result of their student loan debt. With educational costs rising and grant amounts shrinking, UnidosUS found that Latinx students and their families frequently chose to pay out of pocket and/or take out student loans to finance their education in 2019.<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_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> Despite attending college with lower incomes and less intergenerational wealth than their White counterparts, Latinx borrowers on average paid more to attend college than White borrowers. This is after accounting for differences in expected family contribution and grant aid, and not a simple comparison of tuition.<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_71-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-subheading__text"> The Role of Private Student Loans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Further worsening the student debt crisis for borrowers of color are private student loans. Private loans can be useful to augment federal loans, which may not let <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-debt-by-age-5200927">students</a> borrow enough to fund the cost of their school. </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"> However, private loans lack many of the safeguards that federal student loans offer, which can protect a student from going into default due to economic hardship. As a result, private borrowers have fewer options should they fall behind on their payments. </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"> What’s more, most federal loans don’t require 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 check</a> and have a set interest rate. Private loans generally do require a credit check—and interest rates are based on the credit ratings of the borrowers and may require a co-signer. The racial wealth gap can result in private student loans costing more, as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/forgiven-student-loans-on-credit-reports-7371496">borrowers with lower credit scores</a> may be charged higher interest rates. However, it should be noted that not everyone with low income has a low credit score, and not all racial minorities have a low income. Furthermore, there is a positive side to credit checks; in some instances, they can prevent people from borrowing what they will have trouble paying back. </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"> According to the Student Borrower Protection Center, students of color (specifically Black and Latinx students) and low-income borrowers overall used private loans less often than White borrowers but were more likely to have trouble paying down their private loan debt. Black students, in particular, were four times as likely to have trouble repaying private debt compared to White students.<span class="ql-inline-citation" data-cite="34"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> Additionally, private student loans are more often taken out by students attending for-profit institutions. A number of these institutions, including Corinthian Colleges and ITT Technical Institute, have been accused of fraud related to student loans. Many of these loans take the form of shadow debt, a largely unregulated market that often features high interest rates, misleading marketing, and risky <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwriting.asp">underwriting</a>.<span class="ql-inline-citation" data-cite="45"></span><span class="ql-inline-citation" data-cite="46"></span> Since Black borrowers are overrepresented in for-profit institutions, they are also the most likely to fall victim to this form of predatory debt.<span class="ql-inline-citation" data-cite="79"></span> </p> <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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_83-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/arWWp/1/" frameborder="0" id="mntl-sc-block-iframe__uri_4-0" title="Private Student Loan Usage &amp; Outcomes"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_85-0"> <span class="mntl-sc-block-subheading__text"> Differences in Repayment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> Perhaps the greatest impact of discrepancies in student lending is how they affect each group’s ability to repay their debt. A 2023 economic brief by the Federal Reserve Bank of Richmond reported that 30% of Black college graduates defaulted on their federal student loans as opposed to 10% of their White counterparts.<span class="ql-inline-citation" data-cite="80"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_88-0"> Several factors may feed this discrepancy, including net worth at the beginning of the educational period. White families surveyed typically had positive assets while Black families started from a place of financial overextension. This overextension prompts the need for greater amounts of student loans from the start.<span class="ql-inline-citation" data-cite="80"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> In 2019, the Center for American Progress broke down the differences in student loan default rates by race and institution type from two years prior. Loan default rates were lowest for borrowers who attended both public four-year and private nonprofit four-year universities, followed by public two-year institutions, and for-profit institutions had the highest default rate. White students had the lowest default rates across all categories. </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"> Hispanic or Latinx borrowers had figures similar to their White counterparts, with the largest difference between the two groups being 7% for “All Institutions.” Black students had the highest default rates, with the largest being 42% for private for-profits.<span class="ql-inline-citation" data-cite="36"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_94-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/DQ8T6/1/" frameborder="0" id="mntl-sc-block-iframe__uri_5-0" title="Student Loan Default Rates by Race &amp; Institution"></iframe></div> <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"> As discussed previously, being unable to repay loans will cause graduates to lapse into <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/delinquent.asp">delinquency</a> and, eventually, default. The potentially devastating financial consequences disproportionately fall on Black communities, and difficulties in paying down debt cannot be attributed to income inequality alone. </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"> According to Brookings, although there were quantifiable family income and wealth differences between Black borrowers and White borrowers in 2018, these accounted for roughly half of the default rate gap between these two groups. Even further controlling for differences in degree attainment, college grade point average, and post-college income and employment, this gap remains.<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_99-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_100-0"> The author posited that differences in loan counseling or servicing may have been the cause of the remaining gap.<span class="ql-inline-citation" data-cite="39"></span> In 2022, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp">Consumer Financial Protection Bureau (CFPB)</a> found approximately 8,407 complaints from borrowers regarding both federal and private loans between Sept. 2021 and Aug. 2022, with the most common issues pertaining to dealing with a lender/servicer, struggling to repay loans, and problems with a credit report or score.<span class="ql-inline-citation" data-cite="61"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_101-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_102-0"> The CFPB also reported that predatory schools have targeted students of color, which results in lower future earnings, high debt balances, and high default rates.<span class="ql-inline-citation" data-cite="62"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_104-0"> Ultimately, differences in repayment rates are likely the result of all of the factors discussed throughout this piece, including the greater percentage of Black borrowers who also financially support their families and the greater proportion of White borrowers whose families help support them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_106-0"> <span class="mntl-sc-block-subheading__text"> Information Gaps </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_107-0"> Although there’s no doubt that student debt disproportionately affects borrowers of color, it’s difficult to determine the full scope of its effects. As mentioned previously, because much of the existing research focuses on Black and White borrowers, there is less information about how other racial and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-racial-gap-in-financial-literacy-5119258">ethnic groups are affected</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_108-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_109-0"> For instance, while the Lumina Foundation was able to determine that Black, Hispanic, and Native American borrowers generally had higher unmet financial needs, incurred more student loan debt, and were more likely to struggle financially to stay in school in 2020, it didn’t specify whether this was also the case for Asian borrowers and Native Hawaiian/Pacific Islander borrowers.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_110-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_111-0"><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_112-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>A 2016 report from Buzzfeed News found that most of America's tribal colleges had stopped accepting student loan money altogether because of high rates of default among Native American borrowers. Tribal colleges instead offer scholarships and waivers to keep their students from defaulting on loans, which could jeopardize the college's access to federal aid.<span class="ql-inline-citation" data-cite="38"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_113-0"> In fact, Asian Americans are often excluded from these data sets as a separate race altogether, as is evident in the Fed’s findings on average student debt amounts and the Center for American Progress’ research on default rates by race. At least with the former, the Fed defined the “Other” category in supplemental materials to 2022 report to include Asian borrowers, but it’s unclear whether that’s also true for the latter’s “All borrowers” grouping, as that could be just the three groups already included in the chart.<span class="ql-inline-citation" data-cite="83"></span><span class="ql-inline-citation" data-cite="36"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_114-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_115-0"><span class="heading-toc" id="toc-which-raceethnicity-has-the-highest-student-loan-debt"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Race/Ethnicity Has the Highest Student Loan Debt?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Black adults have the highest student loan debt.<span class="ql-inline-citation" data-cite="14"></span> For the majority of indicators, black adults held the highest spot, including student loan borrowing rates, default rates, and average debt. These numbers highlight the racial wealth gap in college and after.<span class="ql-inline-citation" data-cite="36"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_116-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_117-0"><span class="heading-toc" id="toc-why-is-american-student-debt-so-high"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is American Student Debt So High?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are a few factors behind high American student debt. These include the rising cost of tuition, the growing availability of federal loans, and wage stagnation. Between 1980 and 2019, college costs grew by 169%. For the same period, wages for adults between the ages of 22 and 27 increased by 19%.<span class="ql-inline-citation" data-cite="56"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_118-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_119-0"><span class="heading-toc" id="toc-what-share-of-degrees-are-earned-by-which-races"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Share of Degrees Are Earned by Which Races?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>White students earned 59.7% of bachelor's degrees in 2020–2021. It's interesting to note that Whites made up 75.5% of the U.S. population in 2020. Hispanics earned 16.5% of degrees while forming 19.1% of the country's population. Black students earned 10.5% of degrees, while African Americans represent 13.6% of the population. Asians and Pacific Islanders earned 8.6% of bachelor's degrees that academic year and make up 6.6% of the population.<span class="ql-inline-citation" data-cite="82"></span><span class="ql-inline-citation" data-cite="71"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_120-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_121-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_122-0"> Given the hefty financial burden that education debt places on most Americans, the government has provided some measure of student loan relief. </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"> The problem of student debt isn’t simple, and there is no silver-bullet solution to address the debt burden faced by students, including the particularly high burden faced by students of certain backgrounds. However, the assumption that hard work and a college degree are all that’s needed to be financially successful ignores the reality of today's economy as well as the differences in the family situation, upbringing, and economic background of students. </p></div>

Americans collectively owe $1.63 trillion in [student loan](https://www.investopedia.com/student-loans-4689727) debt, an amount larger than the [gross domestic product (GDP)](https://www.investopedia.com/terms/g/gdp.asp) of most countries on Earth. It’s a huge financial burden that not only continues to grow but it also places substantial pressure on an already economically vulnerable populace. This is especially true for young people and others just getting started with their careers and their families. Those from lower-income backgrounds are particularly affected. Looking at student loan debt by race, it becomes apparent that while this issue affects almost everyone in the United States to some extent, some groups are having a harder time than others. ### Key Takeaways * Student loan debt affects more than 43 million Americans. * The cost of student loan repayments can make it difficult to save money for long-term goals, such as buying a house or saving for retirement. * Changes in median income and student debt since 2009 show an ever-widening gap between what people are earning and what they owe for their education, especially for Black students. * Black, Hispanic, and Native American borrowers generally had higher unmet financial needs and incurred more student loan debt * Black, Hispanic, and Native American borrowers were more likely to struggle financially to stay in school. ## Understanding Student Loan Debt [Student loan debt](https://www.investopedia.com/terms/s/student-debt.asp) is the end result of taking out money to pay for an education. It includes the costs of any tuition not covered by scholarships, textbooks, and living and other associated expenses. The escalating price of higher education has made it extremely difficult to afford without some form of financial assistance. In the likely event that a student cannot find a sufficiently high-paying job after graduation, they may find it challenging to pay back their loans. [Delinquency](https://www.investopedia.com/terms/d/delinquent.asp) is the consequence of missing a repayment due date by even one day. There is a risk of [defaulting](https://www.investopedia.com/terms/d/default2.asp) after a certain period of delinquency, depending on the type of loan. Each of these conditions can have a substantial impact on a person’s financial circumstances, particularly when it comes to their [credit score](https://www.investopedia.com/terms/c/credit_score.asp) and [credit report](https://www.investopedia.com/terms/c/creditreport.asp). As of Q3 2023, 43.4 million Americans have student loan debt. Costly student debt repayments can make it difficult for young people to save money for long-term goals, such as raising children, buying a house, or funding a retirement plan. However, student debt is not equally distributed across Americans. Members of some racial or ethnic groups are more likely to have larger student loan debt balances on average. ### In Aug. 2022, President Biden announced his [student loan relief](https://www.investopedia.com/terms/s/student-loan-forgiveness.asp) for eligible borrowers, but federal courts blocked that plan, and the Supreme Court ruled it unconstitutional. After the Supreme Court overturned the initial student debt relief plan, the Biden White House announced the [Saving on a Valuable Education (SAVE) plan](https://www.investopedia.com/bidens-save-student-loan-relief-plan-7556263). Its provisions include lowering income-driven repayment plans from 10% to 5% of discretionary income and forgiving loan balances after 10 years of payments for borrowers whose original loan balances were $12,000 or less. The plan went into effect on Aug. 22, 2023. ## Factors Affecting Student Loan Debt While student loan differences can be both a symptom of greater socioeconomic inequities and a reinforcement of them, other factors also can influence how much debt a group will collectively owe: * **Differences in Income**: Students and families with less income will have less money to pay for college leading to more borrowing and larger loan balances. Additionally, those with higher incomes after graduating will have an easier time paying down their debt, and those with lower incomes will have more trouble paying off student loans. The [Bureau of Labor Statistics (BLS)](https://www.investopedia.com/terms/b/bls.asp) releases a quarterly report that shows a [wage gap by race](https://www.investopedia.com/wage-gaps-by-race-5073258) does indeed exist. * **Career Distribution**: Similarly, if more members of a particular group have careers in high-paying industries—such as [science, technology, engineering, and mathematics (STEM)](https://www.investopedia.com/news/why-colleges-want-economics-be-stem-major/) fields—they will be able to repay their student loans more easily. The inverse is also true: Groups with a disproportionately large presence in low-wage positions, such as food service, will likely take longer to fully repay their debt or have more trouble meeting minimum required payments. * **Credit and Lending Issues**: The bulk of student loan balances are federal loans, which don't check credit scores and have preset below-market interest rates that are the same for everyone. However, these loans have borrowing limits, which may lead to the need for private student loans. It takes at least decent credit to secure a private student loan, and good credit to secure a lower interest rate. Additionally, those with bad credit or belonging to certain groups may fall victim to predatory lending, making their student loan situation even more difficult. * **Familial Wealth**: Affluent families may choose to finance the entirety of their child’s education, leaving them debt-free upon graduation. Conversely, those who are struggling financially, likely won't have funds to pay for their children's college education. This obviously leads to the children financing all or most of the cost of college. Additionally, if the family's income is low, recent graduates may begin helping their family financially after securing a better-paying job. This takes away from funds for student loan payments. * **Parental Obligations**: Young parents, particularly single ones, must factor child care into their [budgets](https://www.investopedia.com/terms/b/budget.asp). Depending on their income, they may be unable to afford this expense, basic necessities, and paying down their debt. * **Local Cost of Living**:The affordability of basic necessities, such as housing, can vary substantially. Those who study in areas with a higher [cost of living](https://www.investopedia.com/terms/c/cost-of-living.asp) will, of course, need to borrow more money to afford their living expenses. * **Type of Institution**: The cost of attendance at an institution can vary based on whether it’s public or private, for-profit or nonprofit, and two-year or four-year. These differences show up in tuition, fees, room and board, books, and other academic supplies. * **Type of Loan**:There are two basic types of student loans: federal loans funded by the U.S. government and private loans issued by banks and other non-federal lenders. Multiple factors can determine how difficult each one is to repay. For example, private loans lack flexible repayment terms or forbearance options that federal loans have. They also tend to have higher interest rates. * **Graduation Status**:If a student takes out a loan for college but doesn’t graduate, they’re stuck with a significant debt without the economic benefits that come with a degree. Additionally, those seeking a postgraduate education may need to take out additional money on top of the debt accumulated from undergraduate education. ## Special Considerations Before we share our findings on how student loan debt differs by race, there’s one more issue to discuss: Much of the available research on the differences in student loan debt by race compares Black and White borrowers only. There is less information that includes the full range of racial groups within the United States. Certain data sets covering one or more group(s) don’t include others. Or the information on the wider range of groups may originate from a different (and sometimes less recent) source. Note that the names of certain groups used below may not be entirely consistent throughout the article to match the terminology used by our sources. For example, although Investopedia prefers the identifier “Latinx,” this article uses categories such as “Hispanic” to provide an accurate representation of how the study that we quote reported the information. ## Size of Student Loan Debt by Race According to a report from the Board of Governors of the [Federal Reserve System](https://www.investopedia.com/terms/f/federalreservebank.asp) (which compares Black, White, and Latinx borrowers to a large group labeled "Other"), Black borrowers took out the largest amount of federal student loan money in 2022. This amount averaged $53,430 per borrower. Although “Other” was technically the second highest at $51,810, the Fed includes several groups in this category: Asian, American Indian, Alaska Native, Native Hawaiian, Pacific Islander, other races, and those with more than one racial identity. This limits the categories' effectiveness in comparisons. White borrowers accounted for the second-largest amount for a single group. Finally, Hispanic borrowers took out the smallest amount on average, at $26,460. This information is from the Fed's "Survey of Consumer Finances," which is conducted every three years. The most recent survey is from 2022. However, here are a few surprising points to note: * When the Fed began recording this data in 1989, Black borrowers had the smallest amount of student loan money. They overtook all other categories (excluding “Other”) after 2010, with one dip in 2013. * In 2019, the Institute on Assets and Social Policy found that the average Black borrower still owed 95% of their original loan amount after two decades, compared to White borrowers who, on average, have paid off most of their student debt. The general trends are relatively similar to what the Fed reported when you look at the intersection of race and [gender](https://www.investopedia.com/student-loan-debt-by-gender-5194243). Here’s what the American Association of University Women found: * Black women had the largest average student loan debt, at $41,466.05. * The next largest group was the Pacific Islanders/Hawaiian women at $38,747.44, then American Indian/Alaska Native women at $36,184.40, then White women at $33,851.98. * Hispanic/Latina borrowers were the next highest group at $29,302.45. * Asian women borrowers owed the lowest amounts. Additional discrepancies can be seen in how loans are [distributed](https://www.investopedia.com/terms/d/distribution.asp), depending on both race and where the student studied. This is what the Student Borrower Protection Center reported (also visible in the above chart): * Black/African American graduates across all types of institutions constituted the highest percentage of borrowers to finance higher education in 2020. * Asian borrowers had the lowest percentagesacross all categories, meaning they were the most likely to graduate without any student loan debt. * White borrowers had the second highest percentage in public two-year universities, the third highest in both public four-year and private nonprofit two-year universities, and the fourth highest in private nonprofit four-year universities. * Percentages for both Hispanic/Latinx and American Indian/Alaska Native graduates were generally on the higher side, excluding public two-year institutions. It’s also worth noting that, across all five groups, the percentages of borrowers for private nonprofit two-year universities were both the highest and had the least amount of difference among the groups. ## Impact of Race on Student Loan Debt It’s no secret that student loan debt is a major problem for most borrowers, regardless of their background. Looking at [median](https://www.investopedia.com/terms/m/median.asp) income and student debt from 2009 to 2019, the Brookings Institution found an ever-widening gap between what people earn and what they owe for their education. While the difference has diminished over time for Asian borrowers, the gap has grown wider for Black borrowers. ### Black Borrowers Racial differences in family wealthexacerbate the debt issue for all students of color, but especially for Black borrowers. According to the Student Borrower Protection Center, Black students had less household wealth and took on more loans to finance their education in 2020 than other groups. Additionally, a 2017 report from the [Federal Reserve Bank of St. Louis](https://www.investopedia.com/terms/f/federal-reserve-bank-of-stlouis.asp) found that postgraduate White households generally receive financial support from their family, whereas their Black counterparts instead contribute portions of their income to help their family. These contributions limit the ability to build [wealth](https://www.investopedia.com/terms/w/wealth.asp). As a result, when these borrowers have children of their own who eventually enroll in college, the cycle often begins anew. Carrying larger amounts of student loan debt can also damage the [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp) of Black households. [This also can impact future wealth-building](https://www.investopedia.com/student-debt-affect-economy-8550501), such as the ability to qualify for a mortgage and buy a house. ### Latinx Borrowers This population also faces financial difficulties as a result of their student loan debt. With educational costs rising and grant amounts shrinking, UnidosUS found that Latinx students and their families frequently chose to pay out of pocket and/or take out student loans to finance their education in 2019. Despite attending college with lower incomes and less intergenerational wealth than their White counterparts, Latinx borrowers on average paid more to attend college than White borrowers. This is after accounting for differences in expected family contribution and grant aid, and not a simple comparison of tuition. ### The Role of Private Student Loans Further worsening the student debt crisis for borrowers of color are private student loans. Private loans can be useful to augment federal loans, which may not let [students](https://www.investopedia.com/student-loan-debt-by-age-5200927) borrow enough to fund the cost of their school. However, private loans lack many of the safeguards that federal student loans offer, which can protect a student from going into default due to economic hardship. As a result, private borrowers have fewer options should they fall behind on their payments. What’s more, most federal loans don’t require a [credit check](https://www.investopedia.com/terms/c/credit-history.asp) and have a set interest rate. Private loans generally do require a credit check—and interest rates are based on the credit ratings of the borrowers and may require a co-signer. The racial wealth gap can result in private student loans costing more, as [borrowers with lower credit scores](https://www.investopedia.com/forgiven-student-loans-on-credit-reports-7371496) may be charged higher interest rates. However, it should be noted that not everyone with low income has a low credit score, and not all racial minorities have a low income. Furthermore, there is a positive side to credit checks; in some instances, they can prevent people from borrowing what they will have trouble paying back. According to the Student Borrower Protection Center, students of color (specifically Black and Latinx students) and low-income borrowers overall used private loans less often than White borrowers but were more likely to have trouble paying down their private loan debt. Black students, in particular, were four times as likely to have trouble repaying private debt compared to White students. Additionally, private student loans are more often taken out by students attending for-profit institutions. A number of these institutions, including Corinthian Colleges and ITT Technical Institute, have been accused of fraud related to student loans. Many of these loans take the form of shadow debt, a largely unregulated market that often features high interest rates, misleading marketing, and risky [underwriting](https://www.investopedia.com/terms/u/underwriting.asp). Since Black borrowers are overrepresented in for-profit institutions, they are also the most likely to fall victim to this form of predatory debt. ### Differences in Repayment Perhaps the greatest impact of discrepancies in student lending is how they affect each group’s ability to repay their debt. A 2023 economic brief by the Federal Reserve Bank of Richmond reported that 30% of Black college graduates defaulted on their federal student loans as opposed to 10% of their White counterparts. Several factors may feed this discrepancy, including net worth at the beginning of the educational period. White families surveyed typically had positive assets while Black families started from a place of financial overextension. This overextension prompts the need for greater amounts of student loans from the start. In 2019, the Center for American Progress broke down the differences in student loan default rates by race and institution type from two years prior. Loan default rates were lowest for borrowers who attended both public four-year and private nonprofit four-year universities, followed by public two-year institutions, and for-profit institutions had the highest default rate. White students had the lowest default rates across all categories. Hispanic or Latinx borrowers had figures similar to their White counterparts, with the largest difference between the two groups being 7% for “All Institutions.” Black students had the highest default rates, with the largest being 42% for private for-profits. As discussed previously, being unable to repay loans will cause graduates to lapse into [delinquency](https://www.investopedia.com/terms/d/delinquent.asp) and, eventually, default. The potentially devastating financial consequences disproportionately fall on Black communities, and difficulties in paying down debt cannot be attributed to income inequality alone. According to Brookings, although there were quantifiable family income and wealth differences between Black borrowers and White borrowers in 2018, these accounted for roughly half of the default rate gap between these two groups. Even further controlling for differences in degree attainment, college grade point average, and post-college income and employment, this gap remains. The author posited that differences in loan counseling or servicing may have been the cause of the remaining gap. In 2022, the [Consumer Financial Protection Bureau (CFPB)](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp) found approximately 8,407 complaints from borrowers regarding both federal and private loans between Sept. 2021 and Aug. 2022, with the most common issues pertaining to dealing with a lender/servicer, struggling to repay loans, and problems with a credit report or score. The CFPB also reported that predatory schools have targeted students of color, which results in lower future earnings, high debt balances, and high default rates. Ultimately, differences in repayment rates are likely the result of all of the factors discussed throughout this piece, including the greater percentage of Black borrowers who also financially support their families and the greater proportion of White borrowers whose families help support them. ### Information Gaps Although there’s no doubt that student debt disproportionately affects borrowers of color, it’s difficult to determine the full scope of its effects. As mentioned previously, because much of the existing research focuses on Black and White borrowers, there is less information about how other racial and [ethnic groups are affected](https://www.investopedia.com/the-racial-gap-in-financial-literacy-5119258). For instance, while the Lumina Foundation was able to determine that Black, Hispanic, and Native American borrowers generally had higher unmet financial needs, incurred more student loan debt, and were more likely to struggle financially to stay in school in 2020, it didn’t specify whether this was also the case for Asian borrowers and Native Hawaiian/Pacific Islander borrowers. ### A 2016 report from Buzzfeed News found that most of America's tribal colleges had stopped accepting student loan money altogether because of high rates of default among Native American borrowers. Tribal colleges instead offer scholarships and waivers to keep their students from defaulting on loans, which could jeopardize the college's access to federal aid. In fact, Asian Americans are often excluded from these data sets as a separate race altogether, as is evident in the Fed’s findings on average student debt amounts and the Center for American Progress’ research on default rates by race. At least with the former, the Fed defined the “Other” category in supplemental materials to 2022 report to include Asian borrowers, but it’s unclear whether that’s also true for the latter’s “All borrowers” grouping, as that could be just the three groups already included in the chart. ## Which Race/Ethnicity Has the Highest Student Loan Debt? Black adults have the highest student loan debt. For the majority of indicators, black adults held the highest spot, including student loan borrowing rates, default rates, and average debt. These numbers highlight the racial wealth gap in college and after. ## Why Is American Student Debt So High? There are a few factors behind high American student debt. These include the rising cost of tuition, the growing availability of federal loans, and wage stagnation. Between 1980 and 2019, college costs grew by 169%. For the same period, wages for adults between the ages of 22 and 27 increased by 19%. ## What Share of Degrees Are Earned by Which Races? White students earned 59.7% of bachelor's degrees in 2020–2021. It's interesting to note that Whites made up 75.5% of the U.S. population in 2020. Hispanics earned 16.5% of degrees while forming 19.1% of the country's population. Black students earned 10.5% of degrees, while African Americans represent 13.6% of the population. Asians and Pacific Islanders earned 8.6% of bachelor's degrees that academic year and make up 6.6% of the population. ## The Bottom Line Given the hefty financial burden that education debt places on most Americans, the government has provided some measure of student loan relief. The problem of student debt isn’t simple, and there is no silver-bullet solution to address the debt burden faced by students, including the particularly high burden faced by students of certain backgrounds. However, the assumption that hard work and a college degree are all that’s needed to be financially successful ignores the reality of today's economy as well as the differences in the family situation, upbringing, and economic background of students.

Americans collectively owe $1.63 trillion in student loan debt, an amount larger than the gross domestic product (GDP) of most countries on Earth. It’s a huge financial burden that not only continues to grow but it also places substantial pressure on an already economically vulnerable populace. This is especially true for young people and others just getting started with their careers and their families. Those from lower-income backgrounds are particularly affected. Looking at student loan debt by race, it becomes apparent that while this issue affects almost everyone in the United States to some extent, some groups are having a harder time than others. Key Takeaways Student loan debt affects more than 43 million Americans.The cost of student loan repayments can make it difficult to save money for long-term goals, such as buying a house or saving for retirement.Changes in median income and student debt since 2009 show an ever-widening gap between what people are earning and what they owe for their education, especially for Black students.Black, Hispanic, and Native American borrowers generally had higher unmet financial needs and incurred more student loan debtBlack, Hispanic, and Native American borrowers were more likely to struggle financially to stay in school. Understanding Student Loan Debt Student loan debt is the end result of taking out money to pay for an education. It includes the costs of any tuition not covered by scholarships, textbooks, and living and other associated expenses. The escalating price of higher education has made it extremely difficult to afford without some form of financial assistance. In the likely event that a student cannot find a sufficiently high-paying job after graduation, they may find it challenging to pay back their loans. Delinquency is the consequence of missing a repayment due date by even one day. There is a risk of defaulting after a certain period of delinquency, depending on the type of loan. Each of these conditions can have a substantial impact on a person’s financial circumstances, particularly when it comes to their credit score and credit report. As of Q3 2023, 43.4 million Americans have student loan debt. Costly student debt repayments can make it difficult for young people to save money for long-term goals, such as raising children, buying a house, or funding a retirement plan. However, student debt is not equally distributed across Americans. Members of some racial or ethnic groups are more likely to have larger student loan debt balances on average. In Aug. 2022, President Biden announced his student loan relief for eligible borrowers, but federal courts blocked that plan, and the Supreme Court ruled it unconstitutional. After the Supreme Court overturned the initial student debt relief plan, the Biden White House announced the Saving on a Valuable Education (SAVE) plan. Its provisions include lowering income-driven repayment plans from 10% to 5% of discretionary income and forgiving loan balances after 10 years of payments for borrowers whose original loan balances were $12,000 or less. The plan went into effect on Aug. 22, 2023. Factors Affecting Student Loan Debt While student loan differences can be both a symptom of greater socioeconomic inequities and a reinforcement of them, other factors also can influence how much debt a group will collectively owe: Differences in Income: Students and families with less income will have less money to pay for college leading to more borrowing and larger loan balances. Additionally, those with higher incomes after graduating will have an easier time paying down their debt, and those with lower incomes will have more trouble paying off student loans. The Bureau of Labor Statistics (BLS) releases a quarterly report that shows a wage gap by race does indeed exist. Career Distribution: Similarly, if more members of a particular group have careers in high-paying industries—such as science, technology, engineering, and mathematics (STEM) fields—they will be able to repay their student loans more easily. The inverse is also true: Groups with a disproportionately large presence in low-wage positions, such as food service, will likely take longer to fully repay their debt or have more trouble meeting minimum required payments. Credit and Lending Issues: The bulk of student loan balances are federal loans, which don't check credit scores and have preset below-market interest rates that are the same for everyone. However, these loans have borrowing limits, which may lead to the need for private student loans. It takes at least decent credit to secure a private student loan, and good credit to secure a lower interest rate. Additionally, those with bad credit or belonging to certain groups may fall victim to predatory lending, making their student loan situation even more difficult. Familial Wealth: Affluent families may choose to finance the entirety of their child’s education, leaving them debt-free upon graduation. Conversely, those who are struggling financially, likely won't have funds to pay for their children's college education. This obviously leads to the children financing all or most of the cost of college. Additionally, if the family's income is low, recent graduates may begin helping their family financially after securing a better-paying job. This takes away from funds for student loan payments. Parental Obligations: Young parents, particularly single ones, must factor child care into their budgets. Depending on their income, they may be unable to afford this expense, basic necessities, and paying down their debt. Local Cost of Living: The affordability of basic necessities, such as housing, can vary substantially. Those who study in areas with a higher cost of living will, of course, need to borrow more money to afford their living expenses. Type of Institution: The cost of attendance at an institution can vary based on whether it’s public or private, for-profit or nonprofit, and two-year or four-year. These differences show up in tuition, fees, room and board, books, and other academic supplies. Type of Loan: There are two basic types of student loans: federal loans funded by the U.S. government and private loans issued by banks and other non-federal lenders. Multiple factors can determine how difficult each one is to repay. For example, private loans lack flexible repayment terms or forbearance options that federal loans have. They also tend to have higher interest rates. Graduation Status: If a student takes out a loan for college but doesn’t graduate, they’re stuck with a significant debt without the economic benefits that come with a degree. Additionally, those seeking a postgraduate education may need to take out additional money on top of the debt accumulated from undergraduate education. Special Considerations Before we share our findings on how student loan debt differs by race, there’s one more issue to discuss: Much of the available research on the differences in student loan debt by race compares Black and White borrowers only. There is less information that includes the full range of racial groups within the United States. Certain data sets covering one or more group(s) don’t include others. Or the information on the wider range of groups may originate from a different (and sometimes less recent) source. Note that the names of certain groups used below may not be entirely consistent throughout the article to match the terminology used by our sources. For example, although Investopedia prefers the identifier “Latinx,” this article uses categories such as “Hispanic” to provide an accurate representation of how the study that we quote reported the information. Size of Student Loan Debt by Race According to a report from the Board of Governors of the Federal Reserve System (which compares Black, White, and Latinx borrowers to a large group labeled "Other"), Black borrowers took out the largest amount of federal student loan money in 2022. This amount averaged $53,430 per borrower. Although “Other” was technically the second highest at $51,810, the Fed includes several groups in this category: Asian, American Indian, Alaska Native, Native Hawaiian, Pacific Islander, other races, and those with more than one racial identity. This limits the categories' effectiveness in comparisons. White borrowers accounted for the second-largest amount for a single group. Finally, Hispanic borrowers took out the smallest amount on average, at $26,460. This information is from the Fed's "Survey of Consumer Finances," which is conducted every three years. The most recent survey is from 2022. However, here are a few surprising points to note: When the Fed began recording this data in 1989, Black borrowers had the smallest amount of student loan money. They overtook all other categories (excluding “Other”) after 2010, with one dip in 2013.In 2019, the Institute on Assets and Social Policy found that the average Black borrower still owed 95% of their original loan amount after two decades, compared to White borrowers who, on average, have paid off most of their student debt. The general trends are relatively similar to what the Fed reported when you look at the intersection of race and gender. Here’s what the American Association of University Women found: Black women had the largest average student loan debt, at $41,466.05.The next largest group was the Pacific Islanders/Hawaiian women at $38,747.44, then American Indian/Alaska Native women at $36,184.40, then White women at $33,851.98.Hispanic/Latina borrowers were the next highest group at $29,302.45.Asian women borrowers owed the lowest amounts. Additional discrepancies can be seen in how loans are distributed, depending on both race and where the student studied. This is what the Student Borrower Protection Center reported (also visible in the above chart): Black/African American graduates across all types of institutions constituted the highest percentage of borrowers to finance higher education in 2020.Asian borrowers had the lowest percentages across all categories, meaning they were the most likely to graduate without any student loan debt.White borrowers had the second highest percentage in public two-year universities, the third highest in both public four-year and private nonprofit two-year universities, and the fourth highest in private nonprofit four-year universities.Percentages for both Hispanic/Latinx and American Indian/Alaska Native graduates were generally on the higher side, excluding public two-year institutions. It’s also worth noting that, across all five groups, the percentages of borrowers for private nonprofit two-year universities were both the highest and had the least amount of difference among the groups. Impact of Race on Student Loan Debt It’s no secret that student loan debt is a major problem for most borrowers, regardless of their background. Looking at median income and student debt from 2009 to 2019, the Brookings Institution found an ever-widening gap between what people earn and what they owe for their education. While the difference has diminished over time for Asian borrowers, the gap has grown wider for Black borrowers. Black Borrowers Racial differences in family wealth exacerbate the debt issue for all students of color, but especially for Black borrowers. According to the Student Borrower Protection Center, Black students had less household wealth and took on more loans to finance their education in 2020 than other groups. Additionally, a 2017 report from the Federal Reserve Bank of St. Louis found that postgraduate White households generally receive financial support from their family, whereas their Black counterparts instead contribute portions of their income to help their family. These contributions limit the ability to build wealth. As a result, when these borrowers have children of their own who eventually enroll in college, the cycle often begins anew. Carrying larger amounts of student loan debt can also damage the creditworthiness of Black households. This also can impact future wealth-building, such as the ability to qualify for a mortgage and buy a house. Latinx Borrowers This population also faces financial difficulties as a result of their student loan debt. With educational costs rising and grant amounts shrinking, UnidosUS found that Latinx students and their families frequently chose to pay out of pocket and/or take out student loans to finance their education in 2019. Despite attending college with lower incomes and less intergenerational wealth than their White counterparts, Latinx borrowers on average paid more to attend college than White borrowers. This is after accounting for differences in expected family contribution and grant aid, and not a simple comparison of tuition. The Role of Private Student Loans Further worsening the student debt crisis for borrowers of color are private student loans. Private loans can be useful to augment federal loans, which may not let students borrow enough to fund the cost of their school. However, private loans lack many of the safeguards that federal student loans offer, which can protect a student from going into default due to economic hardship. As a result, private borrowers have fewer options should they fall behind on their payments. What’s more, most federal loans don’t require a credit check and have a set interest rate. Private loans generally do require a credit check—and interest rates are based on the credit ratings of the borrowers and may require a co-signer. The racial wealth gap can result in private student loans costing more, as borrowers with lower credit scores may be charged higher interest rates. However, it should be noted that not everyone with low income has a low credit score, and not all racial minorities have a low income. Furthermore, there is a positive side to credit checks; in some instances, they can prevent people from borrowing what they will have trouble paying back. According to the Student Borrower Protection Center, students of color (specifically Black and Latinx students) and low-income borrowers overall used private loans less often than White borrowers but were more likely to have trouble paying down their private loan debt. Black students, in particular, were four times as likely to have trouble repaying private debt compared to White students. Additionally, private student loans are more often taken out by students attending for-profit institutions. A number of these institutions, including Corinthian Colleges and ITT Technical Institute, have been accused of fraud related to student loans. Many of these loans take the form of shadow debt, a largely unregulated market that often features high interest rates, misleading marketing, and risky underwriting. Since Black borrowers are overrepresented in for-profit institutions, they are also the most likely to fall victim to this form of predatory debt. Differences in Repayment Perhaps the greatest impact of discrepancies in student lending is how they affect each group’s ability to repay their debt. A 2023 economic brief by the Federal Reserve Bank of Richmond reported that 30% of Black college graduates defaulted on their federal student loans as opposed to 10% of their White counterparts. Several factors may feed this discrepancy, including net worth at the beginning of the educational period. White families surveyed typically had positive assets while Black families started from a place of financial overextension. This overextension prompts the need for greater amounts of student loans from the start. In 2019, the Center for American Progress broke down the differences in student loan default rates by race and institution type from two years prior. Loan default rates were lowest for borrowers who attended both public four-year and private nonprofit four-year universities, followed by public two-year institutions, and for-profit institutions had the highest default rate. White students had the lowest default rates across all categories. Hispanic or Latinx borrowers had figures similar to their White counterparts, with the largest difference between the two groups being 7% for “All Institutions.” Black students had the highest default rates, with the largest being 42% for private for-profits. As discussed previously, being unable to repay loans will cause graduates to lapse into delinquency and, eventually, default. The potentially devastating financial consequences disproportionately fall on Black communities, and difficulties in paying down debt cannot be attributed to income inequality alone. According to Brookings, although there were quantifiable family income and wealth differences between Black borrowers and White borrowers in 2018, these accounted for roughly half of the default rate gap between these two groups. Even further controlling for differences in degree attainment, college grade point average, and post-college income and employment, this gap remains. The author posited that differences in loan counseling or servicing may have been the cause of the remaining gap. In 2022, the Consumer Financial Protection Bureau (CFPB) found approximately 8,407 complaints from borrowers regarding both federal and private loans between Sept. 2021 and Aug. 2022, with the most common issues pertaining to dealing with a lender/servicer, struggling to repay loans, and problems with a credit report or score. The CFPB also reported that predatory schools have targeted students of color, which results in lower future earnings, high debt balances, and high default rates. Ultimately, differences in repayment rates are likely the result of all of the factors discussed throughout this piece, including the greater percentage of Black borrowers who also financially support their families and the greater proportion of White borrowers whose families help support them. Information Gaps Although there’s no doubt that student debt disproportionately affects borrowers of color, it’s difficult to determine the full scope of its effects. As mentioned previously, because much of the existing research focuses on Black and White borrowers, there is less information about how other racial and ethnic groups are affected. For instance, while the Lumina Foundation was able to determine that Black, Hispanic, and Native American borrowers generally had higher unmet financial needs, incurred more student loan debt, and were more likely to struggle financially to stay in school in 2020, it didn’t specify whether this was also the case for Asian borrowers and Native Hawaiian/Pacific Islander borrowers. A 2016 report from Buzzfeed News found that most of America's tribal colleges had stopped accepting student loan money altogether because of high rates of default among Native American borrowers. Tribal colleges instead offer scholarships and waivers to keep their students from defaulting on loans, which could jeopardize the college's access to federal aid. In fact, Asian Americans are often excluded from these data sets as a separate race altogether, as is evident in the Fed’s findings on average student debt amounts and the Center for American Progress’ research on default rates by race. At least with the former, the Fed defined the “Other” category in supplemental materials to 2022 report to include Asian borrowers, but it’s unclear whether that’s also true for the latter’s “All borrowers” grouping, as that could be just the three groups already included in the chart. Which Race/Ethnicity Has the Highest Student Loan Debt? Black adults have the highest student loan debt. For the majority of indicators, black adults held the highest spot, including student loan borrowing rates, default rates, and average debt. These numbers highlight the racial wealth gap in college and after. Why Is American Student Debt So High? There are a few factors behind high American student debt. These include the rising cost of tuition, the growing availability of federal loans, and wage stagnation. Between 1980 and 2019, college costs grew by 169%. For the same period, wages for adults between the ages of 22 and 27 increased by 19%. What Share of Degrees Are Earned by Which Races? White students earned 59.7% of bachelor's degrees in 2020–2021. It's interesting to note that Whites made up 75.5% of the U.S. population in 2020. Hispanics earned 16.5% of degrees while forming 19.1% of the country's population. Black students earned 10.5% of degrees, while African Americans represent 13.6% of the population. Asians and Pacific Islanders earned 8.6% of bachelor's degrees that academic year and make up 6.6% of the population. The Bottom Line Given the hefty financial burden that education debt places on most Americans, the government has provided some measure of student loan relief. The problem of student debt isn’t simple, and there is no silver-bullet solution to address the debt burden faced by students, including the particularly high burden faced by students of certain backgrounds. However, the assumption that hard work and a college degree are all that’s needed to be financially successful ignores the reality of today's economy as well as the differences in the family situation, upbringing, and economic background of students.

https://www.investopedia.com/artificial-intelligence-stocks-8404873

Guide to Selecting the Best Artificial Intelligence (AI) Stocks

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a> stocks is a prevailing topic in the financial media, as investors seek to capitalize on one of the most transformative sectors in the economy of the 2020s. AI, with its vast potential for applications in healthcare, finance, entertainment, and elsewhere in 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>, is not only reshaping potentially how many businesses operate but also how investors approach the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technology_sector.asp">technology sector</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"> Still, diving into AI investing requires knowing the unique attributes of a field characterized by rapid innovation, an evolving market, and anchored by established giants and emerging startups. This beginner’s guide will give you what you need to get started in this hyped and often-confusing sector. </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>AI is a broad and fast-evolving field characterized by the development of algorithms and computational techniques that enable machines to perform tasks that typically require human intelligence.</li><li>AI has been a leading discussion across many industries, including healthcare, finance, the automotive industry, retail, telecommunications, and agriculture, on the idea that it improves efficiency and effectiveness.</li><li>When investing in AI stocks, several factors should be considered: market positioning, the financial health of the company, and the technology and product portfolio.</li><li>Like any other investment, investing in AI stocks involves risks that investors should consider, including technological obsolescence, price volatility, and high valuations.</li><li>Investing in AI stocks requires a strategic approach because of the technology’s dynamic and rapidly evolving nature. Staying informed about the AI industry, evaluating the business models of AI companies, and assessing their competitive advantages are part of your due diligence.</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"> Before investing in AI stocks, it’s useful to know that this field differs from the more traditional industries. AI companies frequently command high <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valuation.asp">valuations</a> based on their growth potential rather than current earnings, making them attractive for their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalappreciation.asp">capital appreciation</a> prospects and exposing investors to higher <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp">risk</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The industry’s reliance on continuous technological advances and a changing regulatory landscape relating to data use and privacy add further complexity. As such, a strategic approach that balances enthusiasm for AI’s potential with a pragmatic assessment of risks and market realities is essential for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a> navigating this exciting yet challenging domain. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-understanding-artificial-intelligence-ai"></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 Artificial Intelligence (AI) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> AI is a broad and fast-evolving field, characterized by the development of algorithms and computational techniques that enable machines to perform tasks that typically require human intelligence. Its applications span numerous industries, and proponents say it will significantly transform how businesses operate and deliver services.<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_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 aspects of AI for investors to understand first: </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>Machine learning</strong>: This involves algorithms that allow computers to learn from and make predictions based on data.</li><li><strong>Natural language processing</strong>: This enables machines to understand and interpret human language, facilitating interactions between humans and computers.</li><li><strong>Robotics and automation</strong>: This involves enhancing the efficiency and capabilities of automated systems, typically in manufacturing and logistics.</li><li><strong>Computer vision</strong>: This means teaching machines to interpret and make decisions based on visual data, from photographs to live video streams.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The complex nature of AI—encompassing <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>, natural language processing, robotics and automation, and computer vision—presents further prospects and challenges. As AI continues to evolve and be integrated into <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/industry.asp">industries</a> across the economy, understanding these is crucial for navigating this dynamic and potentially lucrative sector in a way that aligns with your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment.asp">investment</a> strategies.<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_19-0"></div> <span class="heading-toc" id="toc-applications-of-artificial-intelligence-ai-across-the-economy"></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"> Applications of Artificial Intelligence (AI) Across the Economy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Discussions about the potential applications of AI are happening across many industries. In healthcare, AI algorithms can often analyze medical imaging faster and more accurately than human practitioners.<span class="ql-inline-citation" data-cite="24"></span> In addition, AI may be able to accelerate the process of drug development by predicting how different compounds will behave.<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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> In finance and investment, AI algorithms can analyze market data at a speed and depth beyond human capability. Moreover, AI systems may be able to assess risks in investments and credit scoring with greater accuracy.<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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> In the automotive industry, AI is fundamental in developing self-driving cars, processing data from vehicle sensors to make driving decisions. AI may also be able to optimize production lines and predict maintenance needs in automotive manufacturing.<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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Regarding the retail industry, AI has long analyzed consumer behavior to present personalized shopping suggestions. AI may predict inventory needs, optimize stock levels, and reduce waste.<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_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> In agriculture, AI helps in monitoring crop health and soil conditions, leading to more efficient farming practices. Indeed, AI may even forecast environmental effects on crop yield.<span class="ql-inline-citation" data-cite="27"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> In telecommunications, AI can enhance network performance and predict infrastructure failures. For customer service, AI powers chatbots and automates many customer interactions.<span class="ql-inline-citation" data-cite="31"></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_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> In entertainment and media, streaming services use AI to recommend personalized content.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> For education, AI may be used to customize learning experiences for each student.<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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> In cybersecurity, AI systems may be used to detect and respond to cybersecurity threats. Indeed, AI is used to monitor transactions for patterns indicative of fraudulent activity.<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_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The potential for AI is vast, yet it brings ethical considerations such as data privacy, bias in decision making, and the impact on employment.<span class="ql-inline-citation" data-cite="29"></span> Its applications are diverse, reflecting the adaptability and AI-backed processes. However, balancing innovation with ethical considerations should be front and center in assessing its evolution. </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-factors-to-consider-when-investing-in-artificial-intelligence-ai-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"> Factors to Consider When Investing in Artificial Intelligence (AI) Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Here are just some of the factors that will help you assess the potential <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskrewardratio.asp">risks and rewards</a> of investing in AI-related firms: </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>Market position and competitive advantage</strong>: You should evaluate the company’s position in the AI market. Companies with a strong competitive advantage, a lead in technology, and intellectual property are generally better positioned for long-term success.</li> <li><strong>Revenue growth and financial health</strong>: The company’s revenue growth, profitability, cash flow, and debt levels should be reviewed thoroughly. Consistent <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revenue.asp">revenue</a> growth and sound financial health are indicators of a stable investment.</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/randd.asp"><strong>Research and development (R&amp;D)</strong></a>: Companies investing heavily in R&amp;D could parlay that spending into advances later in the rapidly evolving AI field.<span class="ql-inline-citation" data-cite="34"></span> However, high R&amp;D expenses will also affect short-term profitability.</li> <li><strong>Technology and product portfolio</strong>: You must assess and compare the company’s technology and product offerings to its competitors. A <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diverse portfolio</a> that serves diverse industries should indicate resilience and potential for growth.</li> <li><strong>Partnerships and collaborations</strong>: Affiliations with other major technology companies or industries can provide quicker access to large markets and improve technological capabilities.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Regulations</strong>: You need to understand the regulatory environment in which the company operates, especially concerning data privacy, AI ethics, and potential antitrust issues. Regulatory changes can significantly impact AI companies.<span class="ql-inline-citation" data-cite="35"></span><span class="ql-inline-citation" data-cite="36"></span></li> <li><strong>Global reach and scalability</strong>: Companies with a global presence and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/scalability.asp">scalable</a> products are usually better positioned to capitalize on the global AI market.</li> <li><strong>Risk diversification</strong>: Investing in a single AI stock can be risky, which may lead you to diversify your investments across different companies or sectors within AI; e.g., through the <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/top-etfs-capitalizing-artificial-intelligence/">top exchange-traded funds (ETFs)</a>.</li> <li><strong>Long-term vision and strategy</strong>: You should also evaluate the company’s strategic vision. Companies should focus on current trends and have a clear long-term strategy for future growth.</li> <li><strong>Customer base and market demand</strong>: The size and diversity of the company’s customer base and market demand are central.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Investing in AI stocks requires understanding the technical aspects of AI technologies and assessing the traditional financial metrics. It is important to keep up with the latest developments in the AI field, as the technology and market dynamics can change rapidly. </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-notable-artificial-intelligence-ai-stocks"></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"> Notable Artificial Intelligence (AI) Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> There are a growing number of AI and AI-related stocks. Here are some of the most-discussed: </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>C3.ai Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AI">AI</a>)</strong>: A California-based company that develops enterprise artificial intelligence software. The company <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/c3-ai-shares-jump-as-firm-expands-artificial-intelligence-collaboration-with-amazon-8401743">recently expanded</a> its collaboration with Amazon Web Services.<span class="ql-inline-citation" data-cite="37"></span></li> <li><strong>Palantir Technologies Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PLTR">PLTR</a>)</strong>: The Colorado-based company builds and installs software development services for the U.S. intelligence community.<span class="ql-inline-citation" data-cite="38"></span></li> <li><strong>EPAM Systems Inc. (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=EPAM">EPAM</a>): </strong>The firm provides digital platform engineering and software development services worldwide, including AI-powered platforms.<span class="ql-inline-citation" data-cite="40"></span><span class="ql-inline-citation" data-cite="39"></span></li> <li><strong>SentinelOne Inc. (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=S">S</a>)</strong>: This firm provides cybersecurity with AI-powered autonomous threat prevention, detection, and response capacities.<span class="ql-inline-citation" data-cite="41"></span></li> <li><strong>Nvidia Corp. (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>)</strong>: The company is well-known for its advanced graphics processing units, a crucial element for AI and machine learning applications. Its latest AI chips are considered highly powerful, augmenting its already-strong position in the AI market.<span class="ql-inline-citation" data-cite="42"></span></li> <li><strong>Microsoft Corp. (<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>): </strong>Microsoft has been a key figure in the AI space, mainly through its partnership with OpenAI, the developer of ChatGPT.<span class="ql-inline-citation" data-cite="43"></span> Microsoft also offers a suite of AI services through Azure, its cloud computing platform.<span class="ql-inline-citation" data-cite="44"></span> It has its R&amp;D teams developing AI applications, including its integration into its Office suite of products.<span class="ql-inline-citation" data-cite="45"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Baidu Inc. (<a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BIDU">BIDU</a>)</strong>: A Chinese internet search company developing the AI-driven ERNIE Bot.<span class="ql-inline-citation" data-cite="46"></span></li> <li><strong>IBM Corp. (<a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IBM">IBM</a>)</strong>: The company behind some of the oldest brands in the computer industry, IBM produces advanced computer chips, quantum computing applications, AI, and data infrastructure.<span class="ql-inline-citation" data-cite="47"></span><span class="ql-inline-citation" data-cite="48"></span></li> <li><strong>Intel Corp. (<a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=INTC">INTC</a>)</strong>: Intel designs, makes, and sells computing and related products, operating in several segments, including data centers and AI.<span class="ql-inline-citation" data-cite="49"></span><span class="ql-inline-citation" data-cite="50"></span></li> <li><strong>UiPath Inc. (<a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PATH">PATH</a>)</strong>: The company specializes in robotic process automation, a key component of AI that helps automate routine business processes.<span class="ql-inline-citation" data-cite="51"></span></li> <li><strong>Helix Energy Solutions Group Inc. (<a data-component="link" data-ordinal="12" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HLX">HLX</a>)</strong>: Helix is deploying AI in offshore energy, particularly in its robotics and automated oil and gas exploration and production processes.<span class="ql-inline-citation" data-cite="52"></span><span class="ql-inline-citation" data-cite="53"></span></li> <li><strong>AeroVironment Inc. (<a data-component="link" data-ordinal="13" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AVAV">AVAV</a>)</strong>: This company produces drones and tactical missile systems, where AI plays an increasing role in navigation, surveillance, and data collection.<span class="ql-inline-citation" data-cite="54"></span><span class="ql-inline-citation" data-cite="55"></span></li> <li><strong>Pros Holdings Inc. (<a data-component="link" data-ordinal="14" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PRO">PRO</a>)</strong>: A tech company that develops AI-related tools aimed at helping businesses set prices, improve sales strategies, and manage revenue.<span class="ql-inline-citation" data-cite="56"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_53-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="5">Price Performance of AI and AI-Related Stocks </th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Ticker</b></td> <td><b>Name</b></td> <td><b>1-Month Return (%)</b></td> <td><b>1-Year Return (%)</b></td> <td><b>5-Year Return (%)</b></td> </tr> <tr> <td>AI</td> <td>C3.ai Inc.</td> <td>3.43</td> <td>157.89</td> <td>-70.99</td> </tr> <tr> <td>AVAV</td> <td>AeroVironment Inc.</td> <td>-2.87</td> <td>34.61</td> <td>62.51</td> </tr> <tr> <td>BIDU</td> <td>Baidu Inc.</td> <td>3.66</td> <td>-13.67</td> <td>-30.09</td> </tr> <tr> <td>EPAM</td> <td>EPAM Systems Inc.</td> <td>12.49</td> <td>-7.24</td> <td>134.62</td> </tr> <tr> <td>HLX</td> <td>Helix Energy Solutions Group Inc.</td> <td>-2.23</td> <td>23.43</td> <td>40.76</td> </tr> <tr> <td>IBM</td> <td>IBM Corp.</td> <td>-1.04</td> <td>12.10</td> <td>40.35</td> </tr> <tr> <td>INTC</td> <td>Intel Corp.</td> <td>9.78</td> <td>62.07</td> <td>-0.77</td> </tr> <tr> <td>MSFT</td> <td>Microsoft Corp.</td> <td>3.58</td> <td>67.57</td> <td>269.75</td> </tr> <tr> <td>NVDA</td> <td>Nvidia Corp.</td> <td>14.81</td> <td>251.61</td> <td>1438.05</td> </tr> <tr> <td>PATH</td> <td>UiPath Inc.</td> <td>-3.50</td> <td>85.04</td> <td>-64.74</td> </tr> <tr> <td>PLTR</td> <td>Palantir Technologies Inc.</td> <td>-5.82</td> <td>160.38</td> <td>69.25</td> </tr> <tr> <td>PRO</td> <td>Pros Holdings Inc.</td> <td>-7.11</td> <td>46.08</td> <td>7.85</td> </tr> <tr> <td>S</td> <td>SentinelOne Inc.</td> <td>2.07</td> <td>82</td> <td>-46.74</td> </tr> </tbody> </table> <figcaption>Source: TradingView, data as of 11:30 a.m. Eastern time Jan. 10, 2024</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> These companies are noted for the significance of their advances, market position, and applications of AI technology in their fields. Their presence in the AI market is marked not only by their financial performance but also by how they have integrated AI for diverse industrial and business challenges. </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-risks-and-challenges-of-investing-in-artificial-intelligence-ai-stocks"></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"> Risks and Challenges of Investing in Artificial Intelligence (AI) Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Investing in AI stocks, like any investment, involves certain risks and challenges to consider. Here are some of them: </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><strong>Adapting to AI</strong>: The commercial success of AI technology depends on how ready employees are to see AI adopted for use in their industries. Slow adoption will hinder growth and profitability.</li> <li><strong>Competitive environment</strong>: The AI sector is highly competitive, ranging from startups to longtime tech giants. Standing out and capturing significant market share can be challenging for companies.<span class="ql-inline-citation" data-cite="20"></span> This is especially the case if some competitors have the backing of their governments.</li> <li><strong>Execution risk</strong>: This is a reality. Successfully developing and commercializing AI technology involves numerous technical hurdles, potential material and product delays, and cost overruns.</li> <li><strong>Ethical AI</strong>: While most companies in the sector have webpages dedicated to processes they have in place to review the use of these technologies, there remain wider public concerns about its influence on jobs, the future of life online, bias in AI algorithms, and more that could lead to legislation barring certain uses of AI technology.<span class="ql-inline-citation" data-cite="57"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Hype</strong>: Many AI companies, especially those in their growth phases, trade at high valuations based on future potential rather than their current earnings. This can make them more susceptible to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technical_correction.asp">market corrections</a>.</li> <li><strong>Regulatory scrutiny</strong>: The AI industry faces significant regulatory scrutiny, especially regarding data privacy, ethical use of AI, and antitrust concerns. Regulatory discussions are taking place not just in the United States but worldwide.<span class="ql-inline-citation" data-cite="35"></span><span class="ql-inline-citation" data-cite="36"></span></li> <li><strong>Tech gets old fast</strong>: One risk is technological obsolescence. Rapid technological advances in AI could render existing technologies obsolete pretty quickly.</li> <li><strong>Volatility</strong>: The market’s perceptions of AI’s potential have led to significant fluctuations in stock prices, sometimes based on speculative trends rather than solid financial fundamentals.<span class="ql-inline-citation" data-cite="58"></span></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"> As with any investment, you should conduct thorough <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/duediligence.asp">due diligence</a>, stay informed about industry trends, and consider diversifying your investments to mitigate these risks. </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-tips-for-investing-in-artificial-intelligence-ai-stocks"></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"> Tips for Investing in Artificial Intelligence (AI) Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Investing in AI stocks requires a strategy that can handle the technology’s dynamic and rapidly evolving nature. Here are some tips: </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>Stay informed</strong>: Stay educated about the AI industry, including technological advances, market trends, and regulatory changes. This knowledge is crucial for making informed investment decisions.</li> <li><strong>Business model evaluation</strong>: You must clearly understand how the company plans to generate revenue and profit from AI technology. Investors should look for companies with a transparent and viable business model.</li> <li><strong>Competitive advantage assessment</strong>: You should get a handle on what gives a company a competitive edge in its part of the AI business. This could be an advance in technology it has made, proprietary algorithms, strategic partnerships, or a strong customer base.</li> <li><strong>Investment diversification</strong>: Due to the inherent risks and volatility in the technology sector, it is wise to diversify investments across different AI companies and sectors. This can help mitigate risk.</li> <li><strong>Fundamentals</strong>: You should review the company’s financial statements, focusing on revenue growth, profitability, cash flow, and debt levels. Financial stability is a key indicator of a company’s long-term viability.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>R&amp;D investments</strong>: Companies investing heavily in research and development are more likely to innovate and stay ahead in AI. However, it’s not enough to advance what AI can do. The task is to make bringing it to market viable and profitable.</li> <li><strong>Market potential</strong>: Companies best placed to grow are likely those in AI areas with high growth potential or industries undergoing digital transformation.</li> <li><strong>Long-term perspective</strong>: AI is a field where significant returns may take time. Thus, it’s prudent not only to keep the long-term view in mind as you invest, but also to see if the company you’re reviewing is doing so.</li> <li><strong>Regulatory environment</strong>: Investors should pay attention to the regulatory landscape, as it can significantly affect AI companies, especially those dealing with data privacy and ethics.</li> <li><strong>Management quality</strong>: The quality and track record of the company’s management team should be reviewed. Experienced, well-networked leadership is crucial for navigating the AI market.</li> <li><strong>Risk management</strong>: Consider 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 invest accordingly. AI stocks can be highly volatile, so it is important to manage risk exposure.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Seek professional advice</strong>: Consulting with financial advisors or investment professionals who understand the technology sector and AI industry should be considered, particularly if you are unsure about your knowledge of this relatively new tech area.</li> </ul> <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"> Combining a thorough understanding of the AI industry with sound investment practices will position you to better capitalize on the investment prospects in this growing field. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_71-0"><span class="heading-toc" id="toc-is-the-ai-industry-in-a-bubble"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the AI Industry in a Bubble?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>This is being debated among investors, analysts, and industry experts. Indications of a bubble include high valuations, a plethora of speculation, rapid investment growth, and extreme positive market sentiment (hype) that leads to irrational investment behavior.</p><p>While signs suggest some elements of the AI industry could be overvalued, there are also strong fundamentals supporting the growth and sustainability of AI as a transformative technology. Investors should exercise caution, conduct thorough research, and consider long-term trends when investing in this sector.</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-are-there-any-ai-etfs-available"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There any AI ETFs Available?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are several <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a> that offer exposure to a basket of stocks from companies involved in the development, research, and utilization of AI. These include Global X Robotics &amp; Artificial Intelligence ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BOTZ">BOTZ</a>), iShares Robotics and Artificial Intelligence Multisector ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IRBO">IRBO</a>), and First Trust Nasdaq Artificial Intelligence and Robotics ETF (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ROBT">ROBT</a>).</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-do-ai-stocks-pay-any-dividends"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do AI Stocks Pay Any Dividends?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While some AI or AI-related stocks may pay <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a>, the sector as a whole is growth-focused, with many companies reinvesting profits to fuel further expansion and R&amp;D. Investors interested in AI and seeking dividends might need to look at larger, more diversified technology companies or consider AI-focused ETFs that include dividend-paying stocks.</p></div> </div> <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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> Investing in AI stocks could bring significant growth, given the transformative influence of artificial intelligence across many industries. However, it’s important to recognize the unique characteristics of this sector. </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"> AI stocks are marked by high-growth expectations and rapid technological advances, which can lead to inflated valuations and increased volatility. Many AI companies, particularly those in early development stages, prefer reinvestment in technology and market expansion over paying dividends, focusing more on long-term capital appreciation than immediate income generation. </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"> Additionally, the AI sector is influenced by factors such as regulatory changes, ethical considerations of AI technologies, and the competitive landscape. All of these can influence stock performance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> If you’re considering AI or AI-related stocks, you need to account for these dynamics. This includes conducting thorough research to understand the potential and risks associated with AI investments, diversifying across different companies and subsectors within AI to mitigate risk, and maintaining a long-term investment perspective to navigate the inherent volatility. Balancing these considerations with traditional investment analysis will help you make more informed decisions and potentially capitalize on the growth opportunities that AI presents.<br/> </p></div>

Investing in [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) stocks is a prevailing topic in the financial media, as investors seek to capitalize on one of the most transformative sectors in the economy of the 2020s. AI, with its vast potential for applications in healthcare, finance, entertainment, and elsewhere in the [economy](https://www.investopedia.com/terms/e/economy.asp), is not only reshaping potentially how many businesses operate but also how investors approach the [technology sector](https://www.investopedia.com/terms/t/technology_sector.asp). Still, diving into AI investing requires knowing the unique attributes of a field characterized by rapid innovation, an evolving market, and anchored by established giants and emerging startups. This beginner’s guide will give you what you need to get started in this hyped and often-confusing sector. ### Key Takeaways * AI is a broad and fast-evolving field characterized by the development of algorithms and computational techniques that enable machines to perform tasks that typically require human intelligence. * AI has been a leading discussion across many industries, including healthcare, finance, the automotive industry, retail, telecommunications, and agriculture, on the idea that it improves efficiency and effectiveness. * When investing in AI stocks, several factors should be considered: market positioning, the financial health of the company, and the technology and product portfolio. * Like any other investment, investing in AI stocks involves risks that investors should consider, including technological obsolescence, price volatility, and high valuations. * Investing in AI stocks requires a strategic approach because of the technology’s dynamic and rapidly evolving nature. Staying informed about the AI industry, evaluating the business models of AI companies, and assessing their competitive advantages are part of your due diligence. Before investing in AI stocks, it’s useful to know that this field differs from the more traditional industries. AI companies frequently command high [valuations](https://www.investopedia.com/terms/v/valuation.asp) based on their growth potential rather than current earnings, making them attractive for their [capital appreciation](https://www.investopedia.com/terms/c/capitalappreciation.asp) prospects and exposing investors to higher [volatility](https://www.investopedia.com/terms/v/volatility.asp) and [risk](https://www.investopedia.com/terms/r/risk.asp). The industry’s reliance on continuous technological advances and a changing regulatory landscape relating to data use and privacy add further complexity. As such, a strategic approach that balances enthusiasm for AI’s potential with a pragmatic assessment of risks and market realities is essential for [investors](https://www.investopedia.com/terms/i/investor.asp) navigating this exciting yet challenging domain. ## Understanding Artificial Intelligence (AI) AI is a broad and fast-evolving field, characterized by the development of algorithms and computational techniques that enable machines to perform tasks that typically require human intelligence. Its applications span numerous industries, and proponents say it will significantly transform how businesses operate and deliver services. There are aspects of AI for investors to understand first: * **Machine learning**: This involves algorithms that allow computers to learn from and make predictions based on data. * **Natural language processing**: This enables machines to understand and interpret human language, facilitating interactions between humans and computers. * **Robotics and automation**: This involves enhancing the efficiency and capabilities of automated systems, typically in manufacturing and logistics. * **Computer vision**: This means teaching machines to interpret and make decisions based on visual data, from photographs to live video streams. The complex nature of AI—encompassing [machine learning](https://www.investopedia.com/terms/m/machine-learning.asp), natural language processing, robotics and automation, and computer vision—presents further prospects and challenges. As AI continues to evolve and be integrated into [industries](https://www.investopedia.com/terms/i/industry.asp) across the economy, understanding these is crucial for navigating this dynamic and potentially lucrative sector in a way that aligns with your [investment](https://www.investopedia.com/terms/i/investment.asp) strategies. ## Applications of Artificial Intelligence (AI) Across the Economy Discussions about the potential applications of AI are happening across many industries. In healthcare, AI algorithms can often analyze medical imaging faster and more accurately than human practitioners. In addition, AI may be able to accelerate the process of drug development by predicting how different compounds will behave. In finance and investment, AI algorithms can analyze market data at a speed and depth beyond human capability. Moreover, AI systems may be able to assess risks in investments and credit scoring with greater accuracy. In the automotive industry, AI is fundamental in developing self-driving cars, processing data from vehicle sensors to make driving decisions. AI may also be able to optimize production lines and predict maintenance needs in automotive manufacturing. Regarding the retail industry, AI has long analyzed consumer behavior to present personalized shopping suggestions. AI may predict inventory needs, optimize stock levels, and reduce waste. In agriculture, AI helps in monitoring crop health and soil conditions, leading to more efficient farming practices. Indeed, AI may even forecast environmental effects on crop yield. In telecommunications, AI can enhance network performance and predict infrastructure failures. For customer service, AI powers chatbots and automates many customer interactions. In entertainment and media, streaming services use AI to recommend personalized content. For education, AI may be used to customize learning experiences for each student. In cybersecurity, AI systems may be used to detect and respond to cybersecurity threats. Indeed, AI is used to monitor transactions for patterns indicative of fraudulent activity. The potential for AI is vast, yet it brings ethical considerations such as data privacy, bias in decision making, and the impact on employment. Its applications are diverse, reflecting the adaptability and AI-backed processes. However, balancing innovation with ethical considerations should be front and center in assessing its evolution. ## Factors to Consider When Investing in Artificial Intelligence (AI) Stocks Here are just some of the factors that will help you assess the potential [risks and rewards](https://www.investopedia.com/terms/r/riskrewardratio.asp) of investing in AI-related firms: * **Market position and competitive advantage**: You should evaluate the company’s position in the AI market. Companies with a strong competitive advantage, a lead in technology, and intellectual property are generally better positioned for long-term success. * **Revenue growth and financial health**: The company’s revenue growth, profitability, cash flow, and debt levels should be reviewed thoroughly. Consistent [revenue](https://www.investopedia.com/terms/r/revenue.asp) growth and sound financial health are indicators of a stable investment. * [**Research and development (R&D)**](https://www.investopedia.com/terms/r/randd.asp): Companies investing heavily in R&D could parlay that spending into advances later in the rapidly evolving AI field. However, high R&D expenses will also affect short-term profitability. * **Technology and product portfolio**: You must assess and compare the company’s technology and product offerings to its competitors. A [diverse portfolio](https://www.investopedia.com/terms/d/diversification.asp) that serves diverse industries should indicate resilience and potential for growth. * **Partnerships and collaborations**: Affiliations with other major technology companies or industries can provide quicker access to large markets and improve technological capabilities. * **Regulations**: You need to understand the regulatory environment in which the company operates, especially concerning data privacy, AI ethics, and potential antitrust issues. Regulatory changes can significantly impact AI companies. * **Global reach and scalability**: Companies with a global presence and [scalable](https://www.investopedia.com/terms/s/scalability.asp) products are usually better positioned to capitalize on the global AI market. * **Risk diversification**: Investing in a single AI stock can be risky, which may lead you to diversify your investments across different companies or sectors within AI; e.g., through the [top exchange-traded funds (ETFs)](https://www.investopedia.com/investing/top-etfs-capitalizing-artificial-intelligence/). * **Long-term vision and strategy**: You should also evaluate the company’s strategic vision. Companies should focus on current trends and have a clear long-term strategy for future growth. * **Customer base and market demand**: The size and diversity of the company’s customer base and market demand are central. Investing in AI stocks requires understanding the technical aspects of AI technologies and assessing the traditional financial metrics. It is important to keep up with the latest developments in the AI field, as the technology and market dynamics can change rapidly. ## Notable Artificial Intelligence (AI) Stocks There are a growing number of AI and AI-related stocks. Here are some of the most-discussed: * **C3.ai Inc. ([AI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AI))**: A California-based company that develops enterprise artificial intelligence software. The company [recently expanded](https://www.investopedia.com/c3-ai-shares-jump-as-firm-expands-artificial-intelligence-collaboration-with-amazon-8401743) its collaboration with Amazon Web Services. * **Palantir Technologies Inc. ([PLTR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PLTR))**: The Colorado-based company builds and installs software development services for the U.S. intelligence community. * **EPAM Systems Inc. ([EPAM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EPAM)):** The firm provides digital platform engineering and software development services worldwide, including AI-powered platforms. * **SentinelOne Inc. ([S](https://www.investopedia.com/markets/quote?tvwidgetsymbol=S))**: This firm provides cybersecurity with AI-powered autonomous threat prevention, detection, and response capacities. * **Nvidia Corp. ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA))**: The company is well-known for its advanced graphics processing units, a crucial element for AI and machine learning applications. Its latest AI chips are considered highly powerful, augmenting its already-strong position in the AI market. * **Microsoft Corp. ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)):** Microsoft has been a key figure in the AI space, mainly through its partnership with OpenAI, the developer of ChatGPT. Microsoft also offers a suite of AI services through Azure, its cloud computing platform. It has its R&D teams developing AI applications, including its integration into its Office suite of products. * **Baidu Inc. ([BIDU](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BIDU))**: A Chinese internet search company developing the AI-driven ERNIE Bot. * **IBM Corp. ([IBM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IBM))**: The company behind some of the oldest brands in the computer industry, IBM produces advanced computer chips, quantum computing applications, AI, and data infrastructure. * **Intel Corp. ([INTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=INTC))**: Intel designs, makes, and sells computing and related products, operating in several segments, including data centers and AI. * **UiPath Inc. ([PATH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PATH))**: The company specializes in robotic process automation, a key component of AI that helps automate routine business processes. * **Helix Energy Solutions Group Inc. ([HLX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HLX))**: Helix is deploying AI in offshore energy, particularly in its robotics and automated oil and gas exploration and production processes. * **AeroVironment Inc. ([AVAV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AVAV))**: This company produces drones and tactical missile systems, where AI plays an increasing role in navigation, surveillance, and data collection. * **Pros Holdings Inc. ([PRO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PRO))**: A tech company that develops AI-related tools aimed at helping businesses set prices, improve sales strategies, and manage revenue. | Price Performance of AI and AI-Related Stocks | | | | | | --- | --- | --- | --- | --- | | **Ticker** | **Name** | **1-Month Return (%)** | **1-Year Return (%)** | **5-Year Return (%)** | | AI | C3.ai Inc. | 3.43 | 157.89 | -70.99 | | AVAV | AeroVironment Inc. | -2.87 | 34.61 | 62.51 | | BIDU | Baidu Inc. | 3.66 | -13.67 | -30.09 | | EPAM | EPAM Systems Inc. | 12.49 | -7.24 | 134.62 | | HLX | Helix Energy Solutions Group Inc. | -2.23 | 23.43 | 40.76 | | IBM | IBM Corp. | -1.04 | 12.10 | 40.35 | | INTC | Intel Corp. | 9.78 | 62.07 | -0.77 | | MSFT | Microsoft Corp. | 3.58 | 67.57 | 269.75 | | NVDA | Nvidia Corp. | 14.81 | 251.61 | 1438.05 | | PATH | UiPath Inc. | -3.50 | 85.04 | -64.74 | | PLTR | Palantir Technologies Inc. | -5.82 | 160.38 | 69.25 | | PRO | Pros Holdings Inc. | -7.11 | 46.08 | 7.85 | | S | SentinelOne Inc. | 2.07 | 82 | -46.74 | Source: TradingView, data as of 11:30 a.m. Eastern time Jan. 10, 2024 These companies are noted for the significance of their advances, market position, and applications of AI technology in their fields. Their presence in the AI market is marked not only by their financial performance but also by how they have integrated AI for diverse industrial and business challenges. ## Risks and Challenges of Investing in Artificial Intelligence (AI) Stocks Investing in AI stocks, like any investment, involves certain risks and challenges to consider. Here are some of them: * **Adapting to AI**: The commercial success of AI technology depends on how ready employees are to see AI adopted for use in their industries. Slow adoption will hinder growth and profitability. * **Competitive environment**: The AI sector is highly competitive, ranging from startups to longtime tech giants. Standing out and capturing significant market share can be challenging for companies. This is especially the case if some competitors have the backing of their governments. * **Execution risk**: This is a reality. Successfully developing and commercializing AI technology involves numerous technical hurdles, potential material and product delays, and cost overruns. * **Ethical AI**: While most companies in the sector have webpages dedicated to processes they have in place to review the use of these technologies, there remain wider public concerns about its influence on jobs, the future of life online, bias in AI algorithms, and more that could lead to legislation barring certain uses of AI technology. * **Hype**: Many AI companies, especially those in their growth phases, trade at high valuations based on future potential rather than their current earnings. This can make them more susceptible to [market corrections](https://www.investopedia.com/terms/t/technical_correction.asp). * **Regulatory scrutiny**: The AI industry faces significant regulatory scrutiny, especially regarding data privacy, ethical use of AI, and antitrust concerns. Regulatory discussions are taking place not just in the United States but worldwide. * **Tech gets old fast**: One risk is technological obsolescence. Rapid technological advances in AI could render existing technologies obsolete pretty quickly. * **Volatility**: The market’s perceptions of AI’s potential have led to significant fluctuations in stock prices, sometimes based on speculative trends rather than solid financial fundamentals. As with any investment, you should conduct thorough [due diligence](https://www.investopedia.com/terms/d/duediligence.asp), stay informed about industry trends, and consider diversifying your investments to mitigate these risks. ## Tips for Investing in Artificial Intelligence (AI) Stocks Investing in AI stocks requires a strategy that can handle the technology’s dynamic and rapidly evolving nature. Here are some tips: * **Stay informed**: Stay educated about the AI industry, including technological advances, market trends, and regulatory changes. This knowledge is crucial for making informed investment decisions. * **Business model evaluation**: You must clearly understand how the company plans to generate revenue and profit from AI technology. Investors should look for companies with a transparent and viable business model. * **Competitive advantage assessment**: You should get a handle on what gives a company a competitive edge in its part of the AI business. This could be an advance in technology it has made, proprietary algorithms, strategic partnerships, or a strong customer base. * **Investment diversification**: Due to the inherent risks and volatility in the technology sector, it is wise to diversify investments across different AI companies and sectors. This can help mitigate risk. * **Fundamentals**: You should review the company’s financial statements, focusing on revenue growth, profitability, cash flow, and debt levels. Financial stability is a key indicator of a company’s long-term viability. * **R&D investments**: Companies investing heavily in research and development are more likely to innovate and stay ahead in AI. However, it’s not enough to advance what AI can do. The task is to make bringing it to market viable and profitable. * **Market potential**: Companies best placed to grow are likely those in AI areas with high growth potential or industries undergoing digital transformation. * **Long-term perspective**: AI is a field where significant returns may take time. Thus, it’s prudent not only to keep the long-term view in mind as you invest, but also to see if the company you’re reviewing is doing so. * **Regulatory environment**: Investors should pay attention to the regulatory landscape, as it can significantly affect AI companies, especially those dealing with data privacy and ethics. * **Management quality**: The quality and track record of the company’s management team should be reviewed. Experienced, well-networked leadership is crucial for navigating the AI market. * **Risk management**: Consider your [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp) and invest accordingly. AI stocks can be highly volatile, so it is important to manage risk exposure. * **Seek professional advice**: Consulting with financial advisors or investment professionals who understand the technology sector and AI industry should be considered, particularly if you are unsure about your knowledge of this relatively new tech area. Combining a thorough understanding of the AI industry with sound investment practices will position you to better capitalize on the investment prospects in this growing field. ## Is the AI Industry in a Bubble? This is being debated among investors, analysts, and industry experts. Indications of a bubble include high valuations, a plethora of speculation, rapid investment growth, and extreme positive market sentiment (hype) that leads to irrational investment behavior. While signs suggest some elements of the AI industry could be overvalued, there are also strong fundamentals supporting the growth and sustainability of AI as a transformative technology. Investors should exercise caution, conduct thorough research, and consider long-term trends when investing in this sector. ## Are There any AI ETFs Available? There are several [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) that offer exposure to a basket of stocks from companies involved in the development, research, and utilization of AI. These include Global X Robotics & Artificial Intelligence ETF ([BOTZ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BOTZ)), iShares Robotics and Artificial Intelligence Multisector ETF ([IRBO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IRBO)), and First Trust Nasdaq Artificial Intelligence and Robotics ETF ([ROBT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ROBT)). ## Do AI Stocks Pay Any Dividends? While some AI or AI-related stocks may pay [dividends](https://www.investopedia.com/terms/d/dividend.asp), the sector as a whole is growth-focused, with many companies reinvesting profits to fuel further expansion and R&D. Investors interested in AI and seeking dividends might need to look at larger, more diversified technology companies or consider AI-focused ETFs that include dividend-paying stocks. ## The Bottom Line Investing in AI stocks could bring significant growth, given the transformative influence of artificial intelligence across many industries. However, it’s important to recognize the unique characteristics of this sector. AI stocks are marked by high-growth expectations and rapid technological advances, which can lead to inflated valuations and increased volatility. Many AI companies, particularly those in early development stages, prefer reinvestment in technology and market expansion over paying dividends, focusing more on long-term capital appreciation than immediate income generation. Additionally, the AI sector is influenced by factors such as regulatory changes, ethical considerations of AI technologies, and the competitive landscape. All of these can influence stock performance. If you’re considering AI or AI-related stocks, you need to account for these dynamics. This includes conducting thorough research to understand the potential and risks associated with AI investments, diversifying across different companies and subsectors within AI to mitigate risk, and maintaining a long-term investment perspective to navigate the inherent volatility. Balancing these considerations with traditional investment analysis will help you make more informed decisions and potentially capitalize on the growth opportunities that AI presents.

Investing in artificial intelligence (AI) stocks is a prevailing topic in the financial media, as investors seek to capitalize on one of the most transformative sectors in the economy of the 2020s. AI, with its vast potential for applications in healthcare, finance, entertainment, and elsewhere in the economy, is not only reshaping potentially how many businesses operate but also how investors approach the technology sector. Still, diving into AI investing requires knowing the unique attributes of a field characterized by rapid innovation, an evolving market, and anchored by established giants and emerging startups. This beginner’s guide will give you what you need to get started in this hyped and often-confusing sector. Key Takeaways AI is a broad and fast-evolving field characterized by the development of algorithms and computational techniques that enable machines to perform tasks that typically require human intelligence.AI has been a leading discussion across many industries, including healthcare, finance, the automotive industry, retail, telecommunications, and agriculture, on the idea that it improves efficiency and effectiveness.When investing in AI stocks, several factors should be considered: market positioning, the financial health of the company, and the technology and product portfolio.Like any other investment, investing in AI stocks involves risks that investors should consider, including technological obsolescence, price volatility, and high valuations.Investing in AI stocks requires a strategic approach because of the technology’s dynamic and rapidly evolving nature. Staying informed about the AI industry, evaluating the business models of AI companies, and assessing their competitive advantages are part of your due diligence. Before investing in AI stocks, it’s useful to know that this field differs from the more traditional industries. AI companies frequently command high valuations based on their growth potential rather than current earnings, making them attractive for their capital appreciation prospects and exposing investors to higher volatility and risk. The industry’s reliance on continuous technological advances and a changing regulatory landscape relating to data use and privacy add further complexity. As such, a strategic approach that balances enthusiasm for AI’s potential with a pragmatic assessment of risks and market realities is essential for investors navigating this exciting yet challenging domain. Understanding Artificial Intelligence (AI) AI is a broad and fast-evolving field, characterized by the development of algorithms and computational techniques that enable machines to perform tasks that typically require human intelligence. Its applications span numerous industries, and proponents say it will significantly transform how businesses operate and deliver services. There are aspects of AI for investors to understand first: Machine learning: This involves algorithms that allow computers to learn from and make predictions based on data.Natural language processing: This enables machines to understand and interpret human language, facilitating interactions between humans and computers.Robotics and automation: This involves enhancing the efficiency and capabilities of automated systems, typically in manufacturing and logistics.Computer vision: This means teaching machines to interpret and make decisions based on visual data, from photographs to live video streams. The complex nature of AI—encompassing machine learning, natural language processing, robotics and automation, and computer vision—presents further prospects and challenges. As AI continues to evolve and be integrated into industries across the economy, understanding these is crucial for navigating this dynamic and potentially lucrative sector in a way that aligns with your investment strategies. Applications of Artificial Intelligence (AI) Across the Economy Discussions about the potential applications of AI are happening across many industries. In healthcare, AI algorithms can often analyze medical imaging faster and more accurately than human practitioners. In addition, AI may be able to accelerate the process of drug development by predicting how different compounds will behave. In finance and investment, AI algorithms can analyze market data at a speed and depth beyond human capability. Moreover, AI systems may be able to assess risks in investments and credit scoring with greater accuracy. In the automotive industry, AI is fundamental in developing self-driving cars, processing data from vehicle sensors to make driving decisions. AI may also be able to optimize production lines and predict maintenance needs in automotive manufacturing. Regarding the retail industry, AI has long analyzed consumer behavior to present personalized shopping suggestions. AI may predict inventory needs, optimize stock levels, and reduce waste. In agriculture, AI helps in monitoring crop health and soil conditions, leading to more efficient farming practices. Indeed, AI may even forecast environmental effects on crop yield. In telecommunications, AI can enhance network performance and predict infrastructure failures. For customer service, AI powers chatbots and automates many customer interactions. In entertainment and media, streaming services use AI to recommend personalized content. For education, AI may be used to customize learning experiences for each student. In cybersecurity, AI systems may be used to detect and respond to cybersecurity threats. Indeed, AI is used to monitor transactions for patterns indicative of fraudulent activity. The potential for AI is vast, yet it brings ethical considerations such as data privacy, bias in decision making, and the impact on employment. Its applications are diverse, reflecting the adaptability and AI-backed processes. However, balancing innovation with ethical considerations should be front and center in assessing its evolution. Factors to Consider When Investing in Artificial Intelligence (AI) Stocks Here are just some of the factors that will help you assess the potential risks and rewards of investing in AI-related firms: Market position and competitive advantage: You should evaluate the company’s position in the AI market. Companies with a strong competitive advantage, a lead in technology, and intellectual property are generally better positioned for long-term success. Revenue growth and financial health: The company’s revenue growth, profitability, cash flow, and debt levels should be reviewed thoroughly. Consistent revenue growth and sound financial health are indicators of a stable investment. Research and development (R&D): Companies investing heavily in R&D could parlay that spending into advances later in the rapidly evolving AI field. However, high R&D expenses will also affect short-term profitability. Technology and product portfolio: You must assess and compare the company’s technology and product offerings to its competitors. A diverse portfolio that serves diverse industries should indicate resilience and potential for growth. Partnerships and collaborations: Affiliations with other major technology companies or industries can provide quicker access to large markets and improve technological capabilities. Regulations: You need to understand the regulatory environment in which the company operates, especially concerning data privacy, AI ethics, and potential antitrust issues. Regulatory changes can significantly impact AI companies. Global reach and scalability: Companies with a global presence and scalable products are usually better positioned to capitalize on the global AI market. Risk diversification: Investing in a single AI stock can be risky, which may lead you to diversify your investments across different companies or sectors within AI; e.g., through the top exchange-traded funds (ETFs). Long-term vision and strategy: You should also evaluate the company’s strategic vision. Companies should focus on current trends and have a clear long-term strategy for future growth. Customer base and market demand: The size and diversity of the company’s customer base and market demand are central. Investing in AI stocks requires understanding the technical aspects of AI technologies and assessing the traditional financial metrics. It is important to keep up with the latest developments in the AI field, as the technology and market dynamics can change rapidly. Notable Artificial Intelligence (AI) Stocks There are a growing number of AI and AI-related stocks. Here are some of the most-discussed: C3.ai Inc. (AI): A California-based company that develops enterprise artificial intelligence software. The company recently expanded its collaboration with Amazon Web Services. Palantir Technologies Inc. (PLTR): The Colorado-based company builds and installs software development services for the U.S. intelligence community. EPAM Systems Inc. (EPAM): The firm provides digital platform engineering and software development services worldwide, including AI-powered platforms. SentinelOne Inc. (S): This firm provides cybersecurity with AI-powered autonomous threat prevention, detection, and response capacities. Nvidia Corp. (NVDA): The company is well-known for its advanced graphics processing units, a crucial element for AI and machine learning applications. Its latest AI chips are considered highly powerful, augmenting its already-strong position in the AI market. Microsoft Corp. (MSFT): Microsoft has been a key figure in the AI space, mainly through its partnership with OpenAI, the developer of ChatGPT. Microsoft also offers a suite of AI services through Azure, its cloud computing platform. It has its R&D teams developing AI applications, including its integration into its Office suite of products. Baidu Inc. (BIDU): A Chinese internet search company developing the AI-driven ERNIE Bot. IBM Corp. (IBM): The company behind some of the oldest brands in the computer industry, IBM produces advanced computer chips, quantum computing applications, AI, and data infrastructure. Intel Corp. (INTC): Intel designs, makes, and sells computing and related products, operating in several segments, including data centers and AI. UiPath Inc. (PATH): The company specializes in robotic process automation, a key component of AI that helps automate routine business processes. Helix Energy Solutions Group Inc. (HLX): Helix is deploying AI in offshore energy, particularly in its robotics and automated oil and gas exploration and production processes. AeroVironment Inc. (AVAV): This company produces drones and tactical missile systems, where AI plays an increasing role in navigation, surveillance, and data collection. Pros Holdings Inc. (PRO): A tech company that develops AI-related tools aimed at helping businesses set prices, improve sales strategies, and manage revenue. Price Performance of AI and AI-Related Stocks Ticker Name 1-Month Return (%) 1-Year Return (%) 5-Year Return (%) AI C3.ai Inc. 3.43 157.89 -70.99 AVAV AeroVironment Inc. -2.87 34.61 62.51 BIDU Baidu Inc. 3.66 -13.67 -30.09 EPAM EPAM Systems Inc. 12.49 -7.24 134.62 HLX Helix Energy Solutions Group Inc. -2.23 23.43 40.76 IBM IBM Corp. -1.04 12.10 40.35 INTC Intel Corp. 9.78 62.07 -0.77 MSFT Microsoft Corp. 3.58 67.57 269.75 NVDA Nvidia Corp. 14.81 251.61 1438.05 PATH UiPath Inc. -3.50 85.04 -64.74 PLTR Palantir Technologies Inc. -5.82 160.38 69.25 PRO Pros Holdings Inc. -7.11 46.08 7.85 S SentinelOne Inc. 2.07 82 -46.74 Source: TradingView, data as of 11:30 a.m. Eastern time Jan. 10, 2024 These companies are noted for the significance of their advances, market position, and applications of AI technology in their fields. Their presence in the AI market is marked not only by their financial performance but also by how they have integrated AI for diverse industrial and business challenges. Risks and Challenges of Investing in Artificial Intelligence (AI) Stocks Investing in AI stocks, like any investment, involves certain risks and challenges to consider. Here are some of them: Adapting to AI: The commercial success of AI technology depends on how ready employees are to see AI adopted for use in their industries. Slow adoption will hinder growth and profitability. Competitive environment: The AI sector is highly competitive, ranging from startups to longtime tech giants. Standing out and capturing significant market share can be challenging for companies. This is especially the case if some competitors have the backing of their governments. Execution risk: This is a reality. Successfully developing and commercializing AI technology involves numerous technical hurdles, potential material and product delays, and cost overruns. Ethical AI: While most companies in the sector have webpages dedicated to processes they have in place to review the use of these technologies, there remain wider public concerns about its influence on jobs, the future of life online, bias in AI algorithms, and more that could lead to legislation barring certain uses of AI technology. Hype: Many AI companies, especially those in their growth phases, trade at high valuations based on future potential rather than their current earnings. This can make them more susceptible to market corrections. Regulatory scrutiny: The AI industry faces significant regulatory scrutiny, especially regarding data privacy, ethical use of AI, and antitrust concerns. Regulatory discussions are taking place not just in the United States but worldwide. Tech gets old fast: One risk is technological obsolescence. Rapid technological advances in AI could render existing technologies obsolete pretty quickly. Volatility: The market’s perceptions of AI’s potential have led to significant fluctuations in stock prices, sometimes based on speculative trends rather than solid financial fundamentals. As with any investment, you should conduct thorough due diligence, stay informed about industry trends, and consider diversifying your investments to mitigate these risks. Tips for Investing in Artificial Intelligence (AI) Stocks Investing in AI stocks requires a strategy that can handle the technology’s dynamic and rapidly evolving nature. Here are some tips: Stay informed: Stay educated about the AI industry, including technological advances, market trends, and regulatory changes. This knowledge is crucial for making informed investment decisions. Business model evaluation: You must clearly understand how the company plans to generate revenue and profit from AI technology. Investors should look for companies with a transparent and viable business model. Competitive advantage assessment: You should get a handle on what gives a company a competitive edge in its part of the AI business. This could be an advance in technology it has made, proprietary algorithms, strategic partnerships, or a strong customer base. Investment diversification: Due to the inherent risks and volatility in the technology sector, it is wise to diversify investments across different AI companies and sectors. This can help mitigate risk. Fundamentals: You should review the company’s financial statements, focusing on revenue growth, profitability, cash flow, and debt levels. Financial stability is a key indicator of a company’s long-term viability. R&D investments: Companies investing heavily in research and development are more likely to innovate and stay ahead in AI. However, it’s not enough to advance what AI can do. The task is to make bringing it to market viable and profitable. Market potential: Companies best placed to grow are likely those in AI areas with high growth potential or industries undergoing digital transformation. Long-term perspective: AI is a field where significant returns may take time. Thus, it’s prudent not only to keep the long-term view in mind as you invest, but also to see if the company you’re reviewing is doing so. Regulatory environment: Investors should pay attention to the regulatory landscape, as it can significantly affect AI companies, especially those dealing with data privacy and ethics. Management quality: The quality and track record of the company’s management team should be reviewed. Experienced, well-networked leadership is crucial for navigating the AI market. Risk management: Consider your risk tolerance and invest accordingly. AI stocks can be highly volatile, so it is important to manage risk exposure. Seek professional advice: Consulting with financial advisors or investment professionals who understand the technology sector and AI industry should be considered, particularly if you are unsure about your knowledge of this relatively new tech area. Combining a thorough understanding of the AI industry with sound investment practices will position you to better capitalize on the investment prospects in this growing field. Is the AI Industry in a Bubble? This is being debated among investors, analysts, and industry experts. Indications of a bubble include high valuations, a plethora of speculation, rapid investment growth, and extreme positive market sentiment (hype) that leads to irrational investment behavior.While signs suggest some elements of the AI industry could be overvalued, there are also strong fundamentals supporting the growth and sustainability of AI as a transformative technology. Investors should exercise caution, conduct thorough research, and consider long-term trends when investing in this sector. Are There any AI ETFs Available? There are several exchange-traded funds (ETFs) that offer exposure to a basket of stocks from companies involved in the development, research, and utilization of AI. These include Global X Robotics & Artificial Intelligence ETF (BOTZ), iShares Robotics and Artificial Intelligence Multisector ETF (IRBO), and First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT). Do AI Stocks Pay Any Dividends? While some AI or AI-related stocks may pay dividends, the sector as a whole is growth-focused, with many companies reinvesting profits to fuel further expansion and R&D. Investors interested in AI and seeking dividends might need to look at larger, more diversified technology companies or consider AI-focused ETFs that include dividend-paying stocks. The Bottom Line Investing in AI stocks could bring significant growth, given the transformative influence of artificial intelligence across many industries. However, it’s important to recognize the unique characteristics of this sector. AI stocks are marked by high-growth expectations and rapid technological advances, which can lead to inflated valuations and increased volatility. Many AI companies, particularly those in early development stages, prefer reinvestment in technology and market expansion over paying dividends, focusing more on long-term capital appreciation than immediate income generation. Additionally, the AI sector is influenced by factors such as regulatory changes, ethical considerations of AI technologies, and the competitive landscape. All of these can influence stock performance. If you’re considering AI or AI-related stocks, you need to account for these dynamics. This includes conducting thorough research to understand the potential and risks associated with AI investments, diversifying across different companies and subsectors within AI to mitigate risk, and maintaining a long-term investment perspective to navigate the inherent volatility. Balancing these considerations with traditional investment analysis will help you make more informed decisions and potentially capitalize on the growth opportunities that AI presents.

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

Settlement Price: Definition, Use in Trading, 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-the-settlement-price"></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 Settlement Price? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The settlement price, typically used in the mutual fund and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">derivatives</a> markets, is the price used for determining a position's daily profit or loss as well as the related <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margin.asp">margin</a> requirements for the position. </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 settlement price may also refer to the final price an underlying asset achieves with reference to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/optionscontract.asp">options contracts</a> to determine whether they are in-the-money (ITM) or out-of-the-money (OTM) at expiration and what their payoffs ought to be. Alternatively, settlement prices might be used to compute the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nav.asp">net asset value</a> (NAV) of mutual funds or exchange traded funds (ETFs) on a daily basis. </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>Settlement price refers to the price at which an asset closes or of which a derivatives contract will reference at the end of each trading day and/or upon its expiration.</li><li>The settlement price will be determined on the settlement date of a particular contract.</li><li>There is no standard across asset classes on how settlement prices must be calculated, and there is thus great variance across exchanges for settlement prices of similar contracts.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-settlement-prices"></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 Settlement Prices </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A settlement price is used as the reference price for marking the value of open derivatives contracts, or for evaluating their value upon expiration. This price is obtained on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/settlementdate.asp">settlement date</a>. </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 settlement price can be calculated in one of several ways and is generally set by defined procedures that differ slightly depending on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchange.asp">exchange</a> and the instrument traded. </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"> Settlement prices are typically based on price averages within a specific time period. These prices may be calculated based on activity across an entire trading day—using the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/openingprice.asp">opening</a> and closing prices as part of the calculation—or on activity that takes place during a specific window of time within a trading day. </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 opening price reflects the price for a particular security at the beginning of the trading day within a particular exchange while the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closingprice.asp">closing price</a> refers to the price of a particular security at the end of that same trading day. In cases where securities are traded on multiple markets, a closing price may differ from the next day’s opening price due to off-hours activity occurring while the first market is closed. </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 the opening and closing prices are generally handled the same way from one exchange to the next, there is no standard on how settlement prices must be determined in different exchanges, causing variances across the global markets. </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>Settlement prices are often based on the average price of the contract over a specified period, calculated at both the open and close of each trading day, though not all markets use the same formula.</p></div></div></div> <span class="heading-toc" id="toc-determining-settlement-prices-on-specific-markets"></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"> Determining Settlement Prices on Specific Markets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Typically, the settlement price is set by determining the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/weightedaverage.asp">weighted average</a> price over a certain period of trading, typically shortly before the close of the market. </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"> On the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cme.asp">Chicago Mercantile Exchange</a>, the settlement prices of certain equity <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a> were determined by a volume-weighted average of pit trading activity in the 30 seconds between 3:14:30 p.m. and 3:15:00 p.m. Central Daylight Time (CDT). Beginning in December of 2014, the time was shifted to 12:59:30 p.m. and 1:00:00 p.m. CDT, respectively, maintaining the previous 30-second window but basing it on a different time period.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> On the Moscow Exchange (MOEX), as another example, settlement prices for the RTS Index and MICEX Index are based on activity between 3:00 p.m. and 4:00 p.m. of the last trading day. The Russian Volatility Index uses a different time period, instead focusing on activity between 2:03:15 p.m. and 6:00:00 p.m.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-example-of-the-settlement-price"></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"> Example of the Settlement Price </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> If you own a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/calloption.asp">call option</a> with a strike price of $100 and the settlement price of the underlying asset at its expiration is $120, then the owner of the call is able to purchase shares for $100, which could then be sold for a $20 profit since it is ITM. If, however, the settlement price was $90, then the options would expire worthless since they are OTM. </p></div>

## What Is the Settlement Price? The settlement price, typically used in the mutual fund and [derivatives](https://www.investopedia.com/terms/d/derivative.asp) markets, is the price used for determining a position's daily profit or loss as well as the related [margin](https://www.investopedia.com/terms/m/margin.asp) requirements for the position. The settlement price may also refer to the final price an underlying asset achieves with reference to [options contracts](https://www.investopedia.com/terms/o/optionscontract.asp) to determine whether they are in-the-money (ITM) or out-of-the-money (OTM) at expiration and what their payoffs ought to be. Alternatively, settlement prices might be used to compute the [net asset value](https://www.investopedia.com/terms/n/nav.asp) (NAV) of mutual funds or exchange traded funds (ETFs) on a daily basis. ### Key Takeaways * Settlement price refers to the price at which an asset closes or of which a derivatives contract will reference at the end of each trading day and/or upon its expiration. * The settlement price will be determined on the settlement date of a particular contract. * There is no standard across asset classes on how settlement prices must be calculated, and there is thus great variance across exchanges for settlement prices of similar contracts. ## Understanding Settlement Prices A settlement price is used as the reference price for marking the value of open derivatives contracts, or for evaluating their value upon expiration. This price is obtained on the [settlement date](https://www.investopedia.com/terms/s/settlementdate.asp). The settlement price can be calculated in one of several ways and is generally set by defined procedures that differ slightly depending on the [exchange](https://www.investopedia.com/terms/e/exchange.asp) and the instrument traded. Settlement prices are typically based on price averages within a specific time period. These prices may be calculated based on activity across an entire trading day—using the [opening](https://www.investopedia.com/terms/o/openingprice.asp) and closing prices as part of the calculation—or on activity that takes place during a specific window of time within a trading day. The opening price reflects the price for a particular security at the beginning of the trading day within a particular exchange while the [closing price](https://www.investopedia.com/terms/c/closingprice.asp) refers to the price of a particular security at the end of that same trading day. In cases where securities are traded on multiple markets, a closing price may differ from the next day’s opening price due to off-hours activity occurring while the first market is closed. While the opening and closing prices are generally handled the same way from one exchange to the next, there is no standard on how settlement prices must be determined in different exchanges, causing variances across the global markets. ### Settlement prices are often based on the average price of the contract over a specified period, calculated at both the open and close of each trading day, though not all markets use the same formula. ## Determining Settlement Prices on Specific Markets Typically, the settlement price is set by determining the [weighted average](https://www.investopedia.com/terms/w/weightedaverage.asp) price over a certain period of trading, typically shortly before the close of the market. On the [Chicago Mercantile Exchange](https://www.investopedia.com/terms/c/cme.asp), the settlement prices of certain equity [futures](https://www.investopedia.com/terms/f/futures.asp) were determined by a volume-weighted average of pit trading activity in the 30 seconds between 3:14:30 p.m. and 3:15:00 p.m. Central Daylight Time (CDT). Beginning in December of 2014, the time was shifted to 12:59:30 p.m. and 1:00:00 p.m. CDT, respectively, maintaining the previous 30-second window but basing it on a different time period. On the Moscow Exchange (MOEX), as another example, settlement prices for the RTS Index and MICEX Index are based on activity between 3:00 p.m. and 4:00 p.m. of the last trading day. The Russian Volatility Index uses a different time period, instead focusing on activity between 2:03:15 p.m. and 6:00:00 p.m. ## Example of the Settlement Price If you own a [call option](https://www.investopedia.com/terms/c/calloption.asp) with a strike price of $100 and the settlement price of the underlying asset at its expiration is $120, then the owner of the call is able to purchase shares for $100, which could then be sold for a $20 profit since it is ITM. If, however, the settlement price was $90, then the options would expire worthless since they are OTM.

What Is the Settlement Price? The settlement price, typically used in the mutual fund and derivatives markets, is the price used for determining a position's daily profit or loss as well as the related margin requirements for the position. The settlement price may also refer to the final price an underlying asset achieves with reference to options contracts to determine whether they are in-the-money (ITM) or out-of-the-money (OTM) at expiration and what their payoffs ought to be. Alternatively, settlement prices might be used to compute the net asset value (NAV) of mutual funds or exchange traded funds (ETFs) on a daily basis. Key Takeaways Settlement price refers to the price at which an asset closes or of which a derivatives contract will reference at the end of each trading day and/or upon its expiration.The settlement price will be determined on the settlement date of a particular contract.There is no standard across asset classes on how settlement prices must be calculated, and there is thus great variance across exchanges for settlement prices of similar contracts. Understanding Settlement Prices A settlement price is used as the reference price for marking the value of open derivatives contracts, or for evaluating their value upon expiration. This price is obtained on the settlement date. The settlement price can be calculated in one of several ways and is generally set by defined procedures that differ slightly depending on the exchange and the instrument traded. Settlement prices are typically based on price averages within a specific time period. These prices may be calculated based on activity across an entire trading day—using the opening and closing prices as part of the calculation—or on activity that takes place during a specific window of time within a trading day. The opening price reflects the price for a particular security at the beginning of the trading day within a particular exchange while the closing price refers to the price of a particular security at the end of that same trading day. In cases where securities are traded on multiple markets, a closing price may differ from the next day’s opening price due to off-hours activity occurring while the first market is closed. While the opening and closing prices are generally handled the same way from one exchange to the next, there is no standard on how settlement prices must be determined in different exchanges, causing variances across the global markets. Settlement prices are often based on the average price of the contract over a specified period, calculated at both the open and close of each trading day, though not all markets use the same formula. Determining Settlement Prices on Specific Markets Typically, the settlement price is set by determining the weighted average price over a certain period of trading, typically shortly before the close of the market. On the Chicago Mercantile Exchange, the settlement prices of certain equity futures were determined by a volume-weighted average of pit trading activity in the 30 seconds between 3:14:30 p.m. and 3:15:00 p.m. Central Daylight Time (CDT). Beginning in December of 2014, the time was shifted to 12:59:30 p.m. and 1:00:00 p.m. CDT, respectively, maintaining the previous 30-second window but basing it on a different time period. On the Moscow Exchange (MOEX), as another example, settlement prices for the RTS Index and MICEX Index are based on activity between 3:00 p.m. and 4:00 p.m. of the last trading day. The Russian Volatility Index uses a different time period, instead focusing on activity between 2:03:15 p.m. and 6:00:00 p.m. Example of the Settlement Price If you own a call option with a strike price of $100 and the settlement price of the underlying asset at its expiration is $120, then the owner of the call is able to purchase shares for $100, which could then be sold for a $20 profit since it is ITM. If, however, the settlement price was $90, then the options would expire worthless since they are OTM.

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

Healthcare Sector: Industries Defined and Key Statistics

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-healthcare-sector"></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 Healthcare Sector? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The healthcare sector consists of businesses that provide medical services, manufacture medical equipment or drugs, provide medical insurance, or otherwise facilitate the provision of healthcare to patients. </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 healthcare sector consists of all businesses involved in the provision and coordination of medical and related goods and services.</li><li>This sector enjoys some significant advantages in the U.S. but is also beset with a several factors that present potential economic problems.</li><li>The U.S. healthcare sector accounts for an outsized share of spending relative to health outcomes, which has led to uncertainties around politically driven reform of the industry.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-healthcare-sector"></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 Healthcare Sector </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The healthcare sector is one of the largest and most complex in the U.S. economy, accounting for 18% of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/what-is-gdp-why-its-important-to-economists-investors/">gross domestic product</a> (GDP) in 2020.<span class="ql-inline-citation" data-cite="6"></span> The U.S. healthcare sector benefits from a strong system of medical research and development, in cooperation with the higher education system and the technology industry. The aging U.S. population and the advancing senescence of the Baby Boomer generation are driving ongoing strong demand in the healthcare sector. </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"> Economically, healthcare markets are marked by a few distinct factors. Government intervention in healthcare markets and activities is pervasive, in part due to some of these economic factors. Demand for healthcare services is highly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/inelastic.asp">price inelastic</a>. Consumers and producers face inherent uncertainties regarding needs, outcomes, and the costs of services. Patients, providers, and other industry players possess widely <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asymmetricinformation.asp">asymmetric information</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal-agent-problem.asp">principal-agent problems</a> are ubiquitous. </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"> Major <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/barrierstoentry.asp">barriers to entry</a> exist in the form of professional licensure, regulation, intellectual property protections, specialized expertise, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/randd.asp">research and development</a> costs, and natural <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economiesofscale.asp">economies of scale</a>. Within the sector, the <a class="pseudoStyle" data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/092315/top-investment-banks-healthcare-industry.asp">need for working and investment capital</a> can vary greatly between pharmacutical companies and large facilities, and those providing insurance and medical supplies. Consumption (or non-consumption) and production of medical services can involve significant externalities, particularly regarding infectious diseases. <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transactioncosts.asp">Transactions costs</a> are high in both the provision of care and the coordination of care. </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-industries-within-the-healthcare-sector"></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"> Industries Within the Healthcare Sector </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The healthcare sector contains a diverse array of industries, with activities ranging from research to manufacturing to facilities management. </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"> Drugs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Drug manufacturers can further be broken down into biotechnology firms, major pharmaceutical firms, and makers of generic drugs. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/etfs-4427784">biotech industry</a> consists of companies that engage in research and development to create new drugs, devices, and treatment methods. </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"> Many of these companies are small and lack dependable sources of revenue. Their market value may depend entirely on the expectation that a drug or treatment will gain regulatory approval, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fda.asp">FDA</a> decisions or rulings in patent cases can lead to sharp, double-digit swings in share prices. Examples of (larger) biotech firms include Novo Nordisk (NVO), Regeneron ( REGN), Alexion ( ALXN), Vertex ( VRTX), Gilead Sciences Inc. (GILD), and Celgene Corp. (CELG). </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"> Major pharmaceutical firms also engage in research and development but tend to focus more on manufacturing and marketing an existing portfolio of drugs than the typical biotech firm. These companies tend to have more dependable streams of revenue and a more diversified "pipeline" of drugs in the research and development stages, making them less dependent on make-or-break drug trials and their shares less volatile. Examples of major pharmaceutical firms include Johnson and Johnson, Roche, Pfizer, Eli Lilly, Novartis AG. GlaxoSmithKline, and Astrazeneca. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Some pharmaceutical firms specialize in generic drugs, which are identical to name-brand drugs but no longer enjoy patent protection. As a result, there is often competition to manufacture identical drugs, leading to lower prices and thinner profit margins. An example of a generic drugs firm is Teva Pharmaceutical Industries Ltd. </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"> Medical Equipment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Medical equipment makers range from firms that manufacture standard, familiar products—scalpels, forceps, bandages, and gloves—to those that conduct cutting-edge research and produce expensive, hi-tech equipment, such as MRI machines and surgical robots. Medtronic PLC is an example of a medical equipment maker. </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"> Managed Healthcare </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Managed healthcare companies provide health insurance policies. The "Big Five" firms that dominate the managed Medicaid industry are UnitedHealth Group Inc., Anthem Inc., Aetna Inc., Molina., and Centene.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <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"> Healthcare Facilities </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Healthcare facilities firms operate hospitals, clinics, labs, psychiatric facilities, and nursing homes. Examples include Laboratory Corp. of America Holdings, which operates facilities that perform blood tests and other analyses, and HCA Healthcare Inc., which operates hospitals and other healthcare facilities in the U.S. and U.K. </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-healthcare-in-the-us-and-the-oecd"></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"> Healthcare in the U.S. and the OECD </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> According to the OECD, some of the highest-quality care in the world can be found in the U.S., but in terms of some measures of health the U.S. lags other wealthy, developed countries. Life expectancy is 78.9 years, according to the OECD, below the OECD average of 80 (the OECD's 38 members are mostly rich, industrialized countries in Europe and North America).<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_37-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/Bt9AU/3/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Life Expectancy at Birth"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Despite these subpar results, the U.S. spends far more than any other country on healthcare, measured per head of population: $10,948.<span class="ql-inline-citation" data-cite="4"></span> This situation has led to a number of national reform efforts, including the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/affordable-care-act.asp">Affordable Care Act</a>. Investors in the healthcare sector face considerable political risk as a result of uncertainties around the push-and-pull between politics and industry interests. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_41-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/uf7Ud/2/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Per Capita Health Spending"></iframe></div></div>

## What Is the Healthcare Sector? The healthcare sector consists of businesses that provide medical services, manufacture medical equipment or drugs, provide medical insurance, or otherwise facilitate the provision of healthcare to patients. ### Key Takeaways * The healthcare sector consists of all businesses involved in the provision and coordination of medical and related goods and services. * This sector enjoys some significant advantages in the U.S. but is also beset with a several factors that present potential economic problems. * The U.S. healthcare sector accounts for an outsized share of spending relative to health outcomes, which has led to uncertainties around politically driven reform of the industry. ## Understanding the Healthcare Sector The healthcare sector is one of the largest and most complex in the U.S. economy, accounting for 18% of [gross domestic product](https://www.investopedia.com/ask/answers/what-is-gdp-why-its-important-to-economists-investors/) (GDP) in 2020. The U.S. healthcare sector benefits from a strong system of medical research and development, in cooperation with the higher education system and the technology industry. The aging U.S. population and the advancing senescence of the Baby Boomer generation are driving ongoing strong demand in the healthcare sector. Economically, healthcare markets are marked by a few distinct factors. Government intervention in healthcare markets and activities is pervasive, in part due to some of these economic factors. Demand for healthcare services is highly [price inelastic](https://www.investopedia.com/terms/e/inelastic.asp). Consumers and producers face inherent uncertainties regarding needs, outcomes, and the costs of services. Patients, providers, and other industry players possess widely [asymmetric information](https://www.investopedia.com/terms/a/asymmetricinformation.asp) and [principal-agent problems](https://www.investopedia.com/terms/p/principal-agent-problem.asp) are ubiquitous. Major [barriers to entry](https://www.investopedia.com/terms/b/barrierstoentry.asp) exist in the form of professional licensure, regulation, intellectual property protections, specialized expertise, [research and development](https://www.investopedia.com/terms/r/randd.asp) costs, and natural [economies of scale](https://www.investopedia.com/terms/e/economiesofscale.asp). Within the sector, the [need for working and investment capital](https://www.investopedia.com/articles/investing/092315/top-investment-banks-healthcare-industry.asp) can vary greatly between pharmacutical companies and large facilities, and those providing insurance and medical supplies. Consumption (or non-consumption) and production of medical services can involve significant externalities, particularly regarding infectious diseases. [Transactions costs](https://www.investopedia.com/terms/t/transactioncosts.asp) are high in both the provision of care and the coordination of care. ## Industries Within the Healthcare Sector The healthcare sector contains a diverse array of industries, with activities ranging from research to manufacturing to facilities management. ### Drugs Drug manufacturers can further be broken down into biotechnology firms, major pharmaceutical firms, and makers of generic drugs. The [biotech industry](https://www.investopedia.com/etfs-4427784) consists of companies that engage in research and development to create new drugs, devices, and treatment methods. Many of these companies are small and lack dependable sources of revenue. Their market value may depend entirely on the expectation that a drug or treatment will gain regulatory approval, and [FDA](https://www.investopedia.com/terms/f/fda.asp) decisions or rulings in patent cases can lead to sharp, double-digit swings in share prices. Examples of (larger) biotech firms include Novo Nordisk (NVO), Regeneron ( REGN), Alexion ( ALXN), Vertex ( VRTX), Gilead Sciences Inc. (GILD), and Celgene Corp. (CELG). Major pharmaceutical firms also engage in research and development but tend to focus more on manufacturing and marketing an existing portfolio of drugs than the typical biotech firm. These companies tend to have more dependable streams of revenue and a more diversified "pipeline" of drugs in the research and development stages, making them less dependent on make-or-break drug trials and their shares less volatile. Examples of major pharmaceutical firms include Johnson and Johnson, Roche, Pfizer, Eli Lilly, Novartis AG. GlaxoSmithKline, and Astrazeneca. Some pharmaceutical firms specialize in generic drugs, which are identical to name-brand drugs but no longer enjoy patent protection. As a result, there is often competition to manufacture identical drugs, leading to lower prices and thinner profit margins. An example of a generic drugs firm is Teva Pharmaceutical Industries Ltd. ### Medical Equipment Medical equipment makers range from firms that manufacture standard, familiar products—scalpels, forceps, bandages, and gloves—to those that conduct cutting-edge research and produce expensive, hi-tech equipment, such as MRI machines and surgical robots. Medtronic PLC is an example of a medical equipment maker. ### Managed Healthcare Managed healthcare companies provide health insurance policies. The "Big Five" firms that dominate the managed Medicaid industry are UnitedHealth Group Inc., Anthem Inc., Aetna Inc., Molina., and Centene. ### Healthcare Facilities Healthcare facilities firms operate hospitals, clinics, labs, psychiatric facilities, and nursing homes. Examples include Laboratory Corp. of America Holdings, which operates facilities that perform blood tests and other analyses, and HCA Healthcare Inc., which operates hospitals and other healthcare facilities in the U.S. and U.K. ## Healthcare in the U.S. and the OECD According to the OECD, some of the highest-quality care in the world can be found in the U.S., but in terms of some measures of health the U.S. lags other wealthy, developed countries. Life expectancy is 78.9 years, according to the OECD, below the OECD average of 80 (the OECD's 38 members are mostly rich, industrialized countries in Europe and North America). Despite these subpar results, the U.S. spends far more than any other country on healthcare, measured per head of population: $10,948. This situation has led to a number of national reform efforts, including the [Affordable Care Act](https://www.investopedia.com/terms/a/affordable-care-act.asp). Investors in the healthcare sector face considerable political risk as a result of uncertainties around the push-and-pull between politics and industry interests.

What Is the Healthcare Sector? The healthcare sector consists of businesses that provide medical services, manufacture medical equipment or drugs, provide medical insurance, or otherwise facilitate the provision of healthcare to patients. Key Takeaways The healthcare sector consists of all businesses involved in the provision and coordination of medical and related goods and services.This sector enjoys some significant advantages in the U.S. but is also beset with a several factors that present potential economic problems.The U.S. healthcare sector accounts for an outsized share of spending relative to health outcomes, which has led to uncertainties around politically driven reform of the industry. Understanding the Healthcare Sector The healthcare sector is one of the largest and most complex in the U.S. economy, accounting for 18% of gross domestic product (GDP) in 2020. The U.S. healthcare sector benefits from a strong system of medical research and development, in cooperation with the higher education system and the technology industry. The aging U.S. population and the advancing senescence of the Baby Boomer generation are driving ongoing strong demand in the healthcare sector. Economically, healthcare markets are marked by a few distinct factors. Government intervention in healthcare markets and activities is pervasive, in part due to some of these economic factors. Demand for healthcare services is highly price inelastic. Consumers and producers face inherent uncertainties regarding needs, outcomes, and the costs of services. Patients, providers, and other industry players possess widely asymmetric information and principal-agent problems are ubiquitous. Major barriers to entry exist in the form of professional licensure, regulation, intellectual property protections, specialized expertise, research and development costs, and natural economies of scale. Within the sector, the need for working and investment capital can vary greatly between pharmacutical companies and large facilities, and those providing insurance and medical supplies. Consumption (or non-consumption) and production of medical services can involve significant externalities, particularly regarding infectious diseases. Transactions costs are high in both the provision of care and the coordination of care. Industries Within the Healthcare Sector The healthcare sector contains a diverse array of industries, with activities ranging from research to manufacturing to facilities management. Drugs Drug manufacturers can further be broken down into biotechnology firms, major pharmaceutical firms, and makers of generic drugs. The biotech industry consists of companies that engage in research and development to create new drugs, devices, and treatment methods. Many of these companies are small and lack dependable sources of revenue. Their market value may depend entirely on the expectation that a drug or treatment will gain regulatory approval, and FDA decisions or rulings in patent cases can lead to sharp, double-digit swings in share prices. Examples of (larger) biotech firms include Novo Nordisk (NVO), Regeneron ( REGN), Alexion ( ALXN), Vertex ( VRTX), Gilead Sciences Inc. (GILD), and Celgene Corp. (CELG). Major pharmaceutical firms also engage in research and development but tend to focus more on manufacturing and marketing an existing portfolio of drugs than the typical biotech firm. These companies tend to have more dependable streams of revenue and a more diversified "pipeline" of drugs in the research and development stages, making them less dependent on make-or-break drug trials and their shares less volatile. Examples of major pharmaceutical firms include Johnson and Johnson, Roche, Pfizer, Eli Lilly, Novartis AG. GlaxoSmithKline, and Astrazeneca. Some pharmaceutical firms specialize in generic drugs, which are identical to name-brand drugs but no longer enjoy patent protection. As a result, there is often competition to manufacture identical drugs, leading to lower prices and thinner profit margins. An example of a generic drugs firm is Teva Pharmaceutical Industries Ltd. Medical Equipment Medical equipment makers range from firms that manufacture standard, familiar products—scalpels, forceps, bandages, and gloves—to those that conduct cutting-edge research and produce expensive, hi-tech equipment, such as MRI machines and surgical robots. Medtronic PLC is an example of a medical equipment maker. Managed Healthcare Managed healthcare companies provide health insurance policies. The "Big Five" firms that dominate the managed Medicaid industry are UnitedHealth Group Inc., Anthem Inc., Aetna Inc., Molina., and Centene. Healthcare Facilities Healthcare facilities firms operate hospitals, clinics, labs, psychiatric facilities, and nursing homes. Examples include Laboratory Corp. of America Holdings, which operates facilities that perform blood tests and other analyses, and HCA Healthcare Inc., which operates hospitals and other healthcare facilities in the U.S. and U.K. Healthcare in the U.S. and the OECD According to the OECD, some of the highest-quality care in the world can be found in the U.S., but in terms of some measures of health the U.S. lags other wealthy, developed countries. Life expectancy is 78.9 years, according to the OECD, below the OECD average of 80 (the OECD's 38 members are mostly rich, industrialized countries in Europe and North America). Despite these subpar results, the U.S. spends far more than any other country on healthcare, measured per head of population: $10,948. This situation has led to a number of national reform efforts, including the Affordable Care Act. Investors in the healthcare sector face considerable political risk as a result of uncertainties around the push-and-pull between politics and industry interests.

https://www.investopedia.com/best-futures-trading-platforms-7370002

4 Best Futures Trading Platforms

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Futures are highly leveraged, however, with only a small percentage of the total value of positions required to be posted as margin. Because of this, futures trading can lead to large profits and losses relative to the capital required to establish and maintain a position. Therefore, understanding the potential risks is critical. We have analyzed the best futures trading platforms and brokers so you can determine which bests fit your trading needs.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp mntl-sc-page--commerce intro-content prm-sc-page mntl-sc-page mntl-block --> <div class="comp js-toc-appear product-roundup-content__summary-list summary-list--finance summary-list--roundup summary-list" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" id="product-roundup-content__summary-list_1-0"> <span class="heading-toc" id="summary-list"></span> <h2 class="summary-list__title"> Best Futures Trading Platforms of 2024 </h2> <ul class="summary-list__content"> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best for Professional Futures Traders:</strong> <a class="summary-list__item-top-pick" data-click-action="OffPageClick - External" 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Platforms" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_1-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_2-0"> 4 Best Futures Trading Platforms</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_1-0"> <li class="comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item" id="toc__listsc-item_1-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" href="#summary-list" rel="nocaes"> <span class="link__wrapper">Our Top Picks</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Interactive Brokers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Interactive Brokers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-professional-futures-traders-interactive-brokers" rel="nocaes"> <span class="link__wrapper">Interactive Brokers</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-NinjaTrader" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0-1"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-NinjaTrader" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-dedicated-futures-traders-ninjatrader" rel="nocaes"> <span class="link__wrapper">NinjaTrader</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-E*TRADE" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0-2"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-E*TRADE" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-futures-education-etrade" rel="nocaes"> <span class="link__wrapper">E*TRADE</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item nested-toc-item--additional mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-TradeStation" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0-3"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-TradeStation" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-desktop-futures-trading-tradestation" rel="nocaes"> <span class="link__wrapper">TradeStation</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item nested-toc-item--additional mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp toc-items__chop mntl-text-block" data-click-action="OnPageClick-See More" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="toc-items__chop_1-0"> See More (1)</li><!-- end: comp toc-items__chop mntl-text-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_1-0" rel="nocaes"><span class="link__wrapper">Final Verdict</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-FAQ" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-faq-1319a4f3-2893-4af4-8bbb-10589bf0d961" id="mntl-toc__list-item-link_1-0-1" rel="nocaes"><span class="link__wrapper">FAQ</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_1-0-2" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc--finance product-roundup__toc sticky-toc--finance-roundup sticky-toc--roundup sticky-toc--base mntl-sticky-toc mntl-block --> </div> <div class="loc article-body__inner article-body__inner"> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0"> <span class="heading-toc" id="toc-best-for-professional-futures-traders-interactive-brokers"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best for Professional Futures Traders</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Interactive Brokers</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Interactive Brokers" 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/YjTQ91srFsW8mFaCFOBWySgqlTs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Interactive_brokers-16255f7886b2458db559e806f54c81a4.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Interactive Brokers" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/YjTQ91srFsW8mFaCFOBWySgqlTs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Interactive_brokers-16255f7886b2458db559e806f54c81a4.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> Interactive Brokers</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-1"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-click-action="OffPageClick - External" data-retailer-type="other" data-tracking-container="true" href="https://www.interactivebrokers.com/mkt/?src=investopedia94a&amp;url=%2Fen%2Fwhyib%2Foverview.php" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Key Specs</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-3"> <li><strong>Account Minimum:</strong> $0</li><li><strong>Commission:</strong><span class="ql-inline-citation" data-cite="6"></span> Ranges from $0.25 to $2.50 per contract ($5 for crypto futures); IBKR Pro customers pay on a tiered scale based on volume, while IBKR Lite customers pay a fixed rate</li><li>For standard futures IBKR Lite customers pay $0.85 per contract. $0.25 per mini contract. Cryptocurrency futures $0.10 to $5 per contract. E-mini FX futures are $0.50 per contract. </li><li>IBKR Pro customers pay $0.85 to $0.25 per contract (depending on volume). For mini contracts $0.25 to $0.10 per contract. Cryptocurrency futures $0.10 to $5 per contract. E-mini FX futures are $0.50 to $0.05 per contract. IBKR Pro customers also pay an overnight position fee. </li><li>The minimum margin for intraday positions is $50.</li><li>The standard exchange and regulatory fees apply. </li> </ul><!-- 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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-5"> In addition to being our top choice for professional futures traders, Interactive Brokers (IBKR) is also our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-brokers-4587872">top-rated broker for professional, advanced, and international traders</a>. This is because IBKR offers more markets to trade through a single platform than any other broker. Moreover, IBKR’s trading technology is among the best of all online brokers. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Pros &amp; Cons </span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-7"> <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>The most markets available on a single platform</p></li> <li><p>Backtesting of strategies</p></li> <li><p>Complex and automated trading strategies</p></li> <li><p>Low commissions for high-volume traders</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>Can be intimidating to less experienced traders</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="4"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="4"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-9"> Interactive Brokers was founded in 1978, and was the first company to use a hand-held computing device on an exchange floor. Since its inception, the company has strived to deliver its customers the best and most sophisticated trading tools available. Historically, the company has catered to the largest international traders because of their need for a single platform that can handle trades in markets around the world using different trading vehicles.  </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"> While IBKR has also developed tools to appeal to less sophisticated traders, such as introducing IBKR Lite to offer commission-free trading of stocks, the company continues to create advanced features for its professional trading clients. IBKR welcomes customers from around the world, which is something not all brokers do. </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"> Among IBKR’s advanced features is the ability to backtest trading ideas, sophisticated options analysis tools, and a very wide array of order methods that includes one-cancels-other (OCO) and a multitude of conditional orders. In addition to these drop-down order entry tools, IBKR also allows traders to develop their own trading algorithms using a multitude of fundamental and technical indicators. Traders can develop automated entry and trade management instructions for trading all markets, including futures. Further, IBKR also has excellent order execution, including the ability to route equity orders. IBKR’s Adaptive Algo can also be used for futures to find the best execution on a market order.  </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"> When it comes to futures trading, IBKR is built for big traders. This isn’t just in terms of the volume discounts that only start after 1,000 contracts. IBKR also has higher margin requirements than other brokers.<span class="ql-inline-citation" data-cite="7"></span> This acts as a risk management tool, ensuring you can handle a 1% to 2% swing in the underlying stock price. It is also another clear signal that IBKR is meant for larger professional traders.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-13"> Read Our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/interactive-brokers-review-4587904">Full Interactive Brokers Review.</a> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-1"> <span class="heading-toc" id="toc-best-for-dedicated-futures-traders-ninjatrader"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0-1"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best for Dedicated Futures Traders</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> NinjaTrader</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-1"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-1"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-1"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-14" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="NinjaTrader logo" class="lazyload universal-image__image" data-click-action="Null" data-click-tracked="true" data-expand="300" data-img-lightbox="false" data-src="https://www.investopedia.com/thmb/HI-y6oqfTgLDDfVkAxbeZDeWQuc=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Ninja-Trader-logo-24beee9bd5bb4630bda6121c5520ff6d.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-1" width="1500"/> <noscript> <img alt="NinjaTrader logo" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/HI-y6oqfTgLDDfVkAxbeZDeWQuc=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Ninja-Trader-logo-24beee9bd5bb4630bda6121c5520ff6d.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>NinjaTrader</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-15"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-1"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-retailer-type="other" data-tracking-container="true" href="https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&amp;offerid=1431504.14&amp;type=3&amp;subid=0" id="button_1-0-1" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Key Specs</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-17"> <li><strong>Account Minimum:</strong> $0 to open account; $50 is the minimum margin for trading</li> <li><strong>Commission:</strong> Option 1 - Free: No monthly fee, with per side commissions of $0.35 for micro futures contracts and $1.29 for standard contracts. Option 2 - Monthly: $99 monthly fee, with per side commissions of $0.25 for micro contracts and $0.99 for standard contracts. Option 3 - Lifetime: $1,499 one-time payment, and per side commissions of $0.09 for micro contracts and $0.59 for standard contracts.<span class="ql-inline-citation" data-cite="1"></span> For all plans, exchange, clearing, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nfa.asp">National Futures Association</a> (NFA) fees also apply.<span class="ql-inline-citation" data-cite="2"></span></li> </ul><!-- 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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-19"> We chose NinjaTrader as the best platform for dedicated <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a> traders because it offers multiple low-cost pricing options; low margin rates; and access to strong desktop, web, and mobile platforms that support direct trading from customizable charts.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Pros &amp; Cons </span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-21"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Very low intraday commissions</p></li> <li><p>Integrated desktop, web, and mobile platforms</p></li> <li><p>Excellent charting</p></li> <li><p>24-hour support during the trading week</p></li> <li><p>Simulation allows for no-risk trading practice</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>No options or equity trading (with a caveat)</p></li> <li><p>Market data purchase required</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="4"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="4"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-23"> NinjaTrader was established in 2003 to service active self-directed futures traders. In March 2023, NinjaTrader introduced new cloud-based, mobile, and web platforms that allow for seamless trading across all its platforms. In January 2023, the company announced a custom-built trading tool to support event-based futures.<span class="ql-inline-citation" data-cite="3"></span> NinjaTrader platforms are free to use, and there is also simulated trading available without having to fund the account. The platform has excellent, customizable charting and real-time analysis. It also supports trading directly from charts. Further, the platform supports multiple apps and third-party add-ons. </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"> Margin at NinjaTrader is aggressive, providing users with $50 intraday margin on equity index E-mini futures, and just $500 for standard futures contracts. NinjaTrader sets intraday margins at four times its standard rates for new positions established 15 minutes before and five minutes after key economic data releases.<span class="ql-inline-citation" data-cite="4"></span> The low intraday margin is a significant reason for our decision to name NinjaTrader as our best broker for dedicated futures traders, as other futures brokers require high initial and maintenance margins for all futures positions. NinjaTrader only uses these higher initial and maintenance margins for positions held overnight, which is very appealing for active traders.     </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"> While the platform does not support equity trading or options trading on equities or futures, these markets can be traded through the NinjaTrader platform via other brokers’ <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/application-programming-interface.asp">APIs</a>, including Interactive Brokers. Similarly, foreign exchange trading can be accomplished with pass-throughs to FXCM. Live futures trading on NinjaTrader, however, requires a data subscription that, while inexpensive, still represents another cost to the trader. Finally, we like that NinjaTrader offers 24-hour support during the trading week. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-26"> Read Our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ninjatrader-review-4706930">Full NinjaTrader Review</a>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-2"> <span class="heading-toc" id="toc-best-for-futures-education-etrade"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0-2"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best for Futures Education</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> E*TRADE</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-2"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-2"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-2"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-27" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="ETrade logo" class="lazyload universal-image__image" data-click-action="Null" data-click-tracked="true" data-expand="300" data-img-lightbox="false" data-src="https://www.investopedia.com/thmb/z2q-SJy93HGnKMI1dLqdRX-2Fuo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Extrade-e1c511b275f548af9df5dacaf9630bcd.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-2" width="1500"/> <noscript> <img alt="ETrade logo" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/z2q-SJy93HGnKMI1dLqdRX-2Fuo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Extrade-e1c511b275f548af9df5dacaf9630bcd.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp figure-caption mntl-figure-caption figure-article-caption" id="mntl-figure-caption_1-0-2"> <span class="figure-article-caption-owner"><p> ETrade logo</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-28"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-2"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-click-action="OffPageClick - External" data-retailer-type="other" data-tracking-container="true" href="https://us.etrade.com/" id="button_1-0-2" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Key Specs</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-30"> <li><strong>Account Minimum:</strong> $0</li><li><strong>Commission:</strong> $1.50 per contract, per side (cryptocurrency futures $2.50 per contract per side); exchange, clearing, and NFA fees also apply<span class="ql-inline-citation" data-cite="5"></span></li> </ul><!-- 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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-32"> We chose E*TRADE as the best broker for futures education because the platform offers extensive content and training resources to help educate and prepare investors to trade and invest for themselves, and this includes solid content specific to futures trading. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Pros &amp; Cons </span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-34"> <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>Support for multiple U.S. asset classes</p></li> <li><p>Easy-to-use platforms</p></li> <li><p>Excellent educational materials and content</p></li> <li><p>Demo account for paper trading</p></li> <li><p>CME Group and CFE data free for non-professionals </p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>No access to international exchanges</p></li> <li><p>Higher margin rates for IRA accounts</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="4"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="4"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-36"> E*TRADE, one of the first online brokers, was established in 1982 and bought by Morgan Stanley in 2020. The company has been a consistent innovator and has continued to keep its platforms up to date with the times. While better known as more of a retail brokerage operation for those self-managing their own accounts, E*TRADE supports futures trading. The company’s robust platform, which supports multiple U.S. asset classes in a consolidated platform, appeals to both new investors and experienced traders. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-37"> While professional traders may choose online futures brokers with more bells and whistles, E*TRADE’s platform provides a solid futures trading experience. E*TRADE offers desktop, web, and two mobile platforms that are intuitive–especially considering how much content is available for trading and learning about markets.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-38"> E*TRADE futures trading requires 50% margin for day trades, but 100% for positions held overnight. For positions in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/">individual retirement accounts (IRAs)</a>, day trading futures requires 100% of margin, and 200% of margin for positions held overnight. While E*TRADE’s futures commission rates are higher than some of the brokers more focused on futures trading, many customers will be happy to add futures trading functionality to their existing E*TRADE account. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-39"> E*TRADE’s futures page provides information on markets available and commissions, as would be expected, but it also offers articles such as “Five reasons why traders use futures,” “How can I diversify my portfolio with futures?,” and “How do I manage risk in my portfolio using futures?,” as well as a link to E*TRADE’s information library. From these articles, novice futures traders can access additional helpful content, such as information about expiration and settlement.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-40"> Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/e-trade-review-4587893">Full E*TRADE Review</a>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-3"> <span class="heading-toc" id="toc-best-for-desktop-futures-trading-tradestation"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0-3"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best for Desktop Futures Trading</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> TradeStation</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-3"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-3"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-3"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-2x1 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-41" style="--imgWidth: 377px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="TradeStation logo" class="lazyload universal-image__image" data-click-action="Null" data-click-tracked="true" data-expand="300" data-img-lightbox="false" data-src="https://www.investopedia.com/thmb/_6d7oM6ymQ6zD8TrZVFquQQ6saU=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Trade-Station-logo-9d2ec6f90b91449099bddadd0d69f8cf.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-3" width="1500"/> <noscript> <img alt="TradeStation logo" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/_6d7oM6ymQ6zD8TrZVFquQQ6saU=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Trade-Station-logo-9d2ec6f90b91449099bddadd0d69f8cf.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp figure-caption mntl-figure-caption figure-article-caption" id="mntl-figure-caption_1-0-3"> <span class="figure-article-caption-owner"><p>TradeStation</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-42"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-3"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-type="skimlinks" data-tracking-container="true" href="https://tradestation.pxf.io/c/328256/1185053/8402?subid1=4587927&amp;subid2=n6d578928cedc445ab1263edc982efc6017" id="button_1-0-3" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> </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">Key Specs</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-44"> <li><strong>Account Minimum:</strong> $0</li><li><strong>Commission:</strong> $1.50 per trade per side, plus NFA, exchange, and overnight position fees; for micro futures, the fee is only $0.50 per trade<span class="ql-inline-citation" data-cite="9"></span></li> </ul><!-- 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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-46"> TradeStation is our top choice for desktop futures traders because its robust platform offers excellent tools for charting, order entry, and position management, along with reasonable margin rates.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Pros &amp; Cons </span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-48"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Fast platform with good execution</p></li> <li><p>Support for multiple asset classes</p></li> <li><p>Simulated trading</p></li> <li><p>Advanced order types and trading automation</p></li> <li><p>Free data for non-market professionals</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Steep learning curve</p></li> <li><p>Weak customer service</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="4"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="4"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-50"> Founded in Florida in 1982, TradeStation is designed for more advanced traders. The platform offers excellent charting, analytics, and trade management that includes control over order routing and advanced order capabilities. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-51"> For futures trading, TradeStation offers pretty competitive commission rates of $1.50 per side. Further, there are lower margin rates for intraday futures traders.<span class="ql-inline-citation" data-cite="10"></span> Although the platform can take some time to learn, it is reasonably intuitive for traders with experience. Other features of the platform include simulated trading so customers can feel comfortable with the system and futures trading before putting real capital on the line. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-52"> In addition to futures, TradeStation supports trading in multiple asset classes, such as stocks, ETFs, cryptocurrencies, options, futures, and options on futures. TradeStation offers free data for non-professionals for all of these markets. We did find that TradeStation’s customer service did not score as high as other futures brokers. Because of the strength of its desktop platform with its robust backtesting and availability of data, however, we have chosen TradeStation as our best desktop platform for futures.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-53"> Read Our Full <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tradestation-review-4587927">TradeStation Review</a>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> </div> <div class="article-outro article-container"> <div class="comp mntl-sc-page--commerce structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block" id="article-outro__content_1-0"> <span class="heading-toc" id="toc-final-verdict"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0"> <span class="mntl-sc-block-heading__text"> Final Verdict </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-1"> While there are many options available for trading futures, the decision on which platform is best depends on your trading style. For those just trading futures, NinjaTrader offers very low commissions (especially for intraday trading), a robust platform with good execution, and the ability to use third-party apps and APIs to connect to other trading platforms. Professional and high-volume traders will choose <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tradestation-vs-interactive-brokers-4587960">Interactive Brokers</a> because it has the widest breadth of market coverage and volume discounts. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-2"> Investors primarily trading stocks who want the ability to also trade or hedge with futures will want to consider platforms like E*TRADE, as both have excellent all-around platforms and good educational content. Finally, TradeStation will appeal to futures traders with moderate futures trading activity, who also trade other asset classes like stocks, ETFs, and options and want sophisticated order options and the ability to control order routing for equities.   </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block" data-click-action="OnPageClick - FAQ Header" data-tracking-container="true" data-tracking-id="PRM Roundup | FAQ" id="mntl-sc-block_4-0-3"> <span class="heading-toc" id="toc-faq-1319a4f3-2893-4af4-8bbb-10589bf0d961"></span> <h2 class="comp mntl-sc-block-faq__title mntl-text-block" id="mntl-sc-block-faq__title_1-0"> Frequently Asked Questions</h2><!-- end: comp mntl-sc-block-faq__title mntl-text-block --> <ul class="comp mntl-sc-block-faq__content mntl-accordion" id="mntl-sc-block-faq__content_1-0"> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-0" tabindex="-1"> <h3 class="accordion__title">What Are Futures Contracts?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-0"> <div class="faq-accordion__item-answer"> <p>Futures are legal contracts for the purchase or sale of a fixed amount of some good at a fixed time. While initially created for agricultural commodities such as wheat and corn, futures now exist on a wide range of commodities and financial products, such as grains, livestock, currencies, oil, gas, and interest rates. Futures contracts each have specified criteria for the quality and amount of the commodity underlying the contract, such as the delivery requirements, the time and nature of the delivery, and the minimum price increment. There are multiple delivery months available on futures contracts. Not all futures contracts have a physical delivery process, instead settling for cash at maturity; this is typically the case with financial futures, whereas agricultural products typically have physical delivery mechanisms.</p><p>Another important component of futures is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leverage</a>, as only a small fraction of the overall value of a contract is required as margin to open a trade. Unlike margin for stocks, which is limited to 50% for overnight positions and involves the customer paying interest to the broker, margin for futures is the posting of funds set by exchanges to ensure that financial obligations on their positions will be honored. Margins on futures, which include initial and maintenance margins, are typically a significantly lower percentage of the overall value of the contract compared to trading equities. Similar to stocks traded on margin, futures positions will be stopped out by the broker or exchange if adequate margin is not maintained. Margin on futures, therefore, provides traders with even greater opportunity and risk, resulting in higher leveraged profits or losses on their positions.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-1" tabindex="-1"> <h3 class="accordion__title">How Futures Trading Works</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-1"> <div class="faq-accordion__item-answer"> <p>Futures are used for hedging and for speculating. Initially developed by farmers and food processors, futures allow producers to have greater control over the prices farmers receive or processors pay for their crops. Futures contracts represent obligations to buy or sell a certain amount of a commodity at a certain time for a certain price. Futures contracts, therefore, have fixed criteria regarding contract size, the quality and location of the item to be delivered, and when delivery will occur. </p><p>In addition to the producers and processors using futures contracts to reduce price risks, there are speculators that generally do not have a direct connection to the commodity being traded. Speculators are trading futures for profit, but not with the intention of taking delivery of the underlying commodity. Speculators help to add liquidity to the futures market. The futures market expands far beyond agricultural products now, with futures for energy, precious metals, and financial products such as currencies, interest rates, and equity indexes. Financial futures are also efficient hedging and speculating tools that can help traders manage risk in their stock and bond portfolios. For example, someone with a stock portfolio that does not want to sell stocks in their portfolio but believes the market may fall can choose to sell futures to hedge their portfolio rather than selling appreciated stock holdings that would subject them to paying capital gains on a long-term holding. </p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-2" tabindex="-1"> <h3 class="accordion__title">How Do You Start Trading Futures?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-2"> <div class="faq-accordion__item-answer"> <p>It is relatively easy to trade futures. The process is similar to opening a margin account for trading stocks. First, a customer chooses a broker to open a futures trading account. A futures trading account can be established with an existing broker that supports futures trading, or it can be opened with a different futures broker. The account opening process includes signing a margin agreement, having the account approved by the broker, and depositing money into the account. Some brokerage accounts require there to be several thousand dollars in the overall account before margin can be enabled.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-3" tabindex="-1"> <h3 class="accordion__title">How Much Money Do You Need to Trade Futures?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-3"> <div class="faq-accordion__item-answer"> <p>While there is significantly increased margin leverage in the futures markets compared to U.S. equities, it is best for futures traders to have more cash in their accounts than just the initial margin requirements. Futures traders should plan to have a minimum of $10,000 in their account, but significantly more is strongly advised for those who will hold positions overnight. This is to ensure you are not being stopped out from market volatility. Margin rates are set specific to the individual market being traded and are a function of the overall risk based on contract value and market volatility for the specific futures contract.  </p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-4" tabindex="-1"> <h3 class="accordion__title">What Hours Can I Trade Futures?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-4"> <div class="faq-accordion__item-answer"> <p>Different futures contracts have different trading hours, but generally, trading hours have expanded over the past several years as electronic trading has grown. Futures on the S&amp;P and U.S. Treasuries, for example, are nearly continuous because these markets are only closed for trading from 5 p.m. to 6 p.m. ET daily during the week; trading starts for the week on Sunday evening at 6 p.m. and finishes on Friday at 5 p.m. Grains, however, have limited trading hours, trading from 8 p.m. to 2:20 p.m. ET daily, also starting the week on Sunday evening and finishing on Friday afternoon.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-5" tabindex="-1"> <h3 class="accordion__title">What Is the Commodities Futures Trading Commission (CFTC)?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-5"> <div class="faq-accordion__item-answer"> <p>The Commodities Futures Trading Commission (CFTC) is an independent agency that regulates all derivatives contracts in the U.S., including futures, options, and swaps. It was established by Congress in 1974. The CFTC helps ensure that U.S. derivatives markets are efficient, orderly, fair, and free of fraud.  </p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> </ul><!-- end: comp mntl-sc-block-faq__content mntl-accordion --> <!--end accordion --> </div><!-- end: comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-4"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-5"> Due to the disproportionate amount of risk when compared to other trading vehicles, futures trading is a strategy best suited for experienced market participants. 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Learn more.</div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/i/indexfutures.asp" id="related-terms__read-more_5-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div> <div class="comp related-terms__list mntl-block" id="related-terms__list_6-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_6-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/f/futurescontract.asp" id="related-terms__title_6-0" rel="nocaes"><span class="link__wrapper">Futures Contract Definition: Types, Mechanics, and Uses in Trading</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_6-0">A futures contract is a standardized agreement to buy or sell the underlying commodity or other asset at a specific price at a future date.</div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/f/futurescontract.asp" id="related-terms__read-more_6-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div></div></div> </div></div>

Originally created to help commodity producers hedge the risks associated with production, futures are a useful trading vehicle available to all traders across many asset classes. Futures are highly leveraged, however, with only a small percentage of the total value of positions required to be posted as margin. Because of this, futures trading can lead to large profits and losses relative to the capital required to establish and maintain a position. Therefore, understanding the potential risks is critical. We have analyzed the best futures trading platforms and brokers so you can determine which bests fit your trading needs.  ## Best Futures Trading Platforms of 2024 * **Best for Professional Futures Traders:** [Interactive Brokers](https://www.interactivebrokers.com/mkt/?src=investopedia94a&url=%2Fen%2Fwhyib%2Foverview.php) * **Best for Dedicated Futures Traders:** [NinjaTrader](https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&offerid=1431504.14&type=3&subid=0) * **Best for Futures Education:** [E\*TRADE](https://us.etrade.com/) * **Best for Desktop Futures Trading:** [TradeStation](https://tradestation.pxf.io/c/328256/1185053/8402?subid1=4587927&subid2=n6d578928cedc445ab1263edc982efc6017) 4 Best Futures Trading Platforms Expand 4 Best Futures Trading Platforms * [Our Top Picks](#summary-list) * [Interactive Brokers](#toc-best-for-professional-futures-traders-interactive-brokers) * [NinjaTrader](#toc-best-for-dedicated-futures-traders-ninjatrader) * [E\*TRADE](#toc-best-for-futures-education-etrade) * [TradeStation](#toc-best-for-desktop-futures-trading-tradestation) * See More (1) * [Final Verdict](#toc-final-verdict) * [FAQ](#toc-faq-1319a4f3-2893-4af4-8bbb-10589bf0d961) * [Methodology](#toc-methodology) ### Best for Professional Futures Traders : Interactive Brokers --- ![Interactive Brokers]() :fill(white):max_bytes(150000):strip_icc()/Interactive_brokers-16255f7886b2458db559e806f54c81a4.jpg)  Interactive Brokers [Sign Up Now](https://www.interactivebrokers.com/mkt/?src=investopedia94a&url=%2Fen%2Fwhyib%2Foverview.php) Key Specs * **Account Minimum:** $0 * **Commission:** Ranges from $0.25 to $2.50 per contract ($5 for crypto futures); IBKR Pro customers pay on a tiered scale based on volume, while IBKR Lite customers pay a fixed rate * For standard futures IBKR Lite customers pay $0.85 per contract. $0.25 per mini contract. Cryptocurrency futures $0.10 to $5 per contract. E-mini FX futures are $0.50 per contract. * IBKR Pro customers pay $0.85 to $0.25 per contract (depending on volume). For mini contracts $0.25 to $0.10 per contract. Cryptocurrency futures $0.10 to $5 per contract. E-mini FX futures are $0.50 to $0.05 per contract. IBKR Pro customers also pay an overnight position fee. * The minimum margin for intraday positions is $50. * The standard exchange and regulatory fees apply. Why We Chose It In addition to being our top choice for professional futures traders, Interactive Brokers (IBKR) is also our [top-rated broker for professional, advanced, and international traders](https://www.investopedia.com/best-online-brokers-4587872). This is because IBKR offers more markets to trade through a single platform than any other broker. Moreover, IBKR’s trading technology is among the best of all online brokers. Pros & Cons  Pros * The most markets available on a single platform * Backtesting of strategies * Complex and automated trading strategies * Low commissions for high-volume traders Cons * Can be intimidating to less experienced traders Overview Interactive Brokers was founded in 1978, and was the first company to use a hand-held computing device on an exchange floor. Since its inception, the company has strived to deliver its customers the best and most sophisticated trading tools available. Historically, the company has catered to the largest international traders because of their need for a single platform that can handle trades in markets around the world using different trading vehicles.  While IBKR has also developed tools to appeal to less sophisticated traders, such as introducing IBKR Lite to offer commission-free trading of stocks, the company continues to create advanced features for its professional trading clients. IBKR welcomes customers from around the world, which is something not all brokers do. Among IBKR’s advanced features is the ability to backtest trading ideas, sophisticated options analysis tools, and a very wide array of order methods that includes one-cancels-other (OCO) and a multitude of conditional orders. In addition to these drop-down order entry tools, IBKR also allows traders to develop their own trading algorithms using a multitude of fundamental and technical indicators. Traders can develop automated entry and trade management instructions for trading all markets, including futures. Further, IBKR also has excellent order execution, including the ability to route equity orders. IBKR’s Adaptive Algo can also be used for futures to find the best execution on a market order.  When it comes to futures trading, IBKR is built for big traders. This isn’t just in terms of the volume discounts that only start after 1,000 contracts. IBKR also has higher margin requirements than other brokers. This acts as a risk management tool, ensuring you can handle a 1% to 2% swing in the underlying stock price. It is also another clear signal that IBKR is meant for larger professional traders.  Read Our [Full Interactive Brokers Review.](https://www.investopedia.com/interactive-brokers-review-4587904) ### Best for Dedicated Futures Traders : NinjaTrader --- ![NinjaTrader logo]() :fill(white):max_bytes(150000):strip_icc()/Ninja-Trader-logo-24beee9bd5bb4630bda6121c5520ff6d.jpg) NinjaTrader [Sign Up Now](https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&offerid=1431504.14&type=3&subid=0) Key Specs * **Account Minimum:** $0 to open account; $50 is the minimum margin for trading * **Commission:** Option 1 - Free: No monthly fee, with per side commissions of $0.35 for micro futures contracts and $1.29 for standard contracts. Option 2 - Monthly: $99 monthly fee, with per side commissions of $0.25 for micro contracts and $0.99 for standard contracts. Option 3 - Lifetime: $1,499 one-time payment, and per side commissions of $0.09 for micro contracts and $0.59 for standard contracts. For all plans, exchange, clearing, and [National Futures Association](https://www.investopedia.com/terms/n/nfa.asp) (NFA) fees also apply. Why We Chose It We chose NinjaTrader as the best platform for dedicated [futures](https://www.investopedia.com/terms/f/futures.asp) traders because it offers multiple low-cost pricing options; low margin rates; and access to strong desktop, web, and mobile platforms that support direct trading from customizable charts.  Pros & Cons  Pros * Very low intraday commissions * Integrated desktop, web, and mobile platforms * Excellent charting * 24-hour support during the trading week * Simulation allows for no-risk trading practice Cons * No options or equity trading (with a caveat) * Market data purchase required Overview NinjaTrader was established in 2003 to service active self-directed futures traders. In March 2023, NinjaTrader introduced new cloud-based, mobile, and web platforms that allow for seamless trading across all its platforms. In January 2023, the company announced a custom-built trading tool to support event-based futures. NinjaTrader platforms are free to use, and there is also simulated trading available without having to fund the account. The platform has excellent, customizable charting and real-time analysis. It also supports trading directly from charts. Further, the platform supports multiple apps and third-party add-ons. Margin at NinjaTrader is aggressive, providing users with $50 intraday margin on equity index E-mini futures, and just $500 for standard futures contracts. NinjaTrader sets intraday margins at four times its standard rates for new positions established 15 minutes before and five minutes after key economic data releases. The low intraday margin is a significant reason for our decision to name NinjaTrader as our best broker for dedicated futures traders, as other futures brokers require high initial and maintenance margins for all futures positions. NinjaTrader only uses these higher initial and maintenance margins for positions held overnight, which is very appealing for active traders.     While the platform does not support equity trading or options trading on equities or futures, these markets can be traded through the NinjaTrader platform via other brokers’ [APIs](https://www.investopedia.com/terms/a/application-programming-interface.asp), including Interactive Brokers. Similarly, foreign exchange trading can be accomplished with pass-throughs to FXCM. Live futures trading on NinjaTrader, however, requires a data subscription that, while inexpensive, still represents another cost to the trader. Finally, we like that NinjaTrader offers 24-hour support during the trading week. Read Our [Full NinjaTrader Review](https://www.investopedia.com/ninjatrader-review-4706930). ### Best for Futures Education : E\*TRADE --- ![ETrade logo]() :fill(white):max_bytes(150000):strip_icc()/Extrade-e1c511b275f548af9df5dacaf9630bcd.jpg)  ETrade logo [Sign Up Now](https://us.etrade.com/) Key Specs * **Account Minimum:** $0 * **Commission:** $1.50 per contract, per side (cryptocurrency futures $2.50 per contract per side); exchange, clearing, and NFA fees also apply Why We Chose It We chose E\*TRADE as the best broker for futures education because the platform offers extensive content and training resources to help educate and prepare investors to trade and invest for themselves, and this includes solid content specific to futures trading. Pros & Cons  Pros * Support for multiple U.S. asset classes * Easy-to-use platforms * Excellent educational materials and content * Demo account for paper trading * CME Group and CFE data free for non-professionals Cons * No access to international exchanges * Higher margin rates for IRA accounts Overview E\*TRADE, one of the first online brokers, was established in 1982 and bought by Morgan Stanley in 2020. The company has been a consistent innovator and has continued to keep its platforms up to date with the times. While better known as more of a retail brokerage operation for those self-managing their own accounts, E\*TRADE supports futures trading. The company’s robust platform, which supports multiple U.S. asset classes in a consolidated platform, appeals to both new investors and experienced traders. While professional traders may choose online futures brokers with more bells and whistles, E\*TRADE’s platform provides a solid futures trading experience. E\*TRADE offers desktop, web, and two mobile platforms that are intuitive–especially considering how much content is available for trading and learning about markets.  E\*TRADE futures trading requires 50% margin for day trades, but 100% for positions held overnight. For positions in [individual retirement accounts (IRAs)](https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/), day trading futures requires 100% of margin, and 200% of margin for positions held overnight. While E\*TRADE’s futures commission rates are higher than some of the brokers more focused on futures trading, many customers will be happy to add futures trading functionality to their existing E\*TRADE account. E\*TRADE’s futures page provides information on markets available and commissions, as would be expected, but it also offers articles such as “Five reasons why traders use futures,” “How can I diversify my portfolio with futures?,” and “How do I manage risk in my portfolio using futures?,” as well as a link to E\*TRADE’s information library. From these articles, novice futures traders can access additional helpful content, such as information about expiration and settlement.  Read our [Full E\*TRADE Review](https://www.investopedia.com/e-trade-review-4587893). ### Best for Desktop Futures Trading : TradeStation --- ![TradeStation logo]() :fill(white):max_bytes(150000):strip_icc()/Trade-Station-logo-9d2ec6f90b91449099bddadd0d69f8cf.jpg) TradeStation [Sign Up Now](https://tradestation.pxf.io/c/328256/1185053/8402?subid1=4587927&subid2=n6d578928cedc445ab1263edc982efc6017) Key Specs * **Account Minimum:** $0 * **Commission:** $1.50 per trade per side, plus NFA, exchange, and overnight position fees; for micro futures, the fee is only $0.50 per trade Why We Chose It TradeStation is our top choice for desktop futures traders because its robust platform offers excellent tools for charting, order entry, and position management, along with reasonable margin rates.  Pros & Cons  Pros * Fast platform with good execution * Support for multiple asset classes * Simulated trading * Advanced order types and trading automation * Free data for non-market professionals Cons * Steep learning curve * Weak customer service Overview Founded in Florida in 1982, TradeStation is designed for more advanced traders. The platform offers excellent charting, analytics, and trade management that includes control over order routing and advanced order capabilities. For futures trading, TradeStation offers pretty competitive commission rates of $1.50 per side. Further, there are lower margin rates for intraday futures traders. Although the platform can take some time to learn, it is reasonably intuitive for traders with experience. Other features of the platform include simulated trading so customers can feel comfortable with the system and futures trading before putting real capital on the line. In addition to futures, TradeStation supports trading in multiple asset classes, such as stocks, ETFs, cryptocurrencies, options, futures, and options on futures. TradeStation offers free data for non-professionals for all of these markets. We did find that TradeStation’s customer service did not score as high as other futures brokers. Because of the strength of its desktop platform with its robust backtesting and availability of data, however, we have chosen TradeStation as our best desktop platform for futures.  Read Our Full [TradeStation Review](https://www.investopedia.com/tradestation-review-4587927). ## Final Verdict While there are many options available for trading futures, the decision on which platform is best depends on your trading style. For those just trading futures, NinjaTrader offers very low commissions (especially for intraday trading), a robust platform with good execution, and the ability to use third-party apps and APIs to connect to other trading platforms. Professional and high-volume traders will choose [Interactive Brokers](https://www.investopedia.com/tradestation-vs-interactive-brokers-4587960) because it has the widest breadth of market coverage and volume discounts. Investors primarily trading stocks who want the ability to also trade or hedge with futures will want to consider platforms like E\*TRADE, as both have excellent all-around platforms and good educational content. Finally, TradeStation will appeal to futures traders with moderate futures trading activity, who also trade other asset classes like stocks, ETFs, and options and want sophisticated order options and the ability to control order routing for equities.   ## Frequently Asked Questions * ### What Are Futures Contracts? Futures are legal contracts for the purchase or sale of a fixed amount of some good at a fixed time. While initially created for agricultural commodities such as wheat and corn, futures now exist on a wide range of commodities and financial products, such as grains, livestock, currencies, oil, gas, and interest rates. Futures contracts each have specified criteria for the quality and amount of the commodity underlying the contract, such as the delivery requirements, the time and nature of the delivery, and the minimum price increment. There are multiple delivery months available on futures contracts. Not all futures contracts have a physical delivery process, instead settling for cash at maturity; this is typically the case with financial futures, whereas agricultural products typically have physical delivery mechanisms. Another important component of futures is [leverage](https://www.investopedia.com/terms/l/leverage.asp), as only a small fraction of the overall value of a contract is required as margin to open a trade. Unlike margin for stocks, which is limited to 50% for overnight positions and involves the customer paying interest to the broker, margin for futures is the posting of funds set by exchanges to ensure that financial obligations on their positions will be honored. Margins on futures, which include initial and maintenance margins, are typically a significantly lower percentage of the overall value of the contract compared to trading equities. Similar to stocks traded on margin, futures positions will be stopped out by the broker or exchange if adequate margin is not maintained. Margin on futures, therefore, provides traders with even greater opportunity and risk, resulting in higher leveraged profits or losses on their positions. * ### How Futures Trading Works Futures are used for hedging and for speculating. Initially developed by farmers and food processors, futures allow producers to have greater control over the prices farmers receive or processors pay for their crops. Futures contracts represent obligations to buy or sell a certain amount of a commodity at a certain time for a certain price. Futures contracts, therefore, have fixed criteria regarding contract size, the quality and location of the item to be delivered, and when delivery will occur.  In addition to the producers and processors using futures contracts to reduce price risks, there are speculators that generally do not have a direct connection to the commodity being traded. Speculators are trading futures for profit, but not with the intention of taking delivery of the underlying commodity. Speculators help to add liquidity to the futures market. The futures market expands far beyond agricultural products now, with futures for energy, precious metals, and financial products such as currencies, interest rates, and equity indexes. Financial futures are also efficient hedging and speculating tools that can help traders manage risk in their stock and bond portfolios. For example, someone with a stock portfolio that does not want to sell stocks in their portfolio but believes the market may fall can choose to sell futures to hedge their portfolio rather than selling appreciated stock holdings that would subject them to paying capital gains on a long-term holding. * ### How Do You Start Trading Futures? It is relatively easy to trade futures. The process is similar to opening a margin account for trading stocks. First, a customer chooses a broker to open a futures trading account. A futures trading account can be established with an existing broker that supports futures trading, or it can be opened with a different futures broker. The account opening process includes signing a margin agreement, having the account approved by the broker, and depositing money into the account. Some brokerage accounts require there to be several thousand dollars in the overall account before margin can be enabled. * ### How Much Money Do You Need to Trade Futures? While there is significantly increased margin leverage in the futures markets compared to U.S. equities, it is best for futures traders to have more cash in their accounts than just the initial margin requirements. Futures traders should plan to have a minimum of $10,000 in their account, but significantly more is strongly advised for those who will hold positions overnight. This is to ensure you are not being stopped out from market volatility. Margin rates are set specific to the individual market being traded and are a function of the overall risk based on contract value and market volatility for the specific futures contract. * ### What Hours Can I Trade Futures? Different futures contracts have different trading hours, but generally, trading hours have expanded over the past several years as electronic trading has grown. Futures on the S&P and U.S. Treasuries, for example, are nearly continuous because these markets are only closed for trading from 5 p.m. to 6 p.m. ET daily during the week; trading starts for the week on Sunday evening at 6 p.m. and finishes on Friday at 5 p.m. Grains, however, have limited trading hours, trading from 8 p.m. to 2:20 p.m. ET daily, also starting the week on Sunday evening and finishing on Friday afternoon. * ### What Is the Commodities Futures Trading Commission (CFTC)? The Commodities Futures Trading Commission (CFTC) is an independent agency that regulates all derivatives contracts in the U.S., including futures, options, and swaps. It was established by Congress in 1974. The CFTC helps ensure that U.S. derivatives markets are efficient, orderly, fair, and free of fraud. ## Methodology Due to the disproportionate amount of risk when compared to other trading vehicles, futures trading is a strategy best suited for experienced market participants. We reviewed several of the top online brokers and platforms for trading futures based on execution quality, trading technology, available asset classes, customization, fees, ease of use, education, and mobile trading functionality. :max_bytes(150000):strip_icc()/Primary-Image-best-futures-trading-platforms-of-2023-7370002-cb0cfa70e5384d26b53a30e2ba2aa53c.jpg) :max_bytes(150000):strip_icc()/Primary-Image-best-futures-trading-platforms-of-2023-7370002-cb0cfa70e5384d26b53a30e2ba2aa53c.jpg) d3sign / 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. Interactive Brokers. "[Comissions: Futures and Futures Options (FOPs)](https://www.interactivebrokers.com/en/pricing/commissions-futures.php)." 2. Interactive Brokers. "[US Futures and FOPs Margin Requirements](https://www.interactivebrokers.com/en/trading/margin-futures-fops.php)." 3. NinjaTrader. "[Pricing Plans That Fit Your Trading](https://ninjatrader.com/pricing)." 4. NinjaTrader. "[Account and Exchange Fees](https://ninjatrader.com/pricing/account-fees)." 5. Ninjatrader. "[NinjaTrader Introduces New Mobile, Web Apps For Seamless, Multi-Device Trading](https://ninjatrader.com/news/ninjatrader-introduces-new-mobile-web-apps-for-seamless-multi-device-trading)." 6. NinjaTrade. "[Margin Policy And Position Management](https://ninjatrader.com/pricing/margins)." 7. E\*TRADE. "[Pricing and Rates](https://us.etrade.com/what-we-offer/pricing-and-rates)." 8. TradeStation. "[Commission-Free and Innovative Pricing Plans](https://www.tradestation.com/pricing/)." 9. TradeStation. "[Futures Margin Rates](https://www.tradestation.com/pricing/futures-margin-requirements/)." Related Articles [![Electronic currency exchange notice board.]() :max_bytes(150000):strip_icc()/GettyImages-539090008-7cc20448f6884aceb72fbca172a8c799.jpg) What Is the FMX Futures Exchange?](https://www.investopedia.com/what-is-fmx-futures-exchange-8642848) [![Trader studying stock markets in their swing trade account]() :max_bytes(150000):strip_icc()/Primary-Image-how-to-open-a-swing-trade-account-in-2023-7482220-e6334db2c8334352b9ebaca21ffeb05d.jpg) How to Open a Swing Trade Account](https://www.investopedia.com/how-to-open-a-swing-trade-account-7482220) [![Image shows Interactive Brokers logo in the center of a purple background.]() :max_bytes(150000):strip_icc()/BestBrokerAwards-InteractiveBrokers-0a67946cebd6463ca670a135c975509c.png) Interactive Brokers Review 2024](https://www.investopedia.com/interactive-brokers-review-4587904) [![Image shows "Best Broker Awards" in the top left corner, with two investors reviewing investments on their electronic devices. ]() :max_bytes(150000):strip_icc()/PRM-BestBrokerAwards-BestOptionsTradingPlatform-34d951d576fb4b1585b03c5a7d712808.png) Best Options Trading Platforms](https://www.investopedia.com/best-brokers-for-options-trading-4587876) [![Man and woman count cash on their counter]() :max_bytes(150000):strip_icc()/bestaccountsforuninvestedcash-91147036afd04192988327f357a7dbbb.jpg) 6 Best Investment Accounts for Handling Uninvested Cash](https://www.investopedia.com/best-investment-accounts-uninvested-cash-7486554) [![Images show desktop and mobile devices with images of investing topics ]() :max_bytes(150000):strip_icc()/PRM-BestBrokerAwards-BestOnlineBrokersandTradingPlatforms-1eb95e8ab19646f78d688a7df41a1f55.png) Best Online Brokers and Trading Platforms for May 2024](https://www.investopedia.com/best-online-brokers-4587872) Related Terms [What Is the FMX Futures Exchange?](https://www.investopedia.com/what-is-fmx-futures-exchange-8642848) The FMX Futures Exchange is a newly approved futures exchange owned by BGC Group, specializing in interest-rate futures markets. [more](https://www.investopedia.com/what-is-fmx-futures-exchange-8642848) [What Is Futures Trading?](https://www.investopedia.com/terms/f/futures.asp) Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset at a predetermined future date and price. [more](https://www.investopedia.com/terms/f/futures.asp) [Bond Futures: What They Are, How They Work, and How to Buy Them](https://www.investopedia.com/terms/b/bondfutures.asp) Bond futures oblige the contract holder to purchase a bond on a specified date at a predetermined price. [more](https://www.investopedia.com/terms/b/bondfutures.asp) [E-mini S&P 500: Definition, Trading, and Example](https://www.investopedia.com/terms/s/sp_500_mini.asp) The E-mini S&P 500 is an electronically-traded futures contract representing one-fifth of the value of the standard S&P 500 futures contract. [more](https://www.investopedia.com/terms/s/sp_500_mini.asp) [What Are Index Futures? Definition, Types, and How to Profit](https://www.investopedia.com/terms/i/indexfutures.asp) Index futures are contracts where investors can buy or sell a financial index today to be settled at a future date. Learn more. [more](https://www.investopedia.com/terms/i/indexfutures.asp) [Futures Contract Definition: Types, Mechanics, and Uses in Trading](https://www.investopedia.com/terms/f/futurescontract.asp) A futures contract is a standardized agreement to buy or sell the underlying commodity or other asset at a specific price at a future date. [more](https://www.investopedia.com/terms/f/futurescontract.asp)

Originally created to help commodity producers hedge the risks associated with production, futures are a useful trading vehicle available to all traders across many asset classes. Futures are highly leveraged, however, with only a small percentage of the total value of positions required to be posted as margin. Because of this, futures trading can lead to large profits and losses relative to the capital required to establish and maintain a position. Therefore, understanding the potential risks is critical. We have analyzed the best futures trading platforms and brokers so you can determine which bests fit your trading needs.  Best Futures Trading Platforms of 2024 Best for Professional Futures Traders: Interactive Brokers Best for Dedicated Futures Traders: NinjaTrader Best for Futures Education: E*TRADE Best for Desktop Futures Trading: TradeStation 4 Best Futures Trading Platforms Expand 4 Best Futures Trading Platforms Our Top Picks Interactive Brokers NinjaTrader E*TRADE TradeStation See More (1) Final Verdict FAQ Methodology Best for Professional Futures Traders : Interactive Brokers  Interactive Brokers Sign Up Now Key Specs Account Minimum: $0Commission: Ranges from $0.25 to $2.50 per contract ($5 for crypto futures); IBKR Pro customers pay on a tiered scale based on volume, while IBKR Lite customers pay a fixed rateFor standard futures IBKR Lite customers pay $0.85 per contract. $0.25 per mini contract. Cryptocurrency futures $0.10 to $5 per contract. E-mini FX futures are $0.50 per contract. IBKR Pro customers pay $0.85 to $0.25 per contract (depending on volume). For mini contracts $0.25 to $0.10 per contract. Cryptocurrency futures $0.10 to $5 per contract. E-mini FX futures are $0.50 to $0.05 per contract. IBKR Pro customers also pay an overnight position fee. The minimum margin for intraday positions is $50.The standard exchange and regulatory fees apply.  Why We Chose It In addition to being our top choice for professional futures traders, Interactive Brokers (IBKR) is also our top-rated broker for professional, advanced, and international traders. This is because IBKR offers more markets to trade through a single platform than any other broker. Moreover, IBKR’s trading technology is among the best of all online brokers. Pros & Cons  Pros The most markets available on a single platform Backtesting of strategies Complex and automated trading strategies Low commissions for high-volume traders Cons Can be intimidating to less experienced traders Overview Interactive Brokers was founded in 1978, and was the first company to use a hand-held computing device on an exchange floor. Since its inception, the company has strived to deliver its customers the best and most sophisticated trading tools available. Historically, the company has catered to the largest international traders because of their need for a single platform that can handle trades in markets around the world using different trading vehicles.  While IBKR has also developed tools to appeal to less sophisticated traders, such as introducing IBKR Lite to offer commission-free trading of stocks, the company continues to create advanced features for its professional trading clients. IBKR welcomes customers from around the world, which is something not all brokers do. Among IBKR’s advanced features is the ability to backtest trading ideas, sophisticated options analysis tools, and a very wide array of order methods that includes one-cancels-other (OCO) and a multitude of conditional orders. In addition to these drop-down order entry tools, IBKR also allows traders to develop their own trading algorithms using a multitude of fundamental and technical indicators. Traders can develop automated entry and trade management instructions for trading all markets, including futures. Further, IBKR also has excellent order execution, including the ability to route equity orders. IBKR’s Adaptive Algo can also be used for futures to find the best execution on a market order.  When it comes to futures trading, IBKR is built for big traders. This isn’t just in terms of the volume discounts that only start after 1,000 contracts. IBKR also has higher margin requirements than other brokers. This acts as a risk management tool, ensuring you can handle a 1% to 2% swing in the underlying stock price. It is also another clear signal that IBKR is meant for larger professional traders.  Read Our Full Interactive Brokers Review. Best for Dedicated Futures Traders : NinjaTrader NinjaTrader Sign Up Now Key Specs Account Minimum: $0 to open account; $50 is the minimum margin for trading Commission: Option 1 - Free: No monthly fee, with per side commissions of $0.35 for micro futures contracts and $1.29 for standard contracts. Option 2 - Monthly: $99 monthly fee, with per side commissions of $0.25 for micro contracts and $0.99 for standard contracts. Option 3 - Lifetime: $1,499 one-time payment, and per side commissions of $0.09 for micro contracts and $0.59 for standard contracts. For all plans, exchange, clearing, and National Futures Association (NFA) fees also apply. Why We Chose It We chose NinjaTrader as the best platform for dedicated futures traders because it offers multiple low-cost pricing options; low margin rates; and access to strong desktop, web, and mobile platforms that support direct trading from customizable charts.  Pros & Cons  Pros Very low intraday commissions Integrated desktop, web, and mobile platforms Excellent charting 24-hour support during the trading week Simulation allows for no-risk trading practice Cons No options or equity trading (with a caveat) Market data purchase required Overview NinjaTrader was established in 2003 to service active self-directed futures traders. In March 2023, NinjaTrader introduced new cloud-based, mobile, and web platforms that allow for seamless trading across all its platforms. In January 2023, the company announced a custom-built trading tool to support event-based futures. NinjaTrader platforms are free to use, and there is also simulated trading available without having to fund the account. The platform has excellent, customizable charting and real-time analysis. It also supports trading directly from charts. Further, the platform supports multiple apps and third-party add-ons. Margin at NinjaTrader is aggressive, providing users with $50 intraday margin on equity index E-mini futures, and just $500 for standard futures contracts. NinjaTrader sets intraday margins at four times its standard rates for new positions established 15 minutes before and five minutes after key economic data releases. The low intraday margin is a significant reason for our decision to name NinjaTrader as our best broker for dedicated futures traders, as other futures brokers require high initial and maintenance margins for all futures positions. NinjaTrader only uses these higher initial and maintenance margins for positions held overnight, which is very appealing for active traders.     While the platform does not support equity trading or options trading on equities or futures, these markets can be traded through the NinjaTrader platform via other brokers’ APIs, including Interactive Brokers. Similarly, foreign exchange trading can be accomplished with pass-throughs to FXCM. Live futures trading on NinjaTrader, however, requires a data subscription that, while inexpensive, still represents another cost to the trader. Finally, we like that NinjaTrader offers 24-hour support during the trading week. Read Our Full NinjaTrader Review. Best for Futures Education : E*TRADE  ETrade logo Sign Up Now Key Specs Account Minimum: $0Commission: $1.50 per contract, per side (cryptocurrency futures $2.50 per contract per side); exchange, clearing, and NFA fees also apply Why We Chose It We chose E*TRADE as the best broker for futures education because the platform offers extensive content and training resources to help educate and prepare investors to trade and invest for themselves, and this includes solid content specific to futures trading. Pros & Cons  Pros Support for multiple U.S. asset classes Easy-to-use platforms Excellent educational materials and content Demo account for paper trading CME Group and CFE data free for non-professionals  Cons No access to international exchanges Higher margin rates for IRA accounts Overview E*TRADE, one of the first online brokers, was established in 1982 and bought by Morgan Stanley in 2020. The company has been a consistent innovator and has continued to keep its platforms up to date with the times. While better known as more of a retail brokerage operation for those self-managing their own accounts, E*TRADE supports futures trading. The company’s robust platform, which supports multiple U.S. asset classes in a consolidated platform, appeals to both new investors and experienced traders. While professional traders may choose online futures brokers with more bells and whistles, E*TRADE’s platform provides a solid futures trading experience. E*TRADE offers desktop, web, and two mobile platforms that are intuitive–especially considering how much content is available for trading and learning about markets.  E*TRADE futures trading requires 50% margin for day trades, but 100% for positions held overnight. For positions in individual retirement accounts (IRAs), day trading futures requires 100% of margin, and 200% of margin for positions held overnight. While E*TRADE’s futures commission rates are higher than some of the brokers more focused on futures trading, many customers will be happy to add futures trading functionality to their existing E*TRADE account. E*TRADE’s futures page provides information on markets available and commissions, as would be expected, but it also offers articles such as “Five reasons why traders use futures,” “How can I diversify my portfolio with futures?,” and “How do I manage risk in my portfolio using futures?,” as well as a link to E*TRADE’s information library. From these articles, novice futures traders can access additional helpful content, such as information about expiration and settlement.  Read our Full E*TRADE Review. Best for Desktop Futures Trading : TradeStation TradeStation Sign Up Now Key Specs Account Minimum: $0Commission: $1.50 per trade per side, plus NFA, exchange, and overnight position fees; for micro futures, the fee is only $0.50 per trade Why We Chose It TradeStation is our top choice for desktop futures traders because its robust platform offers excellent tools for charting, order entry, and position management, along with reasonable margin rates.  Pros & Cons  Pros Fast platform with good execution Support for multiple asset classes Simulated trading Advanced order types and trading automation Free data for non-market professionals Cons Steep learning curve Weak customer service Overview Founded in Florida in 1982, TradeStation is designed for more advanced traders. The platform offers excellent charting, analytics, and trade management that includes control over order routing and advanced order capabilities. For futures trading, TradeStation offers pretty competitive commission rates of $1.50 per side. Further, there are lower margin rates for intraday futures traders. Although the platform can take some time to learn, it is reasonably intuitive for traders with experience. Other features of the platform include simulated trading so customers can feel comfortable with the system and futures trading before putting real capital on the line. In addition to futures, TradeStation supports trading in multiple asset classes, such as stocks, ETFs, cryptocurrencies, options, futures, and options on futures. TradeStation offers free data for non-professionals for all of these markets. We did find that TradeStation’s customer service did not score as high as other futures brokers. Because of the strength of its desktop platform with its robust backtesting and availability of data, however, we have chosen TradeStation as our best desktop platform for futures.  Read Our Full TradeStation Review. Final Verdict While there are many options available for trading futures, the decision on which platform is best depends on your trading style. For those just trading futures, NinjaTrader offers very low commissions (especially for intraday trading), a robust platform with good execution, and the ability to use third-party apps and APIs to connect to other trading platforms. Professional and high-volume traders will choose Interactive Brokers because it has the widest breadth of market coverage and volume discounts. Investors primarily trading stocks who want the ability to also trade or hedge with futures will want to consider platforms like E*TRADE, as both have excellent all-around platforms and good educational content. Finally, TradeStation will appeal to futures traders with moderate futures trading activity, who also trade other asset classes like stocks, ETFs, and options and want sophisticated order options and the ability to control order routing for equities.   Frequently Asked Questions What Are Futures Contracts? Futures are legal contracts for the purchase or sale of a fixed amount of some good at a fixed time. While initially created for agricultural commodities such as wheat and corn, futures now exist on a wide range of commodities and financial products, such as grains, livestock, currencies, oil, gas, and interest rates. Futures contracts each have specified criteria for the quality and amount of the commodity underlying the contract, such as the delivery requirements, the time and nature of the delivery, and the minimum price increment. There are multiple delivery months available on futures contracts. Not all futures contracts have a physical delivery process, instead settling for cash at maturity; this is typically the case with financial futures, whereas agricultural products typically have physical delivery mechanisms.Another important component of futures is leverage, as only a small fraction of the overall value of a contract is required as margin to open a trade. Unlike margin for stocks, which is limited to 50% for overnight positions and involves the customer paying interest to the broker, margin for futures is the posting of funds set by exchanges to ensure that financial obligations on their positions will be honored. Margins on futures, which include initial and maintenance margins, are typically a significantly lower percentage of the overall value of the contract compared to trading equities. Similar to stocks traded on margin, futures positions will be stopped out by the broker or exchange if adequate margin is not maintained. Margin on futures, therefore, provides traders with even greater opportunity and risk, resulting in higher leveraged profits or losses on their positions. How Futures Trading Works Futures are used for hedging and for speculating. Initially developed by farmers and food processors, futures allow producers to have greater control over the prices farmers receive or processors pay for their crops. Futures contracts represent obligations to buy or sell a certain amount of a commodity at a certain time for a certain price. Futures contracts, therefore, have fixed criteria regarding contract size, the quality and location of the item to be delivered, and when delivery will occur. In addition to the producers and processors using futures contracts to reduce price risks, there are speculators that generally do not have a direct connection to the commodity being traded. Speculators are trading futures for profit, but not with the intention of taking delivery of the underlying commodity. Speculators help to add liquidity to the futures market. The futures market expands far beyond agricultural products now, with futures for energy, precious metals, and financial products such as currencies, interest rates, and equity indexes. Financial futures are also efficient hedging and speculating tools that can help traders manage risk in their stock and bond portfolios. For example, someone with a stock portfolio that does not want to sell stocks in their portfolio but believes the market may fall can choose to sell futures to hedge their portfolio rather than selling appreciated stock holdings that would subject them to paying capital gains on a long-term holding.  How Do You Start Trading Futures? It is relatively easy to trade futures. The process is similar to opening a margin account for trading stocks. First, a customer chooses a broker to open a futures trading account. A futures trading account can be established with an existing broker that supports futures trading, or it can be opened with a different futures broker. The account opening process includes signing a margin agreement, having the account approved by the broker, and depositing money into the account. Some brokerage accounts require there to be several thousand dollars in the overall account before margin can be enabled. How Much Money Do You Need to Trade Futures? While there is significantly increased margin leverage in the futures markets compared to U.S. equities, it is best for futures traders to have more cash in their accounts than just the initial margin requirements. Futures traders should plan to have a minimum of $10,000 in their account, but significantly more is strongly advised for those who will hold positions overnight. This is to ensure you are not being stopped out from market volatility. Margin rates are set specific to the individual market being traded and are a function of the overall risk based on contract value and market volatility for the specific futures contract.   What Hours Can I Trade Futures? Different futures contracts have different trading hours, but generally, trading hours have expanded over the past several years as electronic trading has grown. Futures on the S&P and U.S. Treasuries, for example, are nearly continuous because these markets are only closed for trading from 5 p.m. to 6 p.m. ET daily during the week; trading starts for the week on Sunday evening at 6 p.m. and finishes on Friday at 5 p.m. Grains, however, have limited trading hours, trading from 8 p.m. to 2:20 p.m. ET daily, also starting the week on Sunday evening and finishing on Friday afternoon. What Is the Commodities Futures Trading Commission (CFTC)? The Commodities Futures Trading Commission (CFTC) is an independent agency that regulates all derivatives contracts in the U.S., including futures, options, and swaps. It was established by Congress in 1974. The CFTC helps ensure that U.S. derivatives markets are efficient, orderly, fair, and free of fraud.   Methodology Due to the disproportionate amount of risk when compared to other trading vehicles, futures trading is a strategy best suited for experienced market participants. We reviewed several of the top online brokers and platforms for trading futures based on execution quality, trading technology, available asset classes, customization, fees, ease of use, education, and mobile trading functionality. d3sign / 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. Interactive Brokers. "Comissions: Futures and Futures Options (FOPs)."  Interactive Brokers. "US Futures and FOPs Margin Requirements."  NinjaTrader. "Pricing Plans That Fit Your Trading."   NinjaTrader. "Account and Exchange Fees."  Ninjatrader. "NinjaTrader Introduces New Mobile, Web Apps For Seamless, Multi-Device Trading."  NinjaTrade. "Margin Policy And Position Management."  E*TRADE. "Pricing and Rates."  TradeStation. "Commission-Free and Innovative Pricing Plans."  TradeStation. "Futures Margin Rates."  Related Articles What Is the FMX Futures Exchange? How to Open a Swing Trade Account Interactive Brokers Review 2024 Best Options Trading Platforms 6 Best Investment Accounts for Handling Uninvested Cash Best Online Brokers and Trading Platforms for May 2024 Related Terms What Is the FMX Futures Exchange? The FMX Futures Exchange is a newly approved futures exchange owned by BGC Group, specializing in interest-rate futures markets. more What Is Futures Trading? Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset at a predetermined future date and price. more Bond Futures: What They Are, How They Work, and How to Buy Them Bond futures oblige the contract holder to purchase a bond on a specified date at a predetermined price. more E-mini S&P 500: Definition, Trading, and Example The E-mini S&P 500 is an electronically-traded futures contract representing one-fifth of the value of the standard S&P 500 futures contract. more What Are Index Futures? Definition, Types, and How to Profit Index futures are contracts where investors can buy or sell a financial index today to be settled at a future date. Learn more. more Futures Contract Definition: Types, Mechanics, and Uses in Trading A futures contract is a standardized agreement to buy or sell the underlying commodity or other asset at a specific price at a future date. more

https://www.investopedia.com/ask/answers/060716/do-certificates-deposit-help-build-credit.asp

Do Certificates of Deposit (CDs) Help Build Credit?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A certificate of deposit (CD) is a financial product that is similar to a typical savings account and is offered by banks, credit unions, and other financial institutions. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corp. (FDIC)</a> and 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 Association (NCUA)</a> insure CDs for up to $250,000, making these types of investments practically risk-free.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Unlike normal savings accounts, CDs have a fixed term of usually one, three, six, or <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>, though some may have up to a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-10-year-cd-rates-4783528">10-year term</a>. Also, CDs typically have a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedinterestrate.asp">fixed interest rate</a>.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A certificate of deposit (CD) is a long-term deposit instrument that pays a guaranteed fixed interest rate through to maturity.</li><li>CDs are federally insured up to the $250,000 Federal Deposit Insurance Corp. (FDIC) limit per banking institution.</li><li>Loans taken against a CD can be reported to credit agencies, which can help savers build credit scores.</li></ul></div></div></div> <span class="heading-toc" id="toc-certificates-of-deposit-cds"></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"> Certificates of Deposit (CDs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit (CD)</a> is a product offered by banks and credit unions that offers an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rate</a> premium. The account holder agrees to leave a lump-sum <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deposit.asp">deposit</a> with the institution for a predetermined period of time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Almost all consumer financial institutions offer CDs, although it’s up to each bank which CD terms it wants to offer and what the rate will be. The banks also determine penalties that apply to early withdrawals.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Unlike most other investments, CDs offer fixed, safe—and generally federally insured—interest rates that can often be higher than the rates paid by many savings accounts. And CD rates are generally higher if you’re willing to deposit your money for longer.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> As a result of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve’s</a> rate hikes since 2017, CDs have become a more attractive option for savers who want to earn more than most savings, checking, or money market accounts pay, but without taking on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp">risk</a> or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> of the market.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-using-a-cd-to-build-credit"></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"> Using a CD to Build Credit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Since CDs are fixed-term deposits that an investor gives to a bank for a fixed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rateofreturn.asp">rate of return</a>, an investor can use CDs to build or strengthen their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a>. Minimum investments for CDs vary by institution, but they are commonly $1,000.<span class="ql-inline-citation" data-cite="4"></span> The institution issuing the CD typically allows the investor to borrow up to 95% of the investment’s value shortly after opening the account, to be used 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> in case of <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a>.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Banks or credit unions generally, but not always, report this type of loan to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp">credit bureaus</a> as a secured installment loan. So, confirm with the institution that they are indeed reporting your payments. Making punctual payments on this loan increases a person’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> over time, and the process can be repeated indefinitely. </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"> CDs are completely secured, such that the institution involved <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-cd-secured-loan-5225109">usually approves this type of loan</a>. For this reason, they are often a good option for someone trying to build or repair a poor credit score. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_23-0"><span class="heading-toc" id="toc-what-are-the-main-types-of-certificates-of-deposit"></span> <h2 class="mntl-sc-block-questionandanswer__question">What are the Main Types of Certificates of Deposit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are several types of certificates of deposit (CDs). They include high-yield CDs, which offer interest rates that are higher than average, jumbo CDs, which require larger minimum balances and offer higher rates, and no-penalty CDs that provide easier access to your funds.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_25-0"><span class="heading-toc" id="toc-what-is-the-minimum-balance-for-a-certificate-of-deposit"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is the Minimum Balance for a Certificate of Deposit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The minimum balance for a CD can range from about $500 to $2,000, depending on the financial institution and type of CD. Jumbo CDs generally require a much larger deposit, such as $100,000. Some CDs have no minimum deposit requirement.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_27-0"><span class="heading-toc" id="toc-are-certificates-of-deposit-cds-a-good-place-for-savings"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Certificates of Deposit (CDs) a Good Place for Savings?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A certificate of deposit (CD) is an investment, not a transactional account for savings. If you need to withdraw the money from your CD before it reaches maturity, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/pros-and-cons-of-cds-5223947">you will typically be penalized</a>.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_29-0"><span class="heading-toc" id="toc-how-do-i-open-a-cd-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">How do I Open a CD Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can open a CD through banks and credit unions online or in person. First, you choose a CD type and term and then determine how you will receive interest. You'll choose a financial institution, open the account, and then fund the account. You can also invest in CDs through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-company.asp">brokerage firms</a>.</p></div> </div></div>

A certificate of deposit (CD) is a financial product that is similar to a typical savings account and is offered by banks, credit unions, and other financial institutions. The [Federal Deposit Insurance Corp. (FDIC)](https://www.investopedia.com/terms/f/fdic.asp) and the [National Credit Union Association (NCUA)](https://www.investopedia.com/terms/n/ncua.asp) insure CDs for up to $250,000, making these types of investments practically risk-free. Unlike normal savings accounts, CDs have a fixed term of usually one, three, six, or [12 months](https://www.investopedia.com/best-1-year-cd-rates-4796650), though some may have up to a [10-year term](https://www.investopedia.com/best-10-year-cd-rates-4783528). Also, CDs typically have a [fixed interest rate](https://www.investopedia.com/terms/f/fixedinterestrate.asp). ### Key Takeaways * A certificate of deposit (CD) is a long-term deposit instrument that pays a guaranteed fixed interest rate through to maturity. * CDs are federally insured up to the $250,000 Federal Deposit Insurance Corp. (FDIC) limit per banking institution. * Loans taken against a CD can be reported to credit agencies, which can help savers build credit scores. ## Certificates of Deposit (CDs) A [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp) is a product offered by banks and credit unions that offers an [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) premium. The account holder agrees to leave a lump-sum [deposit](https://www.investopedia.com/terms/d/deposit.asp) with the institution for a predetermined period of time. Almost all consumer financial institutions offer CDs, although it’s up to each bank which CD terms it wants to offer and what the rate will be. The banks also determine penalties that apply to early withdrawals. Unlike most other investments, CDs offer fixed, safe—and generally federally insured—interest rates that can often be higher than the rates paid by many savings accounts. And CD rates are generally higher if you’re willing to deposit your money for longer. As a result of the [Federal Reserve’s](https://www.investopedia.com/terms/f/federalreservebank.asp) rate hikes since 2017, CDs have become a more attractive option for savers who want to earn more than most savings, checking, or money market accounts pay, but without taking on the [risk](https://www.investopedia.com/terms/r/risk.asp) or [volatility](https://www.investopedia.com/terms/v/volatility.asp) of the market. ## Using a CD to Build Credit Since CDs are fixed-term deposits that an investor gives to a bank for a fixed [rate of return](https://www.investopedia.com/terms/r/rateofreturn.asp), an investor can use CDs to build or strengthen their [credit history](https://www.investopedia.com/terms/c/credit-history.asp). Minimum investments for CDs vary by institution, but they are commonly $1,000. The institution issuing the CD typically allows the investor to borrow up to 95% of the investment’s value shortly after opening the account, to be used as [collateral](https://www.investopedia.com/terms/c/collateral.asp) in case of [default](https://www.investopedia.com/terms/d/default2.asp). Banks or credit unions generally, but not always, report this type of loan to the [credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp) as a secured installment loan. So, confirm with the institution that they are indeed reporting your payments. Making punctual payments on this loan increases a person’s [credit score](https://www.investopedia.com/terms/c/credit_score.asp) over time, and the process can be repeated indefinitely. CDs are completely secured, such that the institution involved [usually approves this type of loan](https://www.investopedia.com/what-is-a-cd-secured-loan-5225109). For this reason, they are often a good option for someone trying to build or repair a poor credit score. ## What are the Main Types of Certificates of Deposit? There are several types of certificates of deposit (CDs). They include high-yield CDs, which offer interest rates that are higher than average, jumbo CDs, which require larger minimum balances and offer higher rates, and no-penalty CDs that provide easier access to your funds. ## What is the Minimum Balance for a Certificate of Deposit? The minimum balance for a CD can range from about $500 to $2,000, depending on the financial institution and type of CD. Jumbo CDs generally require a much larger deposit, such as $100,000. Some CDs have no minimum deposit requirement. ## Are Certificates of Deposit (CDs) a Good Place for Savings? A certificate of deposit (CD) is an investment, not a transactional account for savings. If you need to withdraw the money from your CD before it reaches maturity, [you will typically be penalized](https://www.investopedia.com/pros-and-cons-of-cds-5223947). ## How do I Open a CD Account? You can open a CD through banks and credit unions online or in person. First, you choose a CD type and term and then determine how you will receive interest. You'll choose a financial institution, open the account, and then fund the account. You can also invest in CDs through [brokerage firms](https://www.investopedia.com/terms/b/brokerage-company.asp).

A certificate of deposit (CD) is a financial product that is similar to a typical savings account and is offered by banks, credit unions, and other financial institutions. The Federal Deposit Insurance Corp. (FDIC) and the National Credit Union Association (NCUA) insure CDs for up to $250,000, making these types of investments practically risk-free. Unlike normal savings accounts, CDs have a fixed term of usually one, three, six, or 12 months, though some may have up to a 10-year term. Also, CDs typically have a fixed interest rate. Key Takeaways A certificate of deposit (CD) is a long-term deposit instrument that pays a guaranteed fixed interest rate through to maturity.CDs are federally insured up to the $250,000 Federal Deposit Insurance Corp. (FDIC) limit per banking institution.Loans taken against a CD can be reported to credit agencies, which can help savers build credit scores. Certificates of Deposit (CDs) A certificate of deposit (CD) is a product offered by banks and credit unions that offers an interest rate premium. The account holder agrees to leave a lump-sum deposit with the institution for a predetermined period of time. Almost all consumer financial institutions offer CDs, although it’s up to each bank which CD terms it wants to offer and what the rate will be. The banks also determine penalties that apply to early withdrawals. Unlike most other investments, CDs offer fixed, safe—and generally federally insured—interest rates that can often be higher than the rates paid by many savings accounts. And CD rates are generally higher if you’re willing to deposit your money for longer. As a result of the Federal Reserve’s rate hikes since 2017, CDs have become a more attractive option for savers who want to earn more than most savings, checking, or money market accounts pay, but without taking on the risk or volatility of the market. Using a CD to Build Credit Since CDs are fixed-term deposits that an investor gives to a bank for a fixed rate of return, an investor can use CDs to build or strengthen their credit history. Minimum investments for CDs vary by institution, but they are commonly $1,000. The institution issuing the CD typically allows the investor to borrow up to 95% of the investment’s value shortly after opening the account, to be used as collateral in case of default. Banks or credit unions generally, but not always, report this type of loan to the credit bureaus as a secured installment loan. So, confirm with the institution that they are indeed reporting your payments. Making punctual payments on this loan increases a person’s credit score over time, and the process can be repeated indefinitely. CDs are completely secured, such that the institution involved usually approves this type of loan. For this reason, they are often a good option for someone trying to build or repair a poor credit score. What are the Main Types of Certificates of Deposit? There are several types of certificates of deposit (CDs). They include high-yield CDs, which offer interest rates that are higher than average, jumbo CDs, which require larger minimum balances and offer higher rates, and no-penalty CDs that provide easier access to your funds. What is the Minimum Balance for a Certificate of Deposit? The minimum balance for a CD can range from about $500 to $2,000, depending on the financial institution and type of CD. Jumbo CDs generally require a much larger deposit, such as $100,000. Some CDs have no minimum deposit requirement. Are Certificates of Deposit (CDs) a Good Place for Savings? A certificate of deposit (CD) is an investment, not a transactional account for savings. If you need to withdraw the money from your CD before it reaches maturity, you will typically be penalized. How do I Open a CD Account? You can open a CD through banks and credit unions online or in person. First, you choose a CD type and term and then determine how you will receive interest. You'll choose a financial institution, open the account, and then fund the account. You can also invest in CDs through brokerage firms.

https://www.investopedia.com/articles/personal-finance/111416/6-features-your-primary-bank-should-have.asp

6 Features Your Primary Bank Should Have

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> When you are opening a new <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/checkingaccount.asp">checking account</a>, one of the most important things to consider is the range of banking features that come with the account. Research shows that technology is taking over in banking and financial management in general. According to a survey by the Federal Reserve, nearly half of mobile-phone owners who had a bank account in 2017 reported using mobile banking services in the 12 months prior to the survey.<span class="ql-inline-citation" data-cite="1"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <span class="heading-toc" id="toc-6-must-have-banking-features"></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"> 6 Must-Have Banking Features </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Certain bank-account features are indispensable if you want convenient access to your money as well as the ability to pay bills, make transfers quickly and manage your balances. Some important things to look for when opening a new bank account are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt='Custom illustration shows debit cards, a hand holding a smartphone, a computer screen, and an envelope with a security guard. Title says "Features Your Primary Bank Should Have, with copy that reads "A debit card, Mobile and online banking, Mobile check deposit, Online bill pay, Email and text alerts, and Excellent security."' class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/PH4Z5PoqNNTXrDSTeEL_xW1GqZk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/6-features-your-primary-bank-should-have-47cfbec9bfa64d9a96ce1953a459e029.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/PH4Z5PoqNNTXrDSTeEL_xW1GqZk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/6-features-your-primary-bank-should-have-47cfbec9bfa64d9a96ce1953a459e029.jpg" data-srcset="https://www.investopedia.com/thmb/687sN-BZnvbtB9630cQyU0U0Bhk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/6-features-your-primary-bank-should-have-47cfbec9bfa64d9a96ce1953a459e029.jpg 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt='Custom illustration shows debit cards, a hand holding a smartphone, a computer screen, and an envelope with a security guard. Title says "Features Your Primary Bank Should Have, with copy that reads "A debit card, Mobile and online banking, Mobile check deposit, Online bill pay, Email and text alerts, and Excellent security."' class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/PH4Z5PoqNNTXrDSTeEL_xW1GqZk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/6-features-your-primary-bank-should-have-47cfbec9bfa64d9a96ce1953a459e029.jpg" srcset="https://www.investopedia.com/thmb/687sN-BZnvbtB9630cQyU0U0Bhk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/6-features-your-primary-bank-should-have-47cfbec9bfa64d9a96ce1953a459e029.jpg 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Yurle Villegas</p></span> </figcaption></figure> <span class="heading-toc" id="toc-1-a-debit-card"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> 1. A Debit Card </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-card.asp">debit card</a> allows you to pay for purchases without having to carry cash. If you do need a few bucks, you can hit the ATM or get cash back at the register. In a survey by The Federal Reserve, 30% of consumers chose debit as their preferred way to pay.<span class="ql-inline-citation" data-cite="2"></span> When opening a new bank account, be sure that a debit card is included and check to see whether there’s any fee for having one. </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-2-online-and-mobile-banking"></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"> 2. Online and Mobile Banking </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Being able to check your balance from your smartphone or laptop is invaluable if you like to keep a close eye on your bottom line. That’s particularly important if you want to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/overdraft-protection.asp">avoid expensive overdraft fees</a>. According to the Federal Deposit Insurance Corporation (FDIC), banks with over $1 billion in assets collected more than $11.45 billion in overdraft and non-sufficient funds (NSF) in 2017.<span class="ql-inline-citation" data-cite="6"></span> Knowing what you have on hand and what you’re spending can keep you from losing money to fees.  </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-3-mobile-check-deposit"></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"> 3. Mobile Check Deposit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Mobile check deposit saves you the hassle of having to make a trip to the bank. You just snap a picture of your check with your smart phone and, with a few taps of a button, the check is deposited without your ever having to hit the teller window or even an ATM. Just keep in mind that some banks enforce a longer check hold time when you’re making deposits via a mobile device. </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-4-online-bill-pay"></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"> 4. Online Bill Pay </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Online bill pay is another feature that you should look for in a primary bank if you’re tired of writing checks. Federal Reserve data show that 80% of consumers who had paper checks on hand didn't use them even once in 2017; three-quarters used online banking.<span class="ql-inline-citation" data-cite="3"></span> Paying bills online eliminates the hassle of writing checks and mailing them. Even better, you can automate your monthly payments, so you don’t have to worry about paying late. </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-5-email-and-text-alerts"></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"> 5. Email and Text Alerts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> While you’re scheduling your automatic bill payments, you should also be setting up text and email alerts for your accounts. You could, for example, set an alert notifying you when your balance drops to a certain point or each time a new transaction posts to your account. That could really come in handy if you’re concerned about a hacker stealing your account information and making fraudulent charges. </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-6-excellent-security"></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"> 6. Excellent Security </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Identity theft is no laughing matter. When comparing bank accounts, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/banking-and-securities-industry-committee-basic.asp" rel="noopener noreferrer">be sure to ask about the security measures a particular bank has in place</a>. Find out, for example, whether fraud monitoring and<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0312/how-to-keep-your-debit-card-transactions-safe.aspx" rel="noopener noreferrer"> </a>an on/off switch for your debit<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0312/how-to-keep-your-debit-card-transactions-safe.aspx" rel="noopener noreferrer"> </a>and credit cards are available, and take other <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0312/how-to-keep-your-debit-card-transactions-safe.aspx" rel="noopener noreferrer">steps to keep your card transactions safe</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> One final thing to keep in mind when looking for a primary bank or credit union account is whether or not it is insured. The Federal Deposit Insurance Corporation and the National Credit Union Administration offer coverage of up to $250,000 per deposit account at banks and credit unions, respectively.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="5"></span> But they aren’t mandated to have this coverage. When comparing banks and credit unions, check their insurance status to make sure your hard-earned dollars are protected. </p></div>

When you are opening a new [checking account](https://www.investopedia.com/terms/c/checkingaccount.asp), one of the most important things to consider is the range of banking features that come with the account. Research shows that technology is taking over in banking and financial management in general. According to a survey by the Federal Reserve, nearly half of mobile-phone owners who had a bank account in 2017 reported using mobile banking services in the 12 months prior to the survey.  ## 6 Must-Have Banking Features Certain bank-account features are indispensable if you want convenient access to your money as well as the ability to pay bills, make transfers quickly and manage your balances. Some important things to look for when opening a new bank account are: ![Custom illustration shows debit cards, a hand holding a smartphone, a computer screen, and an envelope with a security guard. Title says "Features Your Primary Bank Should Have, with copy that reads "A debit card, Mobile and online banking, Mobile check deposit, Online bill pay, Email and text alerts, and Excellent security."]() :max_bytes(150000):strip_icc()/6-features-your-primary-bank-should-have-47cfbec9bfa64d9a96ce1953a459e029.jpg) Investopedia / Yurle Villegas ## 1. A Debit Card A [debit card](https://www.investopedia.com/terms/b/bank-card.asp) allows you to pay for purchases without having to carry cash. If you do need a few bucks, you can hit the ATM or get cash back at the register. In a survey by The Federal Reserve, 30% of consumers chose debit as their preferred way to pay. When opening a new bank account, be sure that a debit card is included and check to see whether there’s any fee for having one. ## 2. Online and Mobile Banking Being able to check your balance from your smartphone or laptop is invaluable if you like to keep a close eye on your bottom line. That’s particularly important if you want to [avoid expensive overdraft fees](https://www.investopedia.com/articles/pf/08/overdraft-protection.asp). According to the Federal Deposit Insurance Corporation (FDIC), banks with over $1 billion in assets collected more than $11.45 billion in overdraft and non-sufficient funds (NSF) in 2017. Knowing what you have on hand and what you’re spending can keep you from losing money to fees.  ## 3. Mobile Check Deposit Mobile check deposit saves you the hassle of having to make a trip to the bank. You just snap a picture of your check with your smart phone and, with a few taps of a button, the check is deposited without your ever having to hit the teller window or even an ATM. Just keep in mind that some banks enforce a longer check hold time when you’re making deposits via a mobile device. ## 4. Online Bill Pay Online bill pay is another feature that you should look for in a primary bank if you’re tired of writing checks. Federal Reserve data show that 80% of consumers who had paper checks on hand didn't use them even once in 2017; three-quarters used online banking. Paying bills online eliminates the hassle of writing checks and mailing them. Even better, you can automate your monthly payments, so you don’t have to worry about paying late. ## 5. Email and Text Alerts While you’re scheduling your automatic bill payments, you should also be setting up text and email alerts for your accounts. You could, for example, set an alert notifying you when your balance drops to a certain point or each time a new transaction posts to your account. That could really come in handy if you’re concerned about a hacker stealing your account information and making fraudulent charges. ## 6. Excellent Security Identity theft is no laughing matter. When comparing bank accounts, [be sure to ask about the security measures a particular bank has in place](https://www.investopedia.com/terms/b/banking-and-securities-industry-committee-basic.asp). Find out, for example, whether fraud monitoring andan on/off switch for your debitand credit cards are available, and take other [steps to keep your card transactions safe](https://www.investopedia.com/financial-edge/0312/how-to-keep-your-debit-card-transactions-safe.aspx). ## The Bottom Line One final thing to keep in mind when looking for a primary bank or credit union account is whether or not it is insured. The Federal Deposit Insurance Corporation and the National Credit Union Administration offer coverage of up to $250,000 per deposit account at banks and credit unions, respectively. But they aren’t mandated to have this coverage. When comparing banks and credit unions, check their insurance status to make sure your hard-earned dollars are protected.

When you are opening a new checking account, one of the most important things to consider is the range of banking features that come with the account. Research shows that technology is taking over in banking and financial management in general. According to a survey by the Federal Reserve, nearly half of mobile-phone owners who had a bank account in 2017 reported using mobile banking services in the 12 months prior to the survey.  6 Must-Have Banking Features Certain bank-account features are indispensable if you want convenient access to your money as well as the ability to pay bills, make transfers quickly and manage your balances. Some important things to look for when opening a new bank account are: Investopedia / Yurle Villegas 1. A Debit Card A debit card allows you to pay for purchases without having to carry cash. If you do need a few bucks, you can hit the ATM or get cash back at the register. In a survey by The Federal Reserve, 30% of consumers chose debit as their preferred way to pay. When opening a new bank account, be sure that a debit card is included and check to see whether there’s any fee for having one. 2. Online and Mobile Banking Being able to check your balance from your smartphone or laptop is invaluable if you like to keep a close eye on your bottom line. That’s particularly important if you want to avoid expensive overdraft fees. According to the Federal Deposit Insurance Corporation (FDIC), banks with over $1 billion in assets collected more than $11.45 billion in overdraft and non-sufficient funds (NSF) in 2017. Knowing what you have on hand and what you’re spending can keep you from losing money to fees.  3. Mobile Check Deposit Mobile check deposit saves you the hassle of having to make a trip to the bank. You just snap a picture of your check with your smart phone and, with a few taps of a button, the check is deposited without your ever having to hit the teller window or even an ATM. Just keep in mind that some banks enforce a longer check hold time when you’re making deposits via a mobile device. 4. Online Bill Pay Online bill pay is another feature that you should look for in a primary bank if you’re tired of writing checks. Federal Reserve data show that 80% of consumers who had paper checks on hand didn't use them even once in 2017; three-quarters used online banking. Paying bills online eliminates the hassle of writing checks and mailing them. Even better, you can automate your monthly payments, so you don’t have to worry about paying late. 5. Email and Text Alerts While you’re scheduling your automatic bill payments, you should also be setting up text and email alerts for your accounts. You could, for example, set an alert notifying you when your balance drops to a certain point or each time a new transaction posts to your account. That could really come in handy if you’re concerned about a hacker stealing your account information and making fraudulent charges. 6. Excellent Security Identity theft is no laughing matter. When comparing bank accounts, be sure to ask about the security measures a particular bank has in place. Find out, for example, whether fraud monitoring and an on/off switch for your debit and credit cards are available, and take other steps to keep your card transactions safe. The Bottom Line One final thing to keep in mind when looking for a primary bank or credit union account is whether or not it is insured. The Federal Deposit Insurance Corporation and the National Credit Union Administration offer coverage of up to $250,000 per deposit account at banks and credit unions, respectively. But they aren’t mandated to have this coverage. When comparing banks and credit unions, check their insurance status to make sure your hard-earned dollars are protected.

https://www.investopedia.com/articles/insurance/09/bundle-insurance.asp

Bundle Your Insurance for Big Savings

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Most American drivers start out using the same insurance company their parents had and never really think to switch. Some drivers may have changed insurance companies somewhere along the way to save a few bucks, but for the most part, they've made no conscious choices about their insurance provider. Many first-time homeowners get their <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> in the same way—it's probably the company their real estate agent or title company recommended. Life insurance purchases usually follow a similar path. </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"> People buy insurance based on convenience as well as initial price. As a result, a lot of people end up with a hodgepodge of insurance carriers with no reason for doing so. This is fine if you enjoy opening extra mail, paying bills to three separate insurance carriers every month, and possibly overpaying for your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/premium.asp">premiums</a>, but you probably don't. Read on to find out how bundling your policies can help you save big on insurance. </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-the-benefits-of-bundling-insurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> The Benefits of Bundling Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Many of the big insurance companies price their insurance rates to attract a particular segment of the market. They usually price their insurance to attract homeowners who need to insure not only their cars, but also their homes and their lives (among other things). Many other companies can beat them on price if a single type of insurance is being compared (such as auto or home), but these big companies want customers who will stay with them for years instead of shopping around for a better deal every six months. To accomplish this, companies give the best deal to clients who will use their company for the three main lines of insurance. (For related reading, see: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/120814/life-insurance-smart-investment.asp"><em>6 Ways to Save on Insurance</em></a>.) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Companies offer multi-line discounts to attract customers who will need more than one type of insurance. These companies offer a cheaper rate to insure your house, car and life than if you insured each one separately. The same goes if you add a second car or other type of insurance, like RV or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-motorcycle-insurance-4845915">motorcycle insurance</a>—the discounts keep adding up. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> When combining auto, home and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lifeinsurance.asp">life insurance</a>, it wouldn't be unusual for many families to spend between $3,000 to $5,000 or more each year. Of course, these rates depend on where you live, the value of your home and car(s), driving habits, personal health and so forth. </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-whats-the-catch"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> What's the Catch? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> For just one line of insurance, most large companies aren't extremely price-competitive. After all, those thousands of people on staff can really add up. By combining your policies under one roof, the companies benefit from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economiesofscale.asp">economies of scale</a> and can justify more discounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> As for life insurance, people who have a life insurance policy are much less likely to switch insurance carriers because of the difficulty (or even impossibility) of changing policies. This difficulty is due to medical issues, age and the possible need for further medical exams, among other factors, so people usually keep their life insurance policies in place. For this reason, many large insurance companies emphasize to their sales teams that life insurance sales are a critical product. (For related reading, see: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/termlife.asp"><em>Getting Life Insurance Without a Medical Exam</em></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"> Companies also give discounts to retain customers because it is expensive for companies to continually process (also known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwriting.asp">underwriting</a>) a revolving door of new customers. Due to the added expense associated with customer turnover, insurance companies prefer to have customers who carry multiple lines of insurance and keep these policies in place for years. </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-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Combining all of your policies with one insurance company can save you money compared to having a variety of carriers. It's also important to remember when one company is handling all of your insurance policies, that's less time you must spend sorting through and paying each policy. And as they say: Time is money. (For related reading, see: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rider.asp"><em>What are some examples of when insurance bundling is a bad idea?</em></a>) </p></div>

Most American drivers start out using the same insurance company their parents had and never really think to switch. Some drivers may have changed insurance companies somewhere along the way to save a few bucks, but for the most part, they've made no conscious choices about their insurance provider. Many first-time homeowners get their [homeowners insurance](https://www.investopedia.com/terms/h/homeowners-insurance.asp) in the same way—it's probably the company their real estate agent or title company recommended. Life insurance purchases usually follow a similar path. People buy insurance based on convenience as well as initial price. As a result, a lot of people end up with a hodgepodge of insurance carriers with no reason for doing so. This is fine if you enjoy opening extra mail, paying bills to three separate insurance carriers every month, and possibly overpaying for your [premiums](https://www.investopedia.com/terms/p/premium.asp), but you probably don't. Read on to find out how bundling your policies can help you save big on insurance. ## The Benefits of Bundling Insurance Many of the big insurance companies price their insurance rates to attract a particular segment of the market. They usually price their insurance to attract homeowners who need to insure not only their cars, but also their homes and their lives (among other things). Many other companies can beat them on price if a single type of insurance is being compared (such as auto or home), but these big companies want customers who will stay with them for years instead of shopping around for a better deal every six months. To accomplish this, companies give the best deal to clients who will use their company for the three main lines of insurance. (For related reading, see: [*6 Ways to Save on Insurance*](https://www.investopedia.com/articles/active-trading/120814/life-insurance-smart-investment.asp).) Companies offer multi-line discounts to attract customers who will need more than one type of insurance. These companies offer a cheaper rate to insure your house, car and life than if you insured each one separately. The same goes if you add a second car or other type of insurance, like RV or [motorcycle insurance](https://www.investopedia.com/best-motorcycle-insurance-4845915)—the discounts keep adding up. When combining auto, home and [life insurance](https://www.investopedia.com/terms/l/lifeinsurance.asp), it wouldn't be unusual for many families to spend between $3,000 to $5,000 or more each year. Of course, these rates depend on where you live, the value of your home and car(s), driving habits, personal health and so forth. ## What's the Catch? For just one line of insurance, most large companies aren't extremely price-competitive. After all, those thousands of people on staff can really add up. By combining your policies under one roof, the companies benefit from [economies of scale](https://www.investopedia.com/terms/e/economiesofscale.asp) and can justify more discounts. As for life insurance, people who have a life insurance policy are much less likely to switch insurance carriers because of the difficulty (or even impossibility) of changing policies. This difficulty is due to medical issues, age and the possible need for further medical exams, among other factors, so people usually keep their life insurance policies in place. For this reason, many large insurance companies emphasize to their sales teams that life insurance sales are a critical product. (For related reading, see: [*Getting Life Insurance Without a Medical Exam*](https://www.investopedia.com/terms/t/termlife.asp).) Companies also give discounts to retain customers because it is expensive for companies to continually process (also known as [underwriting](https://www.investopedia.com/terms/u/underwriting.asp)) a revolving door of new customers. Due to the added expense associated with customer turnover, insurance companies prefer to have customers who carry multiple lines of insurance and keep these policies in place for years. ## The Bottom Line Combining all of your policies with one insurance company can save you money compared to having a variety of carriers. It's also important to remember when one company is handling all of your insurance policies, that's less time you must spend sorting through and paying each policy. And as they say: Time is money. (For related reading, see: [*What are some examples of when insurance bundling is a bad idea?*](https://www.investopedia.com/terms/r/rider.asp))

Most American drivers start out using the same insurance company their parents had and never really think to switch. Some drivers may have changed insurance companies somewhere along the way to save a few bucks, but for the most part, they've made no conscious choices about their insurance provider. Many first-time homeowners get their homeowners insurance in the same way—it's probably the company their real estate agent or title company recommended. Life insurance purchases usually follow a similar path. People buy insurance based on convenience as well as initial price. As a result, a lot of people end up with a hodgepodge of insurance carriers with no reason for doing so. This is fine if you enjoy opening extra mail, paying bills to three separate insurance carriers every month, and possibly overpaying for your premiums, but you probably don't. Read on to find out how bundling your policies can help you save big on insurance. The Benefits of Bundling Insurance Many of the big insurance companies price their insurance rates to attract a particular segment of the market. They usually price their insurance to attract homeowners who need to insure not only their cars, but also their homes and their lives (among other things). Many other companies can beat them on price if a single type of insurance is being compared (such as auto or home), but these big companies want customers who will stay with them for years instead of shopping around for a better deal every six months. To accomplish this, companies give the best deal to clients who will use their company for the three main lines of insurance. (For related reading, see: 6 Ways to Save on Insurance.) Companies offer multi-line discounts to attract customers who will need more than one type of insurance. These companies offer a cheaper rate to insure your house, car and life than if you insured each one separately. The same goes if you add a second car or other type of insurance, like RV or motorcycle insurance—the discounts keep adding up. When combining auto, home and life insurance, it wouldn't be unusual for many families to spend between $3,000 to $5,000 or more each year. Of course, these rates depend on where you live, the value of your home and car(s), driving habits, personal health and so forth. What's the Catch? For just one line of insurance, most large companies aren't extremely price-competitive. After all, those thousands of people on staff can really add up. By combining your policies under one roof, the companies benefit from economies of scale and can justify more discounts. As for life insurance, people who have a life insurance policy are much less likely to switch insurance carriers because of the difficulty (or even impossibility) of changing policies. This difficulty is due to medical issues, age and the possible need for further medical exams, among other factors, so people usually keep their life insurance policies in place. For this reason, many large insurance companies emphasize to their sales teams that life insurance sales are a critical product. (For related reading, see: Getting Life Insurance Without a Medical Exam.) Companies also give discounts to retain customers because it is expensive for companies to continually process (also known as underwriting) a revolving door of new customers. Due to the added expense associated with customer turnover, insurance companies prefer to have customers who carry multiple lines of insurance and keep these policies in place for years. The Bottom Line Combining all of your policies with one insurance company can save you money compared to having a variety of carriers. It's also important to remember when one company is handling all of your insurance policies, that's less time you must spend sorting through and paying each policy. And as they say: Time is money. (For related reading, see: What are some examples of when insurance bundling is a bad idea?)

https://www.investopedia.com/bond-vigilante-6386194

Bond Vigilante Definition

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-bond-vigilante"></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 Bond Vigilante? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A bond vigilante is a bond trader who threatens to sell, or actually sells, a large amount of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bonds</a> to protest or signal distaste with policies of the issuer. Selling bonds depresses their prices, pushing <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a> up and making it more costly for the issuer to borrow. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The term was coined by investor Ed Yardeni in the 1980s when bond traders sold Treasurys in response to the growing power of 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> and its policies on the U.S. economy.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A bond vigilante is a fixed-income trader who sells bonds, or threatens to do so, to push back against certain policies undertaken by the issuer.</li><li>The term was first coined in the 1980s in reference to bond traders protesting the Federal Reserve’s dovish monetary policy at the time.</li><li>Bond vigilantism demonstrates that market actors, and especially bondholders, have large influence that they can exert (or threaten to exert) over borrowers.</li><li>This practice was diminished by central bank efforts following the Great Recession, but it may have returned in response to rising inflation since mid-2022.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-bond-vigilantes"></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 Bond Vigilantes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The yields on bonds represent the interest rate at which issuers can borrow from investors. Interest rates also have a negative correlation with bond prices: As <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yield.asp">yields</a> rise, bond prices fall. The same association, however, also works if the price of the bonds falls first—yields are forced to rise in turn. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Because of this fundamental relationship, an aggressive seller among bondholders can raise the costs of borrowing for future issues. That's because selling their bonds at ever-lower prices effectively raises the interest rates an issuer must pay out for subsequent bonds. While this has no impact on a bondholder that carries previously purchased bonds to maturity, this action has the potential to seriously inconvenience the issuer. Such a seller typically hopes to punish the issuer for pursuing certain actions or policies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> For example, during a period of rising inflation in the early 1980s, the Fed initially remained quite <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dove.asp">dovish</a>, leaving rates largely alone. Bond vigilantes, however, soon emerged to protest this policy, as they believed that rates needed to be much higher to curb inflationary pressures. Selling government bonds en masse in this way did ultimately raise rates in the market, and the Fed soon followed suit and shifted to a more <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hawk.asp">hawkish</a> stance. </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"> Bond vigilantism demonstrates that market actors, and especially bondholders, have significant influence that they can exert (or threaten to exert) over borrowers.<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-episodes-of-bond-vigilantism"></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"> Episodes of Bond Vigilantism </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> As mentioned, investment strategist <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-express-podcast-episode-97-6361861">Ed Yardeni</a> came up with the term “bond vigilante” to describe the actions of large bond traders in the Treasurys market. During the 1980s' inflation, he stated that “even before the Fed really started to aggressively raise interest rates, the bond vigilantes figured it out and kind of jumped ahead of the line and pushed interest rates up dramatically.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In the early 1990s, bond traders became frustrated with the massive government spending that initially occurred under the Clinton administration, driving yields on 10-year Treasurys up from around 5% to 8% over the course of a year. Once policy changed to reduce the deficit, yields once again dropped.<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"> Following the 2008 financial crisis, several European economies—primarily the so-called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/piigs.asp">PIIGS countries</a> of Portugal, Ireland, Italy, Greece, and Spain—found themselves in a debt crisis. Recognizing the massive amounts of liabilities due, yields on sovereign debt in these countries exploded. As Yardeni notes, “When those <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/061115/origins-greeces-debt-crisis.asp">Greek bond yields</a> went up to 40%, they were clearly screaming that something was just dead wrong with the way that country was being run, and things changed and those bond yields came down.” Still, some blame bond vigilantes for making it more difficult for these countries to recover because the bond vigilantes pushed yields up so high that it made it expensive to borrow—and ultimately to function properly. </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-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Some experts believe that bond vigilantes have returned, beginning in mid-2022, in response to the Fed’s slow response to rapidly rising inflation.<span class="ql-inline-citation" data-cite="2"></span></p></div></div></div> <span class="heading-toc" id="toc-bond-vigilantes-vs-activist-investors"></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"> Bond Vigilantes vs. Activist Investors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Bond vigilantes show that markets and large market actors can greatly influence the behavior of the issuers of securities in which they trade. </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"> Another example of this concept is that of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activist-investor.asp">activist investors</a>. These are large shareholders who accumulate enough of an equity stake to force changes in corporate management and direction. These activists are able to accumulate enough voting rights as shareholders to gain board of director seats and replace corporate managers like the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/ceo.asp">CEO</a>. They may also threaten to sell their shares in the market, pushing down the price of the stock and lowering the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketvalue.asp">market value</a> of the company (known as "the power of exit"). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-who-or-what-is-an-example-of-a-bond-vigilante"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who or What Is an Example of a Bond Vigilante?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One example of a bond vigilante is PIMCO, a bond fund with nearly $2 trillion in assets. Under ex-manager <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/william-h-gross.asp">Bill Gross</a>, PIMCO famously divested from U.S. government bonds because Gross felt that the government’s spending deficit could not be solved.<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_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-happened-to-the-bond-vigilantes"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Happened to the Bond Vigilantes?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Since the mid-2000s, bond vigilantes have been stymied by the efforts of central banks to keep interest rates very low, especially following 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>. The use of measures like <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quantitative-easing.asp">quantitative easing (QE)</a> made it difficult for the mere act of selling bonds to have a significant influence on bond yields. As of mid-2022, however, the vigilantes may have returned as a harbinger of central banks’ slow response to rising inflation around the world.</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-does-selling-bonds-make-borrowing-costs-go-up"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does Selling Bonds Make Borrowing Costs Go Up?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Bond prices and interest rates are inversely related—when interest rates (yields) go up, bond prices go down. But when bond prices rise, yields fall. Selling bonds depresses their prices, pushing <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> up and making it more costly for the issuer to borrow.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Bond vigilantes use their power as large bondholders to influence the behavior of bond issuers, whether corporations or governments. By moving bond markets, these large market actors can greatly increase the cost of borrowing for issuers as a form of discipline or punishment for perceived mismanagement or policy missteps. Coined by Ed Yardeni in the 1980s, the term "bond vigilante" has now become synonymous with bond market activism. </p></div>

## What Is a Bond Vigilante? A bond vigilante is a bond trader who threatens to sell, or actually sells, a large amount of [bonds](https://www.investopedia.com/terms/b/bond.asp) to protest or signal distaste with policies of the issuer. Selling bonds depresses their prices, pushing [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) up and making it more costly for the issuer to borrow. The term was coined by investor Ed Yardeni in the 1980s when bond traders sold Treasurys in response to the growing power of the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) and its policies on the U.S. economy. ### Key Takeaways * A bond vigilante is a fixed-income trader who sells bonds, or threatens to do so, to push back against certain policies undertaken by the issuer. * The term was first coined in the 1980s in reference to bond traders protesting the Federal Reserve’s dovish monetary policy at the time. * Bond vigilantism demonstrates that market actors, and especially bondholders, have large influence that they can exert (or threaten to exert) over borrowers. * This practice was diminished by central bank efforts following the Great Recession, but it may have returned in response to rising inflation since mid-2022. ## Understanding Bond Vigilantes The yields on bonds represent the interest rate at which issuers can borrow from investors. Interest rates also have a negative correlation with bond prices: As [yields](https://www.investopedia.com/terms/y/yield.asp) rise, bond prices fall. The same association, however, also works if the price of the bonds falls first—yields are forced to rise in turn. Because of this fundamental relationship, an aggressive seller among bondholders can raise the costs of borrowing for future issues. That's because selling their bonds at ever-lower prices effectively raises the interest rates an issuer must pay out for subsequent bonds. While this has no impact on a bondholder that carries previously purchased bonds to maturity, this action has the potential to seriously inconvenience the issuer. Such a seller typically hopes to punish the issuer for pursuing certain actions or policies. For example, during a period of rising inflation in the early 1980s, the Fed initially remained quite [dovish](https://www.investopedia.com/terms/d/dove.asp), leaving rates largely alone. Bond vigilantes, however, soon emerged to protest this policy, as they believed that rates needed to be much higher to curb inflationary pressures. Selling government bonds en masse in this way did ultimately raise rates in the market, and the Fed soon followed suit and shifted to a more [hawkish](https://www.investopedia.com/terms/h/hawk.asp) stance. Bond vigilantism demonstrates that market actors, and especially bondholders, have significant influence that they can exert (or threaten to exert) over borrowers. ## Episodes of Bond Vigilantism As mentioned, investment strategist [Ed Yardeni](https://www.investopedia.com/the-express-podcast-episode-97-6361861) came up with the term “bond vigilante” to describe the actions of large bond traders in the Treasurys market. During the 1980s' inflation, he stated that “even before the Fed really started to aggressively raise interest rates, the bond vigilantes figured it out and kind of jumped ahead of the line and pushed interest rates up dramatically.” In the early 1990s, bond traders became frustrated with the massive government spending that initially occurred under the Clinton administration, driving yields on 10-year Treasurys up from around 5% to 8% over the course of a year. Once policy changed to reduce the deficit, yields once again dropped. Following the 2008 financial crisis, several European economies—primarily the so-called [PIIGS countries](https://www.investopedia.com/terms/p/piigs.asp) of Portugal, Ireland, Italy, Greece, and Spain—found themselves in a debt crisis. Recognizing the massive amounts of liabilities due, yields on sovereign debt in these countries exploded. As Yardeni notes, “When those [Greek bond yields](https://www.investopedia.com/articles/personal-finance/061115/origins-greeces-debt-crisis.asp) went up to 40%, they were clearly screaming that something was just dead wrong with the way that country was being run, and things changed and those bond yields came down.” Still, some blame bond vigilantes for making it more difficult for these countries to recover because the bond vigilantes pushed yields up so high that it made it expensive to borrow—and ultimately to function properly. ### Some experts believe that bond vigilantes have returned, beginning in mid-2022, in response to the Fed’s slow response to rapidly rising inflation. ## Bond Vigilantes vs. Activist Investors Bond vigilantes show that markets and large market actors can greatly influence the behavior of the issuers of securities in which they trade. Another example of this concept is that of [activist investors](https://www.investopedia.com/terms/a/activist-investor.asp). These are large shareholders who accumulate enough of an equity stake to force changes in corporate management and direction. These activists are able to accumulate enough voting rights as shareholders to gain board of director seats and replace corporate managers like the [CEO](https://www.investopedia.com/terms/c/ceo.asp). They may also threaten to sell their shares in the market, pushing down the price of the stock and lowering the [market value](https://www.investopedia.com/terms/m/marketvalue.asp) of the company (known as "the power of exit"). ## Who or What Is an Example of a Bond Vigilante? One example of a bond vigilante is PIMCO, a bond fund with nearly $2 trillion in assets. Under ex-manager [Bill Gross](https://www.investopedia.com/terms/w/william-h-gross.asp), PIMCO famously divested from U.S. government bonds because Gross felt that the government’s spending deficit could not be solved. ## What Happened to the Bond Vigilantes? Since the mid-2000s, bond vigilantes have been stymied by the efforts of central banks to keep interest rates very low, especially following the [Great Recession](https://www.investopedia.com/terms/g/great-recession.asp). The use of measures like [quantitative easing (QE)](https://www.investopedia.com/terms/q/quantitative-easing.asp) made it difficult for the mere act of selling bonds to have a significant influence on bond yields. As of mid-2022, however, the vigilantes may have returned as a harbinger of central banks’ slow response to rising inflation around the world. ## How Does Selling Bonds Make Borrowing Costs Go Up? Bond prices and interest rates are inversely related—when interest rates (yields) go up, bond prices go down. But when bond prices rise, yields fall. Selling bonds depresses their prices, pushing [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) up and making it more costly for the issuer to borrow. ## The Bottom Line Bond vigilantes use their power as large bondholders to influence the behavior of bond issuers, whether corporations or governments. By moving bond markets, these large market actors can greatly increase the cost of borrowing for issuers as a form of discipline or punishment for perceived mismanagement or policy missteps. Coined by Ed Yardeni in the 1980s, the term "bond vigilante" has now become synonymous with bond market activism.

What Is a Bond Vigilante? A bond vigilante is a bond trader who threatens to sell, or actually sells, a large amount of bonds to protest or signal distaste with policies of the issuer. Selling bonds depresses their prices, pushing interest rates up and making it more costly for the issuer to borrow. The term was coined by investor Ed Yardeni in the 1980s when bond traders sold Treasurys in response to the growing power of the Federal Reserve and its policies on the U.S. economy. Key Takeaways A bond vigilante is a fixed-income trader who sells bonds, or threatens to do so, to push back against certain policies undertaken by the issuer.The term was first coined in the 1980s in reference to bond traders protesting the Federal Reserve’s dovish monetary policy at the time.Bond vigilantism demonstrates that market actors, and especially bondholders, have large influence that they can exert (or threaten to exert) over borrowers.This practice was diminished by central bank efforts following the Great Recession, but it may have returned in response to rising inflation since mid-2022. Understanding Bond Vigilantes The yields on bonds represent the interest rate at which issuers can borrow from investors. Interest rates also have a negative correlation with bond prices: As yields rise, bond prices fall. The same association, however, also works if the price of the bonds falls first—yields are forced to rise in turn. Because of this fundamental relationship, an aggressive seller among bondholders can raise the costs of borrowing for future issues. That's because selling their bonds at ever-lower prices effectively raises the interest rates an issuer must pay out for subsequent bonds. While this has no impact on a bondholder that carries previously purchased bonds to maturity, this action has the potential to seriously inconvenience the issuer. Such a seller typically hopes to punish the issuer for pursuing certain actions or policies. For example, during a period of rising inflation in the early 1980s, the Fed initially remained quite dovish, leaving rates largely alone. Bond vigilantes, however, soon emerged to protest this policy, as they believed that rates needed to be much higher to curb inflationary pressures. Selling government bonds en masse in this way did ultimately raise rates in the market, and the Fed soon followed suit and shifted to a more hawkish stance. Bond vigilantism demonstrates that market actors, and especially bondholders, have significant influence that they can exert (or threaten to exert) over borrowers. Episodes of Bond Vigilantism As mentioned, investment strategist Ed Yardeni came up with the term “bond vigilante” to describe the actions of large bond traders in the Treasurys market. During the 1980s' inflation, he stated that “even before the Fed really started to aggressively raise interest rates, the bond vigilantes figured it out and kind of jumped ahead of the line and pushed interest rates up dramatically.” In the early 1990s, bond traders became frustrated with the massive government spending that initially occurred under the Clinton administration, driving yields on 10-year Treasurys up from around 5% to 8% over the course of a year. Once policy changed to reduce the deficit, yields once again dropped. Following the 2008 financial crisis, several European economies—primarily the so-called PIIGS countries of Portugal, Ireland, Italy, Greece, and Spain—found themselves in a debt crisis. Recognizing the massive amounts of liabilities due, yields on sovereign debt in these countries exploded. As Yardeni notes, “When those Greek bond yields went up to 40%, they were clearly screaming that something was just dead wrong with the way that country was being run, and things changed and those bond yields came down.” Still, some blame bond vigilantes for making it more difficult for these countries to recover because the bond vigilantes pushed yields up so high that it made it expensive to borrow—and ultimately to function properly. Some experts believe that bond vigilantes have returned, beginning in mid-2022, in response to the Fed’s slow response to rapidly rising inflation. Bond Vigilantes vs. Activist Investors Bond vigilantes show that markets and large market actors can greatly influence the behavior of the issuers of securities in which they trade. Another example of this concept is that of activist investors. These are large shareholders who accumulate enough of an equity stake to force changes in corporate management and direction. These activists are able to accumulate enough voting rights as shareholders to gain board of director seats and replace corporate managers like the CEO. They may also threaten to sell their shares in the market, pushing down the price of the stock and lowering the market value of the company (known as "the power of exit"). Who or What Is an Example of a Bond Vigilante? One example of a bond vigilante is PIMCO, a bond fund with nearly $2 trillion in assets. Under ex-manager Bill Gross, PIMCO famously divested from U.S. government bonds because Gross felt that the government’s spending deficit could not be solved. What Happened to the Bond Vigilantes? Since the mid-2000s, bond vigilantes have been stymied by the efforts of central banks to keep interest rates very low, especially following the Great Recession. The use of measures like quantitative easing (QE) made it difficult for the mere act of selling bonds to have a significant influence on bond yields. As of mid-2022, however, the vigilantes may have returned as a harbinger of central banks’ slow response to rising inflation around the world. How Does Selling Bonds Make Borrowing Costs Go Up? Bond prices and interest rates are inversely related—when interest rates (yields) go up, bond prices go down. But when bond prices rise, yields fall. Selling bonds depresses their prices, pushing interest rates up and making it more costly for the issuer to borrow. The Bottom Line Bond vigilantes use their power as large bondholders to influence the behavior of bond issuers, whether corporations or governments. By moving bond markets, these large market actors can greatly increase the cost of borrowing for issuers as a form of discipline or punishment for perceived mismanagement or policy missteps. Coined by Ed Yardeni in the 1980s, the term "bond vigilante" has now become synonymous with bond market activism.

https://www.investopedia.com/articles/trading/06/esm.asp

Panic Selling: What it is, How it Works, Models

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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/panicselling.asp">Panic selling</a> occurs when a stock price rapidly declines on high volume. This often happens when some event forces investors to re-evaluate the stock's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intrinsicvalue.asp">intrinsic value</a>, or when short-term traders are able to force the stock price down far enough to trigger long-term <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stop-lossorder.asp">stop-losses</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"> The entire process creates a tremendous opportunity for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bottomfisher.asp">bottom fishers</a> to initiate long positions, especially if the event behind the panic selling was non-material or speculative in nature (such as an investigation by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">SEC</a> or an analyst opinion). Here, we shed light on the panic-selling process and introduce a model that can help you predict the right time to take a long position after panic selling occurs. </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-how-does-panic-selling-occur"></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 Does Panic Selling Occur? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Panic selling happens in several phases. The image below illustrates a typical panic selling scenario that occurred as a result of an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">SEC investigation</a>. The company in this example is Doral Financial, a corporation whose primary business was mortgage banking before failing in 2015.<span class="ql-inline-citation" data-cite="1"></span> This chart can be read as a general illustration of what happens in panic-selling situations. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_8-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:75.9%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/cQQAK6QS87eiNsdLmIj1wjUUknE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_2-31205676395a4eb5a6b6d5e857eb4b50.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/cQQAK6QS87eiNsdLmIj1wjUUknE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_2-31205676395a4eb5a6b6d5e857eb4b50.png" data-srcset="https://www.investopedia.com/thmb/4bB5Ek0gfIxQqPmb-HsCaxhTdfs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_2-31205676395a4eb5a6b6d5e857eb4b50.png 750w" data-tracking-container="true" height="3960" id="mntl-sc-block-image_1-0" width="5213"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3960" sizes="750px" src="https://www.investopedia.com/thmb/cQQAK6QS87eiNsdLmIj1wjUUknE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_2-31205676395a4eb5a6b6d5e857eb4b50.png" srcset="https://www.investopedia.com/thmb/4bB5Ek0gfIxQqPmb-HsCaxhTdfs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_2-31205676395a4eb5a6b6d5e857eb4b50.png 750w" width="5213"/> </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 Julie Bang © Investopedia 2021</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Let's break down what happens at each numbered step in the chart: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <strong>Step 1:</strong> Something occurs that causes the stock price to rapidly decline on high volume. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <strong>Step 2: </strong>Eventually, a high volume day occurs when buyers and sellers fight for control of the trend. The winner then takes the trend on low follow-up volume. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <strong>Step 3: </strong> If no significant trend change occurs at point 2 (i.e., a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/continuationpattern.asp">continuation</a>), then there is typically another point of high volume in which a substantial reversal (long or short term) may occur. </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"> <strong>Step 4:</strong> This process continues until a long-term trend is established and confirmed with technical or fundamental factors. </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"> Now we'll look at how we can predict when a trend change is going to occur. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-the-exhausted-selling-model"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> The Exhausted Selling Model </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exhausted-selling-model.asp">exhausted selling model</a> (ESM) was developed to determine when a price floor has been reached. This is done by using a combination of the following trend, volume, and turnaround indicators: </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><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trendline.asp">Trend lines</a></li> <li>Volume</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/movingaverage.asp">Moving averages</a></li> <li>Chart patterns</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"> The image below illustrates how this model works. </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-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_28-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:75.9%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/0gfJp2h89d9zZaDspWBMoOL1s9Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_3-e0abe54ab43249418e531f17710e65d4.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/0gfJp2h89d9zZaDspWBMoOL1s9Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_3-e0abe54ab43249418e531f17710e65d4.png" data-srcset="https://www.investopedia.com/thmb/4DzvlooW9G9s8Y3FKV8YqBnjt4o=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_3-e0abe54ab43249418e531f17710e65d4.png 750w" data-tracking-container="true" height="3960" id="mntl-sc-block-image_2-0" width="5213"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3960" sizes="750px" src="https://www.investopedia.com/thmb/0gfJp2h89d9zZaDspWBMoOL1s9Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_3-e0abe54ab43249418e531f17710e65d4.png" srcset="https://www.investopedia.com/thmb/4DzvlooW9G9s8Y3FKV8YqBnjt4o=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_3-e0abe54ab43249418e531f17710e65d4.png 750w" width="5213"/> </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">Exhausted selling model.</span> <span class="figure-article-caption-owner"><p>Image by Julie Bang © Investopedia 2021</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Notice that a variety of indicators are used to confirm that the trend has changed. As a trader, you may choose how many confirmation indicators you wish to use. The fewer confirmation indicators used, the higher the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp#axzz1oFsYTiOQ">risk</a> and the higher the reward (meaning the longer you wait for confirmation, the less potential gain there will be for you to capture), and vice versa. </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 rules to using the ESM include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <li>The stock price must first rapidly decline on high volume.</li> <li>A volume spike will occur, creating a new low, and appear to reverse the trend. Look for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/candlestick.asp">candlestick</a> patterns showing a struggle between buyers and sellers here (i.e., cross patterns or engulfings).</li> <li>A higher low wave must occur.</li> <li>A break of the predominant downward trend line must occur.</li> <li>The 40- or 50-day moving averages must be broken.</li> <li>The 40- or 50-day moving average must then be retested and hold.</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"> Note that you may use other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/movingaverage.asp#axzz1oFsYTiOQ">moving averages</a>—ideally, ones that connect highs or lows. Typically, a break of a larger moving average is more indicative of a trend break than smaller moving averages. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> As you can see, the ESM combines several techniques to ensure that the trend has changed for the long term. </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"> Now let's take a look at the image below, which will show the ESM in practice. </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"> Chicago Bridge &amp; Iron (CBI), which merged with McDermott International in 2018, announced that its earnings would be delayed, which sent the stock down 16 percent in a matter of hours.<span class="ql-inline-citation" data-cite="2"></span> First, we can see that the low was made on high volume just before 11:26 a.m. Next, the price moves up slightly, but eventually forms a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/descendingtriangle.asp">descending triangle</a>, from which we drew a trend line (indicated here by the blue line). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Next, the price breaks through the trend line and moving averages (indicated by the blue dot on the left). It then retraces to the moving averages (shown by the blue dot on the right) before moving upwards. </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:74.2%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/GJ1oe3D6Nw1V9_ybuiT8eV0fKxU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt3_2-0c06856949fd4705b76481a02ce91c0c.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/GJ1oe3D6Nw1V9_ybuiT8eV0fKxU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt3_2-0c06856949fd4705b76481a02ce91c0c.png" data-srcset="https://www.investopedia.com/thmb/NlAreNaMMGTz2WrPQaOhc2wuNdM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt3_2-0c06856949fd4705b76481a02ce91c0c.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_3-0" width="5335"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/GJ1oe3D6Nw1V9_ybuiT8eV0fKxU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt3_2-0c06856949fd4705b76481a02ce91c0c.png" srcset="https://www.investopedia.com/thmb/NlAreNaMMGTz2WrPQaOhc2wuNdM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt3_2-0c06856949fd4705b76481a02ce91c0c.png 750w" width="5335"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_3-0"> <span class="figure-article-caption-owner"><p>Image by Julie Bang © Investopedia 2021</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Finally, we can see that CBI turns around and returns to its previous levels after all of the confirmations are present. Note that if you would have entered after just one or two of the indicators, you would have made more profit, but increased the risk of the trade. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-the-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"> Panic selling naturally creates great buying opportunities for well-informed traders and investors. Those who know when the selling is over can benefit from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retracement.asp">retracements</a>/turnaround that often occurs afterward. The ESM explained here provides a safe and effective method to determine where the best entry point is, and the ESM's use of multiple indicators can help you avoid costly mistakes. </p></div>

[Panic selling](https://www.investopedia.com/terms/p/panicselling.asp) occurs when a stock price rapidly declines on high volume. This often happens when some event forces investors to re-evaluate the stock's [intrinsic value](https://www.investopedia.com/terms/i/intrinsicvalue.asp), or when short-term traders are able to force the stock price down far enough to trigger long-term [stop-losses](https://www.investopedia.com/terms/s/stop-lossorder.asp). The entire process creates a tremendous opportunity for [bottom fishers](https://www.investopedia.com/terms/b/bottomfisher.asp) to initiate long positions, especially if the event behind the panic selling was non-material or speculative in nature (such as an investigation by the [SEC](https://www.investopedia.com/terms/s/sec.asp) or an analyst opinion). Here, we shed light on the panic-selling process and introduce a model that can help you predict the right time to take a long position after panic selling occurs. ## How Does Panic Selling Occur? Panic selling happens in several phases. The image below illustrates a typical panic selling scenario that occurred as a result of an [SEC investigation](https://www.investopedia.com/terms/s/sec.asp). The company in this example is Doral Financial, a corporation whose primary business was mortgage banking before failing in 2015. This chart can be read as a general illustration of what happens in panic-selling situations. ![Image]() :max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_2-31205676395a4eb5a6b6d5e857eb4b50.png) Image by Julie Bang © Investopedia 2021 Let's break down what happens at each numbered step in the chart: **Step 1:** Something occurs that causes the stock price to rapidly decline on high volume. **Step 2:** Eventually, a high volume day occurs when buyers and sellers fight for control of the trend. The winner then takes the trend on low follow-up volume. **Step 3:** If no significant trend change occurs at point 2 (i.e., a [continuation](https://www.investopedia.com/terms/c/continuationpattern.asp)), then there is typically another point of high volume in which a substantial reversal (long or short term) may occur. **Step 4:** This process continues until a long-term trend is established and confirmed with technical or fundamental factors. Now we'll look at how we can predict when a trend change is going to occur. ## The Exhausted Selling Model The [exhausted selling model](https://www.investopedia.com/terms/e/exhausted-selling-model.asp) (ESM) was developed to determine when a price floor has been reached. This is done by using a combination of the following trend, volume, and turnaround indicators: * [Trend lines](https://www.investopedia.com/terms/t/trendline.asp) * Volume * [Moving averages](https://www.investopedia.com/terms/m/movingaverage.asp) * Chart patterns The image below illustrates how this model works. ![Image]() :max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt2_3-e0abe54ab43249418e531f17710e65d4.png) Exhausted selling model. Image by Julie Bang © Investopedia 2021 Notice that a variety of indicators are used to confirm that the trend has changed. As a trader, you may choose how many confirmation indicators you wish to use. The fewer confirmation indicators used, the higher the [risk](https://www.investopedia.com/terms/r/risk.asp#axzz1oFsYTiOQ) and the higher the reward (meaning the longer you wait for confirmation, the less potential gain there will be for you to capture), and vice versa. The rules to using the ESM include: * The stock price must first rapidly decline on high volume. * A volume spike will occur, creating a new low, and appear to reverse the trend. Look for [candlestick](https://www.investopedia.com/terms/c/candlestick.asp) patterns showing a struggle between buyers and sellers here (i.e., cross patterns or engulfings). * A higher low wave must occur. * A break of the predominant downward trend line must occur. * The 40- or 50-day moving averages must be broken. * The 40- or 50-day moving average must then be retested and hold. Note that you may use other [moving averages](https://www.investopedia.com/terms/m/movingaverage.asp#axzz1oFsYTiOQ)—ideally, ones that connect highs or lows. Typically, a break of a larger moving average is more indicative of a trend break than smaller moving averages. As you can see, the ESM combines several techniques to ensure that the trend has changed for the long term. Now let's take a look at the image below, which will show the ESM in practice. Chicago Bridge & Iron (CBI), which merged with McDermott International in 2018, announced that its earnings would be delayed, which sent the stock down 16 percent in a matter of hours. First, we can see that the low was made on high volume just before 11:26 a.m. Next, the price moves up slightly, but eventually forms a [descending triangle](https://www.investopedia.com/terms/d/descendingtriangle.asp), from which we drew a trend line (indicated here by the blue line). Next, the price breaks through the trend line and moving averages (indicated by the blue dot on the left). It then retraces to the moving averages (shown by the blue dot on the right) before moving upwards. ![Image]() :max_bytes(150000):strip_icc()/WhatisPanicSellingandHowtoProfitFromIt3_2-0c06856949fd4705b76481a02ce91c0c.png) Image by Julie Bang © Investopedia 2021 Finally, we can see that CBI turns around and returns to its previous levels after all of the confirmations are present. Note that if you would have entered after just one or two of the indicators, you would have made more profit, but increased the risk of the trade. ## The Bottom Line Panic selling naturally creates great buying opportunities for well-informed traders and investors. Those who know when the selling is over can benefit from the [retracements](https://www.investopedia.com/terms/r/retracement.asp)/turnaround that often occurs afterward. The ESM explained here provides a safe and effective method to determine where the best entry point is, and the ESM's use of multiple indicators can help you avoid costly mistakes.

Panic selling occurs when a stock price rapidly declines on high volume. This often happens when some event forces investors to re-evaluate the stock's intrinsic value, or when short-term traders are able to force the stock price down far enough to trigger long-term stop-losses. The entire process creates a tremendous opportunity for bottom fishers to initiate long positions, especially if the event behind the panic selling was non-material or speculative in nature (such as an investigation by the SEC or an analyst opinion). Here, we shed light on the panic-selling process and introduce a model that can help you predict the right time to take a long position after panic selling occurs. How Does Panic Selling Occur? Panic selling happens in several phases. The image below illustrates a typical panic selling scenario that occurred as a result of an SEC investigation. The company in this example is Doral Financial, a corporation whose primary business was mortgage banking before failing in 2015. This chart can be read as a general illustration of what happens in panic-selling situations. Image by Julie Bang © Investopedia 2021 Let's break down what happens at each numbered step in the chart: Step 1: Something occurs that causes the stock price to rapidly decline on high volume. Step 2: Eventually, a high volume day occurs when buyers and sellers fight for control of the trend. The winner then takes the trend on low follow-up volume. Step 3: If no significant trend change occurs at point 2 (i.e., a continuation), then there is typically another point of high volume in which a substantial reversal (long or short term) may occur. Step 4: This process continues until a long-term trend is established and confirmed with technical or fundamental factors. Now we'll look at how we can predict when a trend change is going to occur. The Exhausted Selling Model The exhausted selling model (ESM) was developed to determine when a price floor has been reached. This is done by using a combination of the following trend, volume, and turnaround indicators: Trend lines Volume Moving averages Chart patterns The image below illustrates how this model works. Exhausted selling model. Image by Julie Bang © Investopedia 2021 Notice that a variety of indicators are used to confirm that the trend has changed. As a trader, you may choose how many confirmation indicators you wish to use. The fewer confirmation indicators used, the higher the risk and the higher the reward (meaning the longer you wait for confirmation, the less potential gain there will be for you to capture), and vice versa. The rules to using the ESM include: The stock price must first rapidly decline on high volume. A volume spike will occur, creating a new low, and appear to reverse the trend. Look for candlestick patterns showing a struggle between buyers and sellers here (i.e., cross patterns or engulfings). A higher low wave must occur. A break of the predominant downward trend line must occur. The 40- or 50-day moving averages must be broken. The 40- or 50-day moving average must then be retested and hold. Note that you may use other moving averages—ideally, ones that connect highs or lows. Typically, a break of a larger moving average is more indicative of a trend break than smaller moving averages. As you can see, the ESM combines several techniques to ensure that the trend has changed for the long term. Now let's take a look at the image below, which will show the ESM in practice. Chicago Bridge & Iron (CBI), which merged with McDermott International in 2018, announced that its earnings would be delayed, which sent the stock down 16 percent in a matter of hours. First, we can see that the low was made on high volume just before 11:26 a.m. Next, the price moves up slightly, but eventually forms a descending triangle, from which we drew a trend line (indicated here by the blue line). Next, the price breaks through the trend line and moving averages (indicated by the blue dot on the left). It then retraces to the moving averages (shown by the blue dot on the right) before moving upwards. Image by Julie Bang © Investopedia 2021 Finally, we can see that CBI turns around and returns to its previous levels after all of the confirmations are present. Note that if you would have entered after just one or two of the indicators, you would have made more profit, but increased the risk of the trade. The Bottom Line Panic selling naturally creates great buying opportunities for well-informed traders and investors. Those who know when the selling is over can benefit from the retracements/turnaround that often occurs afterward. The ESM explained here provides a safe and effective method to determine where the best entry point is, and the ESM's use of multiple indicators can help you avoid costly mistakes.

https://www.investopedia.com/interactive-brokers-crashes-near-market-open-on-monday-5090344

Interactive Brokers Breaks Down near Market Open on Monday

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Shortly after the open on December 7, 2020, Interactive Brokers, a platform that is typically resilient and crash-proof, had major issues. Customers of Interactive Brokers started complaining on Twitter and posting reports to DownDetector very early in the morning, peaking at 9:30 AM Eastern Time, saying they were unable to log in to their accounts. The problems were traced to a data storage system operated by an unnamed third party vendor. </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"> Interactive Brokers was not alone: other brokers listed on Downdetector reports the same day include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://downdetector.com/status/robinhood/" rel="noopener noreferrer">Robinhood</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://downdetector.com/status/fidelity/" rel="noopener noreferrer">Fidelity</a>, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://downdetector.com/status/charles-schwab/" rel="noopener noreferrer">Charles Schwab</a>. There were no outages reported at <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://downdetector.com/status/e-trade/" rel="noopener noreferrer">E*TRADE</a>, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="externalLink" href="https://downdetector.com/status/merrill-lynch/" rel="noopener noreferrer">Merrill Edge</a>, or <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="externalLink" href="https://downdetector.com/status/vanguard/" rel="noopener noreferrer">Vanguard</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">KEY TAKEAWAYS</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li> Interactive Brokers, usually a very stable brokerage, suffered a major system outage the morning of December 7, 2020.</li><li>The outage was traced to a data storage system operated by a third party.</li><li>Customers continued to report problems logging in for several hours after IBKR stated the issue was resolved.</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"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://twitter.com/IBKR" rel="noopener noreferrer">IBKR Twitter feed</a> acknowledged the problems at 9:00 AM Eastern, with a brief tweet saying, "We are experiencing technical difficulties and we are working to restore services." At 10:15 AM Eastern, a post detailing the issues declared, "We have experienced a significant failure in multiple segments of a highly resilient data storage system. We have engaged the vendor for analysis and recovery. Many services have already been restored and the remaining services are expected to be available promptly." </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:63.0%;"> <img alt="IBKR tweets 12/7/2020" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/GT9NYecaxYA8fwXElxn90T1XRwU=/1184x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKRtwitter12072020-21ef6d842dbe4f77b5b0aabbbd8b91a9.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/0g9OsJXnOv4yAYJZh6eOmAYkJUo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKRtwitter12072020-21ef6d842dbe4f77b5b0aabbbd8b91a9.jpg" data-srcset="https://www.investopedia.com/thmb/8DdtPm-SQ_wjpQ-jqpCwaE6i5X8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKRtwitter12072020-21ef6d842dbe4f77b5b0aabbbd8b91a9.jpg 750w" data-tracking-container="true" height="747" id="mntl-sc-block-image_1-0" width="1184"/> <noscript> <img alt="IBKR tweets 12/7/2020" class="img--noscript universal-image__image" height="747" sizes="750px" src="https://www.investopedia.com/thmb/0g9OsJXnOv4yAYJZh6eOmAYkJUo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKRtwitter12072020-21ef6d842dbe4f77b5b0aabbbd8b91a9.jpg" srcset="https://www.investopedia.com/thmb/8DdtPm-SQ_wjpQ-jqpCwaE6i5X8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKRtwitter12072020-21ef6d842dbe4f77b5b0aabbbd8b91a9.jpg 750w" width="1184"/> </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">IBKR tweets 12/7/2020.</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> In an email, IBKR's Director of Media Relations, Kalen Holliday, said, "We recognize the dislocation this has caused to our clients, and express our apologies." Clients were not mollified, however, continuing to complain about the inability to login and manage positions during a fast-moving market. </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-portrait figure-high-res" id="mntl-sc-block_12-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:107.8%;"> <img alt="Downdetector IBKR problem reports" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/OKmUmiJ5zEiX6703njRwzImn0gU=/1237x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKRdowndetector12072020-fb2ce505e1594a4982c5090bd84ab2a9.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/22sywHsPJXXkkuw6Re1gMEPYQE8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKRdowndetector12072020-fb2ce505e1594a4982c5090bd84ab2a9.jpg" data-srcset="https://www.investopedia.com/thmb/0MlgP4SlAzITxhlbHqsbLjTDyT0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKRdowndetector12072020-fb2ce505e1594a4982c5090bd84ab2a9.jpg 750w" data-tracking-container="true" height="1334" id="mntl-sc-block-image_2-0" width="1237"/> <noscript> <img alt="Downdetector IBKR problem reports" class="img--noscript universal-image__image" height="1334" sizes="750px" src="https://www.investopedia.com/thmb/22sywHsPJXXkkuw6Re1gMEPYQE8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKRdowndetector12072020-fb2ce505e1594a4982c5090bd84ab2a9.jpg" srcset="https://www.investopedia.com/thmb/0MlgP4SlAzITxhlbHqsbLjTDyT0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKRdowndetector12072020-fb2ce505e1594a4982c5090bd84ab2a9.jpg 750w" width="1237"/> </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">Downdetector IBKR problem reports.</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The firm's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.interactivebrokers.com/en/index.php?f=en/software/systemStatus.php" rel="noopener noreferrer nofollow">system status page </a>reported at 1:42 PM Eastern, "Systems are returning to normal functionality," but continued to indicate that there were problems. Downdetector continued to report outages and login issues as of 1:30 PM Eastern, but the number of issues is declining. </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"> During the period that the systems kept many customers offline, Twitter was awash in complaints and threats to sue. The<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=3203" rel="noopener noreferrer nofollow"> IBKR Customer Agreement</a>, a 12-page document packed with legalese and signed without reading by most customers, includes a section describing the company's "As Is" clause. It's on page 8, so it's buried fairly deeply in the document (point 28 on the list). This clause is in all caps and bold type and states, "IB shall not be liable to customer by reason of delays or interruptions of service or transmissions, or failures of performance of the IB system, regardless of cause..." The following point, number 29 on the list, charges the customer with the responsibility of maintaining alternative trading arrangements in the event the IB system is unavailable. This sort of clause is standard in the online brokerage industry, so lawsuits are seldom settled in a client's favor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> At the end of the day, systems were all back to normal. Reports to Downdetector had dwindled significantly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-square figure-high-res" id="mntl-sc-block_19-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:81.8%;"> <img alt="IBKR Downdetector history 12/7/2020" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/zB9ocS15IaFLGnlEb2sOW8pw3co=/1246x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKREOD12072020-8d944f9aece946bea2119e7c03dd7aec.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/YCE8Wqy9nnCXJHqJA2JaX9wCvHc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKREOD12072020-8d944f9aece946bea2119e7c03dd7aec.jpg" data-srcset="https://www.investopedia.com/thmb/gyZiMVZ1HPbfvvZqM_KFTZ1Txks=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKREOD12072020-8d944f9aece946bea2119e7c03dd7aec.jpg 750w" data-tracking-container="true" height="1020" id="mntl-sc-block-image_3-0" width="1246"/> <noscript> <img alt="IBKR Downdetector history 12/7/2020" class="img--noscript universal-image__image" height="1020" sizes="750px" src="https://www.investopedia.com/thmb/YCE8Wqy9nnCXJHqJA2JaX9wCvHc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKREOD12072020-8d944f9aece946bea2119e7c03dd7aec.jpg" srcset="https://www.investopedia.com/thmb/gyZiMVZ1HPbfvvZqM_KFTZ1Txks=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBKREOD12072020-8d944f9aece946bea2119e7c03dd7aec.jpg 750w" width="1246"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_3-0"> <span class="figure-article-caption-text">IBKR Downdetector history 12/7/2020.</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> On December 8, Interactive Brokers' CEO Milan Galik sent an email to all clients, explaining that the data system, provided and serviced by a third party vendor, that is designed to minimize failures, "did not work as expected today." Malin says that IBKR worked with the vendor to figure out what had happened, and began restoring systems so that most clients were able to access most services by late morning. The remaining services were brought back online over the rest of the trading day. </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"> Malin says, "Any technology can fail, and we take the quality and resiliency of our systems very seriously. We will incorporate the vendor’s analysis into our own independent assessment of today’s partial outage to make it even more unlikely that it could occur again in the future." </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

Shortly after the open on December 7, 2020, Interactive Brokers, a platform that is typically resilient and crash-proof, had major issues. Customers of Interactive Brokers started complaining on Twitter and posting reports to DownDetector very early in the morning, peaking at 9:30 AM Eastern Time, saying they were unable to log in to their accounts. The problems were traced to a data storage system operated by an unnamed third party vendor. Interactive Brokers was not alone: other brokers listed on Downdetector reports the same day include [Robinhood](https://downdetector.com/status/robinhood/), [Fidelity](https://downdetector.com/status/fidelity/), and [Charles Schwab](https://downdetector.com/status/charles-schwab/). There were no outages reported at [E\*TRADE](https://downdetector.com/status/e-trade/), [Merrill Edge](https://downdetector.com/status/merrill-lynch/), or [Vanguard](https://downdetector.com/status/vanguard/). ### KEY TAKEAWAYS * Interactive Brokers, usually a very stable brokerage, suffered a major system outage the morning of December 7, 2020. * The outage was traced to a data storage system operated by a third party. * Customers continued to report problems logging in for several hours after IBKR stated the issue was resolved. The [IBKR Twitter feed](https://twitter.com/IBKR) acknowledged the problems at 9:00 AM Eastern, with a brief tweet saying, "We are experiencing technical difficulties and we are working to restore services." At 10:15 AM Eastern, a post detailing the issues declared, "We have experienced a significant failure in multiple segments of a highly resilient data storage system. We have engaged the vendor for analysis and recovery. Many services have already been restored and the remaining services are expected to be available promptly." ![IBKR tweets 12/7/2020]() :max_bytes(150000):strip_icc()/IBKRtwitter12072020-21ef6d842dbe4f77b5b0aabbbd8b91a9.jpg) IBKR tweets 12/7/2020. In an email, IBKR's Director of Media Relations, Kalen Holliday, said, "We recognize the dislocation this has caused to our clients, and express our apologies." Clients were not mollified, however, continuing to complain about the inability to login and manage positions during a fast-moving market. ![Downdetector IBKR problem reports]() :max_bytes(150000):strip_icc()/IBKRdowndetector12072020-fb2ce505e1594a4982c5090bd84ab2a9.jpg) Downdetector IBKR problem reports. The firm's [system status page](https://www.interactivebrokers.com/en/index.php?f=en/software/systemStatus.php)reported at 1:42 PM Eastern, "Systems are returning to normal functionality," but continued to indicate that there were problems. Downdetector continued to report outages and login issues as of 1:30 PM Eastern, but the number of issues is declining. During the period that the systems kept many customers offline, Twitter was awash in complaints and threats to sue. The [IBKR Customer Agreement](https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=3203), a 12-page document packed with legalese and signed without reading by most customers, includes a section describing the company's "As Is" clause. It's on page 8, so it's buried fairly deeply in the document (point 28 on the list). This clause is in all caps and bold type and states, "IB shall not be liable to customer by reason of delays or interruptions of service or transmissions, or failures of performance of the IB system, regardless of cause..." The following point, number 29 on the list, charges the customer with the responsibility of maintaining alternative trading arrangements in the event the IB system is unavailable. This sort of clause is standard in the online brokerage industry, so lawsuits are seldom settled in a client's favor. At the end of the day, systems were all back to normal. Reports to Downdetector had dwindled significantly. ![IBKR Downdetector history 12/7/2020]() :max_bytes(150000):strip_icc()/IBKREOD12072020-8d944f9aece946bea2119e7c03dd7aec.jpg) IBKR Downdetector history 12/7/2020. On December 8, Interactive Brokers' CEO Milan Galik sent an email to all clients, explaining that the data system, provided and serviced by a third party vendor, that is designed to minimize failures, "did not work as expected today." Malin says that IBKR worked with the vendor to figure out what had happened, and began restoring systems so that most clients were able to access most services by late morning. The remaining services were brought back online over the rest of the trading day. Malin says, "Any technology can fail, and we take the quality and resiliency of our systems very seriously. We will incorporate the vendor’s analysis into our own independent assessment of today’s partial outage to make it even more unlikely that it could occur again in the future." Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Shortly after the open on December 7, 2020, Interactive Brokers, a platform that is typically resilient and crash-proof, had major issues. Customers of Interactive Brokers started complaining on Twitter and posting reports to DownDetector very early in the morning, peaking at 9:30 AM Eastern Time, saying they were unable to log in to their accounts. The problems were traced to a data storage system operated by an unnamed third party vendor. Interactive Brokers was not alone: other brokers listed on Downdetector reports the same day include Robinhood, Fidelity, and Charles Schwab. There were no outages reported at E*TRADE, Merrill Edge, or Vanguard. KEY TAKEAWAYS Interactive Brokers, usually a very stable brokerage, suffered a major system outage the morning of December 7, 2020.The outage was traced to a data storage system operated by a third party.Customers continued to report problems logging in for several hours after IBKR stated the issue was resolved. The IBKR Twitter feed acknowledged the problems at 9:00 AM Eastern, with a brief tweet saying, "We are experiencing technical difficulties and we are working to restore services." At 10:15 AM Eastern, a post detailing the issues declared, "We have experienced a significant failure in multiple segments of a highly resilient data storage system. We have engaged the vendor for analysis and recovery. Many services have already been restored and the remaining services are expected to be available promptly." IBKR tweets 12/7/2020. In an email, IBKR's Director of Media Relations, Kalen Holliday, said, "We recognize the dislocation this has caused to our clients, and express our apologies." Clients were not mollified, however, continuing to complain about the inability to login and manage positions during a fast-moving market. Downdetector IBKR problem reports. The firm's system status page reported at 1:42 PM Eastern, "Systems are returning to normal functionality," but continued to indicate that there were problems. Downdetector continued to report outages and login issues as of 1:30 PM Eastern, but the number of issues is declining. During the period that the systems kept many customers offline, Twitter was awash in complaints and threats to sue. The IBKR Customer Agreement, a 12-page document packed with legalese and signed without reading by most customers, includes a section describing the company's "As Is" clause. It's on page 8, so it's buried fairly deeply in the document (point 28 on the list). This clause is in all caps and bold type and states, "IB shall not be liable to customer by reason of delays or interruptions of service or transmissions, or failures of performance of the IB system, regardless of cause..." The following point, number 29 on the list, charges the customer with the responsibility of maintaining alternative trading arrangements in the event the IB system is unavailable. This sort of clause is standard in the online brokerage industry, so lawsuits are seldom settled in a client's favor. At the end of the day, systems were all back to normal. Reports to Downdetector had dwindled significantly. IBKR Downdetector history 12/7/2020. On December 8, Interactive Brokers' CEO Milan Galik sent an email to all clients, explaining that the data system, provided and serviced by a third party vendor, that is designed to minimize failures, "did not work as expected today." Malin says that IBKR worked with the vendor to figure out what had happened, and began restoring systems so that most clients were able to access most services by late morning. The remaining services were brought back online over the rest of the trading day. Malin says, "Any technology can fail, and we take the quality and resiliency of our systems very seriously. We will incorporate the vendor’s analysis into our own independent assessment of today’s partial outage to make it even more unlikely that it could occur again in the future." Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/top-mid-cap-industrials-5226028

Top Mid-Cap Industrials

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/midcapstock.asp">mid-cap</a> segment of the financial markets comprises companies that tend to have <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketcapitalization.asp">market capitalizations</a> between $2 billion and $10 billion. Put another way, the mid-cap market segment represents the middle part of the investable landscape. These are the medium-sized businesses that have typically grown slowly and steadily over decades and have been fortunate to move beyond the risks of survival that plagued them when they were smaller. As a group, mid-caps tend to get overlooked by both institutional and retail investors likely due to the volatility and hype that more commonly surround their <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/small-cap.asp">small-cap</a> and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/large-cap.asp">large-cap</a> counterparts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> When it comes to the various market sectors, the same type of story is true for the group known as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/industrial-goods-sector.asp">industrials</a>. The industrial companies that produce <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgoods.asp">capital goods</a> used in manufacturing, resource extraction, and construction are often overlooked in favor of companies from sectors such as technology or biotech. In this article, we look at several mid-cap companies from across the industrials sector and discuss why this group, though regarded as dull by some, is uniquely positioned to provide interesting investment candidates for those who are willing to move beyond the mainstream way of thinking. </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>Most mid-cap companies have been around for many years and have managed to cement a position in the market.</li><li>The industrials sector is one of the top sectors by concentration when analyzing mid-cap stocks.</li><li>For those willing to do the research, companies within the mid-cap industrials sector provide investors with a unique opportunity for growth.<br/></li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> As mentioned, the companies within the industrial sector are primarily responsible for creating equipment, goods, and supplies that businesses use rather than selling directly to consumers. As a group, performance is often strongly connected to trends in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economic-cycle.asp">economic cycles</a> and is one of the sectors that is home to the largest companies in the world and is the basis for common indexes such as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp">Dow Jones Industrial Average</a>. </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 industrial sector has either the largest or second-largest weighting in the mid-cap market segment, as measured by indexes such as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp-midcap-400-index.asp">S&amp;P MidCap 400 Index</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell_midcap_index.asp">Russell MidCap Index</a>, or CRSP U.S. Mid-Cap Index. The heavy weighting toward the industrial sector could be part of the reason why the S&amp;P 400 MidCap Index has beaten the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500</a> and the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp600.asp">S&amp;P 600</a> by an annualized rate of 2.03% and 0.92%, respectively, between Dec. 31, 1994, and May 31, 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_10-0"></div> <span class="heading-toc" id="toc-top-industrial-stocks-within-popular-mid-cap-etfs"></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"> Top Industrial Stocks Within Popular Mid-Cap ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> As a method for determining the top companies from within the industrials sector, we compiled the top 50 holdings from the top five mid-cap-focused <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> based on total net assets and then filtered them by sector to narrow them down to a master list of holdings. When then sorted the list by the amount of capital invested in each of the holdings to get a sense of each company's concentration across the funds. The top industrial stocks from the holdings of the popular mid-cap ETFs are presented below: </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"> · Carrier Global Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=carr">CARR</a>)<br/>· Hubbell Incorporated Class B (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=hubb">HUBB</a>)<br/>· Tetra Tech Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ttek">TTEK</a>)<br/>· Axon Enterprise, Inc. (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=axon">AXON</a>)<br/>· Builders FirstSource Inc. (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=bldr">BLDR</a>)<br/>· Graco Inc. (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ggg">GGG</a>)<br/>· Avis Budget Group Inc. (<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=car">CAR</a>)<br/>· AECOM (<a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=acm">ACM</a>)<br/>· Middleby Corporation (<a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=midd">MIDD</a>)<br/>· Regal Rexnord Corporation (<a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=rrx">RRX</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-hubbell-incorporated-hubb"></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"> Hubbell Incorporated (HUBB) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Together with its subsidiaries, Hubbell Incorporated (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=hubb">HUBB</a>) designs, manufactures, and sells electrical products. In 2021, the company had total sales of $4.2 billion, which was up compared to $3.9 billion and $3.7 billion in 2019 and 2020, respectively. Hubbell was founded in 1888, and as you can see from the monthly chart below, the company has grown steadily over the years and has been able to handily outperform the Dow Jones Industrial Average over the past decade. Fundamentally, the company has 19,300 employees and has a market capitalization of approximately $10 billion.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_19-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:49.6%;"> <img alt="Relative performance of HUBB compared to the Dow Jones Industrial Average" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/BLjGUKzdaYLSKZhCDxUVFLUS_Ko=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/HUBB_041422-a35204837dac40c497f2eb7e3474c2c6.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/BLjGUKzdaYLSKZhCDxUVFLUS_Ko=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/HUBB_041422-a35204837dac40c497f2eb7e3474c2c6.png" data-srcset="https://www.investopedia.com/thmb/LZtpIEjAgPiqka3u-h7w_QaHQ5M=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/HUBB_041422-a35204837dac40c497f2eb7e3474c2c6.png 750w" data-tracking-container="true" height="791" id="mntl-sc-block-image_1-0" width="1594"/> <noscript> <img alt="Relative performance of HUBB compared to the Dow Jones Industrial Average" class="img--noscript universal-image__image" height="791" sizes="750px" src="https://www.investopedia.com/thmb/BLjGUKzdaYLSKZhCDxUVFLUS_Ko=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/HUBB_041422-a35204837dac40c497f2eb7e3474c2c6.png" srcset="https://www.investopedia.com/thmb/LZtpIEjAgPiqka3u-h7w_QaHQ5M=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/HUBB_041422-a35204837dac40c497f2eb7e3474c2c6.png 750w" width="1594"/> </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.com</p></span> </figcaption></figure> <span class="heading-toc" id="toc-tetra-tech-inc-ttek"></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"> Tetra Tech, Inc. (TTEK)  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Tetra Tech, Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ttek">TTEK</a>) provides consulting and engineering services around the world and has a market capitalization of approximately $8 billion. Founded in 1966, the company has grown to have 21,000 associates working on solutions to complex problems in water, the environment, sustainable infrastructure, renewable energy, and international development. In 2021, the company generated $3.21 billion in revenue and worked for 20,000 clients in more than 100 countries.<span class="ql-inline-citation" data-cite="3"></span> Looking at the monthly chart, you can see that the stock has steadily outperformed the Dow Jones Industrial Average over the past decade. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></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_23-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:49.6%;"> <img alt="Relative performance of TTEK compared to the Dow Jones Industrial Average" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/1JTfYgcmHYOkoWWL4jL2NBGLD5Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TTEK_2022-04-14_23-03-17-ff422851d9d94763b4a56fa58798d957.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/1JTfYgcmHYOkoWWL4jL2NBGLD5Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TTEK_2022-04-14_23-03-17-ff422851d9d94763b4a56fa58798d957.png" data-srcset="https://www.investopedia.com/thmb/_WDA_7uCy1gg8D8qaISYqQ3qcEQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/TTEK_2022-04-14_23-03-17-ff422851d9d94763b4a56fa58798d957.png 750w" data-tracking-container="true" height="791" id="mntl-sc-block-image_2-0" width="1594"/> <noscript> <img alt="Relative performance of TTEK compared to the Dow Jones Industrial Average" class="img--noscript universal-image__image" height="791" sizes="750px" src="https://www.investopedia.com/thmb/1JTfYgcmHYOkoWWL4jL2NBGLD5Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TTEK_2022-04-14_23-03-17-ff422851d9d94763b4a56fa58798d957.png" srcset="https://www.investopedia.com/thmb/_WDA_7uCy1gg8D8qaISYqQ3qcEQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/TTEK_2022-04-14_23-03-17-ff422851d9d94763b4a56fa58798d957.png 750w" width="1594"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_2-0"> <span class="figure-article-caption-owner"><p>TradingView.com</p></span> </figcaption></figure> <span class="heading-toc" id="toc-axon-enterprises-inc-axon"></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"> Axon Enterprises, Inc. (AXON) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Formerly known as TASER International, Inc., the company changed its name to Axon Enterprises, Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=axon">AXON</a>) in 2017. As many probably know, the company develops, manufactures, and sells conducted energy devices under the TASER brand in the U.S. and internationally. However, what many may not know is that the company also operates within the area of software and sensors with products such as on-officer body cameras as well as hardware and cloud-based software to enable law enforcement to capture, securely store, manage, share, and analyze video and other digital evidence. Combined, the company's products have shown strong performance in recent years, posting a 26% compounded annual growth rate between 2017 and 2021.<span class="ql-inline-citation" data-cite="4"></span> Looking at the monthly chart below, you can see that AXON stock has strongly outperformed the Dow Jones Industrial Average over the previously discussed range. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <figure class="comp mntl-sc-block finance-sc-block-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_27-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:49.6%;"> <img alt="Relative performance of AXON compared to the Dow Jones Industrial Average" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/ViVF_2oQvOXSdBj7gudrYXxVNFw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AXON_041422-db3a01730b594996aeb6b1cf424e057f.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/ViVF_2oQvOXSdBj7gudrYXxVNFw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AXON_041422-db3a01730b594996aeb6b1cf424e057f.png" data-srcset="https://www.investopedia.com/thmb/JOabgj_lAP0cfAAEqcACL7GX-2E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AXON_041422-db3a01730b594996aeb6b1cf424e057f.png 750w" data-tracking-container="true" height="791" id="mntl-sc-block-image_3-0" width="1594"/> <noscript> <img alt="Relative performance of AXON compared to the Dow Jones Industrial Average" class="img--noscript universal-image__image" height="791" sizes="750px" src="https://www.investopedia.com/thmb/ViVF_2oQvOXSdBj7gudrYXxVNFw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AXON_041422-db3a01730b594996aeb6b1cf424e057f.png" srcset="https://www.investopedia.com/thmb/JOabgj_lAP0cfAAEqcACL7GX-2E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AXON_041422-db3a01730b594996aeb6b1cf424e057f.png 750w" width="1594"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_3-0"> <span class="figure-article-caption-owner"><p>TradingView.com</p></span> </figcaption></figure> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> By nature, most mid-cap companies have been around for many years and have managed to cement a position in the market. This group is no longer as exposed to the same type of survival risks their smaller counterparts are. In the context of the public market, there is significant room for these companies to continue growing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> As stated earlier, some of the world's largest companies are from the industrials sector, which also happens to be the sector with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sector-concentration-of-top-mid-cap-etfs-5225884">greatest concentration in the mid-cap</a> segment. At some point, the large-cap industrials that are now part of the iconic Dow Jones Industrial index had market capitalizations that were within the mid-cap range. It is not unreasonable to think that some of today's top mid-cap industrials could eventually find their way into similar positions in the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <em>At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.</em> </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-industrials-sector"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Industrials Sector?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The industrial goods sector includes stocks of companies that mainly produce capital goods used in manufacturing, resource extraction, and construction. The sector is closely tied to economic cycles and is often one of the top two sectors by concentration within the mid-cap segment of the market.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-what-are-some-well-known-industrial-companies"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Some Well-Known industrial companies?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Well-known industrial sector companies include Lockheed Martin Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=lmt">LMT</a>), Honeywell International Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=hon">HON</a>), and 3M Company (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=mmm">MMM</a>) The industrial sector also includes companies that provide air transportation services, such as United Airlines Holdings, Inc. (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ual">UAL</a>).</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-is-sector-rotation"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Sector Rotation?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/05/020305.asp">Sector rotation</a> is the movement of money invested in stocks from one industry to another as investors and traders anticipate the next stage of the economic cycle. For example, during a period of early recovery from a recession, investors may look to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sector-concentration-of-top-mid-cap-etfs-5225884">sectors</a> such as industrials, basic materials, and energy. Conversely, during periods of late recovery from a recession, investors may look to consumer staples or services.</p></div> </div></div>

The [mid-cap](https://www.investopedia.com/terms/m/midcapstock.asp) segment of the financial markets comprises companies that tend to have [market capitalizations](https://www.investopedia.com/terms/m/marketcapitalization.asp) between $2 billion and $10 billion. Put another way, the mid-cap market segment represents the middle part of the investable landscape. These are the medium-sized businesses that have typically grown slowly and steadily over decades and have been fortunate to move beyond the risks of survival that plagued them when they were smaller. As a group, mid-caps tend to get overlooked by both institutional and retail investors likely due to the volatility and hype that more commonly surround their [small-cap](https://www.investopedia.com/terms/s/small-cap.asp) and [large-cap](https://www.investopedia.com/terms/l/large-cap.asp) counterparts. When it comes to the various market sectors, the same type of story is true for the group known as the [industrials](https://www.investopedia.com/terms/i/industrial-goods-sector.asp). The industrial companies that produce [capital goods](https://www.investopedia.com/terms/c/capitalgoods.asp) used in manufacturing, resource extraction, and construction are often overlooked in favor of companies from sectors such as technology or biotech. In this article, we look at several mid-cap companies from across the industrials sector and discuss why this group, though regarded as dull by some, is uniquely positioned to provide interesting investment candidates for those who are willing to move beyond the mainstream way of thinking. ### Key Takeaways * Most mid-cap companies have been around for many years and have managed to cement a position in the market. * The industrials sector is one of the top sectors by concentration when analyzing mid-cap stocks. * For those willing to do the research, companies within the mid-cap industrials sector provide investors with a unique opportunity for growth. As mentioned, the companies within the industrial sector are primarily responsible for creating equipment, goods, and supplies that businesses use rather than selling directly to consumers. As a group, performance is often strongly connected to trends in [economic cycles](https://www.investopedia.com/terms/e/economic-cycle.asp) and is one of the sectors that is home to the largest companies in the world and is the basis for common indexes such as the [Dow Jones Industrial Average](https://www.investopedia.com/terms/d/djia.asp). The industrial sector has either the largest or second-largest weighting in the mid-cap market segment, as measured by indexes such as the [S&P MidCap 400 Index](https://www.investopedia.com/terms/s/sp-midcap-400-index.asp), [Russell MidCap Index](https://www.investopedia.com/terms/r/russell_midcap_index.asp), or CRSP U.S. Mid-Cap Index. The heavy weighting toward the industrial sector could be part of the reason why the S&P 400 MidCap Index has beaten the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) and the [S&P 600](https://www.investopedia.com/terms/s/sp600.asp) by an annualized rate of 2.03% and 0.92%, respectively, between Dec. 31, 1994, and May 31, 2019. ## Top Industrial Stocks Within Popular Mid-Cap ETFs As a method for determining the top companies from within the industrials sector, we compiled the top 50 holdings from the top five mid-cap-focused [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) based on total net assets and then filtered them by sector to narrow them down to a master list of holdings. When then sorted the list by the amount of capital invested in each of the holdings to get a sense of each company's concentration across the funds. The top industrial stocks from the holdings of the popular mid-cap ETFs are presented below: · Carrier Global Corp. ([CARR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=carr)) · Hubbell Incorporated Class B ([HUBB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=hubb)) · Tetra Tech Inc. ([TTEK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ttek)) · Axon Enterprise, Inc. ([AXON](https://www.investopedia.com/markets/quote?tvwidgetsymbol=axon)) · Builders FirstSource Inc. ([BLDR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=bldr)) · Graco Inc. ([GGG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ggg)) · Avis Budget Group Inc. ([CAR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=car)) · AECOM ([ACM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=acm)) · Middleby Corporation ([MIDD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=midd)) · Regal Rexnord Corporation ([RRX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=rrx)) ## Hubbell Incorporated (HUBB) Together with its subsidiaries, Hubbell Incorporated ([HUBB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=hubb)) designs, manufactures, and sells electrical products. In 2021, the company had total sales of $4.2 billion, which was up compared to $3.9 billion and $3.7 billion in 2019 and 2020, respectively. Hubbell was founded in 1888, and as you can see from the monthly chart below, the company has grown steadily over the years and has been able to handily outperform the Dow Jones Industrial Average over the past decade. Fundamentally, the company has 19,300 employees and has a market capitalization of approximately $10 billion. ![Relative performance of HUBB compared to the Dow Jones Industrial Average]() :max_bytes(150000):strip_icc()/HUBB_041422-a35204837dac40c497f2eb7e3474c2c6.png) TradingView.com ## Tetra Tech, Inc. (TTEK) Tetra Tech, Inc. ([TTEK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ttek)) provides consulting and engineering services around the world and has a market capitalization of approximately $8 billion. Founded in 1966, the company has grown to have 21,000 associates working on solutions to complex problems in water, the environment, sustainable infrastructure, renewable energy, and international development. In 2021, the company generated $3.21 billion in revenue and worked for 20,000 clients in more than 100 countries. Looking at the monthly chart, you can see that the stock has steadily outperformed the Dow Jones Industrial Average over the past decade. ![Relative performance of TTEK compared to the Dow Jones Industrial Average]() :max_bytes(150000):strip_icc()/TTEK_2022-04-14_23-03-17-ff422851d9d94763b4a56fa58798d957.png) TradingView.com ## Axon Enterprises, Inc. (AXON) Formerly known as TASER International, Inc., the company changed its name to Axon Enterprises, Inc. ([AXON](https://www.investopedia.com/markets/quote?tvwidgetsymbol=axon)) in 2017. As many probably know, the company develops, manufactures, and sells conducted energy devices under the TASER brand in the U.S. and internationally. However, what many may not know is that the company also operates within the area of software and sensors with products such as on-officer body cameras as well as hardware and cloud-based software to enable law enforcement to capture, securely store, manage, share, and analyze video and other digital evidence. Combined, the company's products have shown strong performance in recent years, posting a 26% compounded annual growth rate between 2017 and 2021. Looking at the monthly chart below, you can see that AXON stock has strongly outperformed the Dow Jones Industrial Average over the previously discussed range. ![Relative performance of AXON compared to the Dow Jones Industrial Average]() :max_bytes(150000):strip_icc()/AXON_041422-db3a01730b594996aeb6b1cf424e057f.png) TradingView.com ## The Bottom Line By nature, most mid-cap companies have been around for many years and have managed to cement a position in the market. This group is no longer as exposed to the same type of survival risks their smaller counterparts are. In the context of the public market, there is significant room for these companies to continue growing. As stated earlier, some of the world's largest companies are from the industrials sector, which also happens to be the sector with the [greatest concentration in the mid-cap](https://www.investopedia.com/sector-concentration-of-top-mid-cap-etfs-5225884) segment. At some point, the large-cap industrials that are now part of the iconic Dow Jones Industrial index had market capitalizations that were within the mid-cap range. It is not unreasonable to think that some of today's top mid-cap industrials could eventually find their way into similar positions in the future. *At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.* ## What Is the Industrials Sector? The industrial goods sector includes stocks of companies that mainly produce capital goods used in manufacturing, resource extraction, and construction. The sector is closely tied to economic cycles and is often one of the top two sectors by concentration within the mid-cap segment of the market. ## What Are Some Well-Known industrial companies? Well-known industrial sector companies include Lockheed Martin Corp. ([LMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=lmt)), Honeywell International Inc. ([HON](https://www.investopedia.com/markets/quote?tvwidgetsymbol=hon)), and 3M Company ([MMM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=mmm)) The industrial sector also includes companies that provide air transportation services, such as United Airlines Holdings, Inc. ([UAL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ual)). ## What Is Sector Rotation? [Sector rotation](https://www.investopedia.com/articles/trading/05/020305.asp) is the movement of money invested in stocks from one industry to another as investors and traders anticipate the next stage of the economic cycle. For example, during a period of early recovery from a recession, investors may look to [sectors](https://www.investopedia.com/sector-concentration-of-top-mid-cap-etfs-5225884) such as industrials, basic materials, and energy. Conversely, during periods of late recovery from a recession, investors may look to consumer staples or services.

The mid-cap segment of the financial markets comprises companies that tend to have market capitalizations between $2 billion and $10 billion. Put another way, the mid-cap market segment represents the middle part of the investable landscape. These are the medium-sized businesses that have typically grown slowly and steadily over decades and have been fortunate to move beyond the risks of survival that plagued them when they were smaller. As a group, mid-caps tend to get overlooked by both institutional and retail investors likely due to the volatility and hype that more commonly surround their small-cap and large-cap counterparts. When it comes to the various market sectors, the same type of story is true for the group known as the industrials. The industrial companies that produce capital goods used in manufacturing, resource extraction, and construction are often overlooked in favor of companies from sectors such as technology or biotech. In this article, we look at several mid-cap companies from across the industrials sector and discuss why this group, though regarded as dull by some, is uniquely positioned to provide interesting investment candidates for those who are willing to move beyond the mainstream way of thinking. Key Takeaways Most mid-cap companies have been around for many years and have managed to cement a position in the market.The industrials sector is one of the top sectors by concentration when analyzing mid-cap stocks.For those willing to do the research, companies within the mid-cap industrials sector provide investors with a unique opportunity for growth. As mentioned, the companies within the industrial sector are primarily responsible for creating equipment, goods, and supplies that businesses use rather than selling directly to consumers. As a group, performance is often strongly connected to trends in economic cycles and is one of the sectors that is home to the largest companies in the world and is the basis for common indexes such as the Dow Jones Industrial Average. The industrial sector has either the largest or second-largest weighting in the mid-cap market segment, as measured by indexes such as the S&P MidCap 400 Index, Russell MidCap Index, or CRSP U.S. Mid-Cap Index. The heavy weighting toward the industrial sector could be part of the reason why the S&P 400 MidCap Index has beaten the S&P 500 and the S&P 600 by an annualized rate of 2.03% and 0.92%, respectively, between Dec. 31, 1994, and May 31, 2019. Top Industrial Stocks Within Popular Mid-Cap ETFs As a method for determining the top companies from within the industrials sector, we compiled the top 50 holdings from the top five mid-cap-focused exchange-traded funds (ETFs) based on total net assets and then filtered them by sector to narrow them down to a master list of holdings. When then sorted the list by the amount of capital invested in each of the holdings to get a sense of each company's concentration across the funds. The top industrial stocks from the holdings of the popular mid-cap ETFs are presented below: · Carrier Global Corp. (CARR)· Hubbell Incorporated Class B (HUBB)· Tetra Tech Inc. (TTEK)· Axon Enterprise, Inc. (AXON)· Builders FirstSource Inc. (BLDR)· Graco Inc. (GGG)· Avis Budget Group Inc. (CAR)· AECOM (ACM)· Middleby Corporation (MIDD)· Regal Rexnord Corporation (RRX) Hubbell Incorporated (HUBB) Together with its subsidiaries, Hubbell Incorporated (HUBB) designs, manufactures, and sells electrical products. In 2021, the company had total sales of $4.2 billion, which was up compared to $3.9 billion and $3.7 billion in 2019 and 2020, respectively. Hubbell was founded in 1888, and as you can see from the monthly chart below, the company has grown steadily over the years and has been able to handily outperform the Dow Jones Industrial Average over the past decade. Fundamentally, the company has 19,300 employees and has a market capitalization of approximately $10 billion. TradingView.com Tetra Tech, Inc. (TTEK)  Tetra Tech, Inc. (TTEK) provides consulting and engineering services around the world and has a market capitalization of approximately $8 billion. Founded in 1966, the company has grown to have 21,000 associates working on solutions to complex problems in water, the environment, sustainable infrastructure, renewable energy, and international development. In 2021, the company generated $3.21 billion in revenue and worked for 20,000 clients in more than 100 countries. Looking at the monthly chart, you can see that the stock has steadily outperformed the Dow Jones Industrial Average over the past decade. TradingView.com Axon Enterprises, Inc. (AXON) Formerly known as TASER International, Inc., the company changed its name to Axon Enterprises, Inc. (AXON) in 2017. As many probably know, the company develops, manufactures, and sells conducted energy devices under the TASER brand in the U.S. and internationally. However, what many may not know is that the company also operates within the area of software and sensors with products such as on-officer body cameras as well as hardware and cloud-based software to enable law enforcement to capture, securely store, manage, share, and analyze video and other digital evidence. Combined, the company's products have shown strong performance in recent years, posting a 26% compounded annual growth rate between 2017 and 2021. Looking at the monthly chart below, you can see that AXON stock has strongly outperformed the Dow Jones Industrial Average over the previously discussed range. TradingView.com The Bottom Line By nature, most mid-cap companies have been around for many years and have managed to cement a position in the market. This group is no longer as exposed to the same type of survival risks their smaller counterparts are. In the context of the public market, there is significant room for these companies to continue growing. As stated earlier, some of the world's largest companies are from the industrials sector, which also happens to be the sector with the greatest concentration in the mid-cap segment. At some point, the large-cap industrials that are now part of the iconic Dow Jones Industrial index had market capitalizations that were within the mid-cap range. It is not unreasonable to think that some of today's top mid-cap industrials could eventually find their way into similar positions in the future. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned. What Is the Industrials Sector? The industrial goods sector includes stocks of companies that mainly produce capital goods used in manufacturing, resource extraction, and construction. The sector is closely tied to economic cycles and is often one of the top two sectors by concentration within the mid-cap segment of the market. What Are Some Well-Known industrial companies? Well-known industrial sector companies include Lockheed Martin Corp. (LMT), Honeywell International Inc. (HON), and 3M Company (MMM) The industrial sector also includes companies that provide air transportation services, such as United Airlines Holdings, Inc. (UAL). What Is Sector Rotation? Sector rotation is the movement of money invested in stocks from one industry to another as investors and traders anticipate the next stage of the economic cycle. For example, during a period of early recovery from a recession, investors may look to sectors such as industrials, basic materials, and energy. Conversely, during periods of late recovery from a recession, investors may look to consumer staples or services.

https://www.investopedia.com/the-express-podcast-episode-148-7570395

Taking Investors' Temperatures as the U.S. loses its AAA Credit Rating

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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=MERE6768616993" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Taking Investors' Temperatures as the U.S. loses its AAA Credit Rating"></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.cnbc.com/lindsey-bell/">Lindsey Bell</a>, Chief Strategist at 248 Ventures, climbs back aboard <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-investopedia-express-podcast-5215636">The Express</a> to take investors' temperatures following the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fitch-downgrades-us-credit-rating-7568569">Fitch credit rating downgrade</a>. What's the message behind the drop from AAA to AA+, and why a potential government shutdown may make matters worse. Plus, investor sentiment is on the upswing according to our latest sentiment survey. Are we too giddy too soon? </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) [Lindsey Bell](https://www.cnbc.com/lindsey-bell/), Chief Strategist at 248 Ventures, climbs back aboard [The Express](https://www.investopedia.com/the-investopedia-express-podcast-5215636) to take investors' temperatures following the [Fitch credit rating downgrade](https://www.investopedia.com/fitch-downgrades-us-credit-rating-7568569). What's the message behind the drop from AAA to AA+, and why a potential government shutdown may make matters worse. Plus, investor sentiment is on the upswing according to our latest sentiment survey. Are we too giddy too soon? 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 Lindsey Bell, Chief Strategist at 248 Ventures, climbs back aboard The Express to take investors' temperatures following the Fitch credit rating downgrade. What's the message behind the drop from AAA to AA+, and why a potential government shutdown may make matters worse. Plus, investor sentiment is on the upswing according to our latest sentiment survey. Are we too giddy too soon? Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/best-time-to-refinance-car-loan-7373577

Best Time to Refinance a Car Loan

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The best time to refinance a car loan is when interest rates are low so that you can save money on a new loan compared to your original loan. The best time is when you can lower your monthly payments, reduce the total interest you pay, or both. Generally, you'll want to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/refinance.asp">refinance</a> until you have had your loan for about a year, but not toward the very end of paying it off, to get the maximum benefit. </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 best time to refinance a car loan is when you can secure a lower interest rate, a lower monthly payment, or both.</li><li>You likely won't be able to refinance your car loan until the loan is six months to a year old.</li><li>Refinancing when the car is almost paid off likely won't provide any benefits, and you may pay more in interest.</li><li>Refinancing your car loan within the first two years of the loan could result in a lower monthly payment.</li></ul></div></div></div> <span class="heading-toc" id="toc-when-is-the-best-time-to-refinance-a-car-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"> When Is the Best Time to Refinance a Car Loan? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The best time to refinance a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/auto-loans-4689734">car loan</a> is when you can get a lower interest rate to save money, or change the terms of the loan so you will have a lower monthly payment, which can help your budget. Exactly when you can get a lower interest rate or a lower monthly payment on your car loan depends on a number of factors, like the broader interest rate environment and whether you have positive equity in the loan.<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_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> You'll want to take into account how long you’ve had the car loan. If you try to refinance your car loan too early or too late, you won't get the maximum benefits from refinancing. Let's look in more detail at how refinancing a car loan works with various timeframes. </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"> Refinancing During the First 60 to 90 Days of the Car Loan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> You might find it hard to refinance a car loan in the first few months of your current car loan. First, some lenders may not be willing to offer a new loan until you have an established payment history that indicates you will likely pay off the loan.<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"> Second, when you apply for a car loan, the lender will run a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-inquiry.asp">hard inquiry</a> on your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit report</a> to verify that you are a responsible borrower. This hard inquiry can temporarily lower your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a>, perhaps for several months. If you apply soon after opening a car loan and you have a lower credit score as a result, you may not qualify for better 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_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>A new lender that refinances your current car loan will need the title to be transferred to them as the new lien holder. However, it can take up to 90 days before a copy of your car title is sent to you by your state's DMV after originally purchasing and financing a new vehicle in most states.<span class="ql-inline-citation" data-cite="11"></span> So, if you try to refinance too soon, before you receive a copy of the title or before your original lender receives the title from your state, your new lender may not be able to get access to the title in a timely manner. This could deter a new lender from refinancing the loan. </p></div></div></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"> Refinancing Six Months Into the Loan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> In many cases, waiting six months could be a more opportune time to refinance your car loan because it provides time for your credit score to rebound and for your lender to receive the car title. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> However, six months may not be long enough to see such benefits as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-good-interest-rate-on-a-car-5176189">lower interest rate</a> that could result in savings, depending on broader market trends. When you can get a lower interest rate, you will save money in the long-term. Refinancing at the same interest rate may not always make financial sense.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Refinancing With Two Years or More Remaining on the Loan  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> After you have had your loan for at least a year but before you have only a year remaining may be ideal to refinance a car loan to get the maximum financial benefits. During this timeframe, enough time has passed for your credit score to potentially improve with your repayment history. You will likely still be paying enough in interest to make a lower interest payment worth getting refinancing.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-when-to-refinance-a-car-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> When to Refinance a Car Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The best time to refinance a car loan can also depend on factors like your financial situation, your loan terms, the amount of equity in the loan you have, and broader market trends like Federal Reserve actions to lower the prime rate, on which most car loan interest rates are based. Let's look in more depth when refinancing would be a good option.<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"> When Your Finances Have Improved  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> If your credit score is higher than it was when you initially financed the car, you could <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-acceptance-car-loan-release-options-7481748">potentially refinance</a> to a loan with a lower interest rate. Lenders are more likely to offer better terms to borrowers with stronger credit histories because they view them as lower risk.<span class="ql-inline-citation" data-cite="6"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> If your income has increased since you took out your auto loan, such as if you got a new job or a raise, it may be a good time to refinance. Lenders will see that you can afford to pay a bit more and perhaps view you as a less risky borrower, so they may offer you a better interest rate.<br> </br></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"> When Interest Rates Have Dropped  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> If the interest rates on car loans have dropped since you originally financed your car loan, you could likely refinance at a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">lower rate</a>, which can save you money. Even if your credit score is the same as when you secured your original car loan, you may be able to get a lower rate if the broader market trends are toward lower interest rates.<span class="ql-inline-citation" data-cite="7"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> When You Have Positive Equity </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 new car, the value of the car typically depreciates over time. If you are in a situation where you owe more on the loan than the car is worth, consider delaying refinancing until you have positive equity. With positive equity, lenders will be more likely to offer better terms because they can rely on the collateral in the event you fail to make payments. Essentially, having positive equity in your loan makes you a lower risk to lenders.<span class="ql-inline-citation" data-cite="10"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <span class="heading-toc" id="toc-when-to-delay-refinancing"></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"> When to Delay Refinancing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> In some cases, refinancing your car loan may not be in your best financial interest, such as if you will pay more in interest in the long-term. Here are some situations when it would be better not to refinance. <br/> </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"> When You Have Negative Equity </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> You can have negative equity in your car loan when your car's value depreciates and you owe more to the lender than the car is worth—known as being <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dealing-with-upside-down-car-loan-7484134">upside-down in the loan</a>. In these cases, it is unlikely a lender will approve a new loan for better terms. Consider continuing to make payments on your original loan until you have positive equity before you refinance a car loan.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <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"> When You Have an Older Car </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Many lenders will not refinance a car loan if the car is 10 years old or older. In fact, some lenders have a lower threshold, such as seven or eight years. Even if the car falls within the allowed age group for refinancing, some lenders may not <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-refinance-loans-5069118">refinance</a> it if the car’s mileage is high, such as 100,000 miles or more. Sales and prices for older used cars, often with high mileage, have gone up dramatically in the past few years due to chip shortages and supply chain issues impeding the production and sales of new cars, however. This market force has eased the financing restrictions for older vehicles to some degree.<span class="ql-inline-citation" data-cite="12"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> You’ll Have a Prepayment Penalty  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> If your current car loan has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prepaymentpenalty.asp">prepayment penalty</a>, you may be better off paying the loan as agreed. For example, if the amount of the penalty is more than the overall savings you would reap with refinancing, skip the refinancing. You don’t want to pay even more than you owe already. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-subheading__text"> Your Loan Term Is Almost Over </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Car loans are structured so that you pay the majority of<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/061615/how-interest-rates-work-car-loans.asp"> loan interest</a> in the first years of the loan. Therefore, if you only have a year or so left on your loan, you’re likely making a majority of your car payment toward the loan <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a>. If you refinance at that time, you could end up paying even more interest on the loan with a new loan.<br/> </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-how-to-refinance-a-car-loan"></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"> How to Refinance a Car Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Refinancing a car loan is a straightforward process similar to getting a new loan. Here are the main steps:<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> <li>Review your car loan documents so you know your original loan terms, including interest rate, loan length, and any prepayment penalty. </li><li>Shop around with a minimum of three lenders and compare rate quotes and terms to find the best offer.</li><li>Fill out a loan application. </li><li>Pay off original car loan with the funds from the new loan, and start payments for new loan. </li> </ol> <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-can-i-refinance-my-car-loan-with-bad-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Refinance My Car Loan with Bad Credit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some lenders will work with borrowers with bad credit. If your credit score has declined since you first took out your car loan, you may find that lenders are not willing to offer you a better interest rates. If you finance with worse credit, you could end up paying more in interest in the long-term.</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-does-refinancing-your-car-loan-hurt-your-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Refinancing Your Car Loan Hurt Your Credit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When you refinance your car loan, the lender likely will check your credit with a hard inquiry. As a result, your credit score could decline temporarily. However, if refinancing helps you pay down the loan faster, your credit could benefit in the long-term.</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-how-soon-can-i-refinance-my-car-loan-after-the-purchase"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Soon Can I Refinance My Car Loan After the Purchase?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>How soon you can refinance your car loan after a purchase will depend on several factors, including whether you have equity in your loan and your lender's requirements. Some lenders will allow you to refinance your car loan immediately after you purchase the car. Others have prepayment penalties. Generally, aim to wait at least six months before refinancing. </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_65-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> The best time to refinance a car loan depends on a number of factors. Aim to find a time when refinancing benefits you, such as when you can get a lower interest rate or lower your monthly payment. Make sure to calculate the costs of your original loan and a new loan to see how much money you may save. Finally, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-refinance-loans-5069118">compare car loan offers</a> from several lenders to get the best interest rate. </p></div>

The best time to refinance a car loan is when interest rates are low so that you can save money on a new loan compared to your original loan. The best time is when you can lower your monthly payments, reduce the total interest you pay, or both. Generally, you'll want to [refinance](https://www.investopedia.com/terms/r/refinance.asp) until you have had your loan for about a year, but not toward the very end of paying it off, to get the maximum benefit. ### Key Takeaways * The best time to refinance a car loan is when you can secure a lower interest rate, a lower monthly payment, or both. * You likely won't be able to refinance your car loan until the loan is six months to a year old. * Refinancing when the car is almost paid off likely won't provide any benefits, and you may pay more in interest. * Refinancing your car loan within the first two years of the loan could result in a lower monthly payment. ## When Is the Best Time to Refinance a Car Loan? The best time to refinance a [car loan](https://www.investopedia.com/auto-loans-4689734) is when you can get a lower interest rate to save money, or change the terms of the loan so you will have a lower monthly payment, which can help your budget. Exactly when you can get a lower interest rate or a lower monthly payment on your car loan depends on a number of factors, like the broader interest rate environment and whether you have positive equity in the loan. You'll want to take into account how long you’ve had the car loan. If you try to refinance your car loan too early or too late, you won't get the maximum benefits from refinancing. Let's look in more detail at how refinancing a car loan works with various timeframes. ### Refinancing During the First 60 to 90 Days of the Car Loan You might find it hard to refinance a car loan in the first few months of your current car loan. First, some lenders may not be willing to offer a new loan until you have an established payment history that indicates you will likely pay off the loan. Second, when you apply for a car loan, the lender will run a [hard inquiry](https://www.investopedia.com/terms/h/hard-inquiry.asp) on your [credit report](https://www.investopedia.com/terms/c/credit-history.asp) to verify that you are a responsible borrower. This hard inquiry can temporarily lower your [credit score](https://www.investopedia.com/terms/c/credit_score.asp), perhaps for several months. If you apply soon after opening a car loan and you have a lower credit score as a result, you may not qualify for better terms. ### A new lender that refinances your current car loan will need the title to be transferred to them as the new lien holder. However, it can take up to 90 days before a copy of your car title is sent to you by your state's DMV after originally purchasing and financing a new vehicle in most states. So, if you try to refinance too soon, before you receive a copy of the title or before your original lender receives the title from your state, your new lender may not be able to get access to the title in a timely manner. This could deter a new lender from refinancing the loan.  ### Refinancing Six Months Into the Loan In many cases, waiting six months could be a more opportune time to refinance your car loan because it provides time for your credit score to rebound and for your lender to receive the car title. However, six months may not be long enough to see such benefits as a [lower interest rate](https://www.investopedia.com/what-is-a-good-interest-rate-on-a-car-5176189) that could result in savings, depending on broader market trends. When you can get a lower interest rate, you will save money in the long-term. Refinancing at the same interest rate may not always make financial sense. ### Refinancing With Two Years or More Remaining on the Loan After you have had your loan for at least a year but before you have only a year remaining may be ideal to refinance a car loan to get the maximum financial benefits. During this timeframe, enough time has passed for your credit score to potentially improve with your repayment history. You will likely still be paying enough in interest to make a lower interest payment worth getting refinancing. ## When to Refinance a Car Loan The best time to refinance a car loan can also depend on factors like your financial situation, your loan terms, the amount of equity in the loan you have, and broader market trends like Federal Reserve actions to lower the prime rate, on which most car loan interest rates are based. Let's look in more depth when refinancing would be a good option. ### When Your Finances Have Improved If your credit score is higher than it was when you initially financed the car, you could [potentially refinance](https://www.investopedia.com/credit-acceptance-car-loan-release-options-7481748) to a loan with a lower interest rate. Lenders are more likely to offer better terms to borrowers with stronger credit histories because they view them as lower risk. If your income has increased since you took out your auto loan, such as if you got a new job or a raise, it may be a good time to refinance. Lenders will see that you can afford to pay a bit more and perhaps view you as a less risky borrower, so they may offer you a better interest rate. ### When Interest Rates Have Dropped If the interest rates on car loans have dropped since you originally financed your car loan, you could likely refinance at a [lower rate](https://www.investopedia.com/best-auto-loan-rates-4846394), which can save you money. Even if your credit score is the same as when you secured your original car loan, you may be able to get a lower rate if the broader market trends are toward lower interest rates. ### When You Have Positive Equity When you buy a new car, the value of the car typically depreciates over time. If you are in a situation where you owe more on the loan than the car is worth, consider delaying refinancing until you have positive equity. With positive equity, lenders will be more likely to offer better terms because they can rely on the collateral in the event you fail to make payments. Essentially, having positive equity in your loan makes you a lower risk to lenders. ## When to Delay Refinancing In some cases, refinancing your car loan may not be in your best financial interest, such as if you will pay more in interest in the long-term. Here are some situations when it would be better not to refinance.  ### When You Have Negative Equity You can have negative equity in your car loan when your car's value depreciates and you owe more to the lender than the car is worth—known as being [upside-down in the loan](https://www.investopedia.com/dealing-with-upside-down-car-loan-7484134). In these cases, it is unlikely a lender will approve a new loan for better terms. Consider continuing to make payments on your original loan until you have positive equity before you refinance a car loan. ### When You Have an Older Car Many lenders will not refinance a car loan if the car is 10 years old or older. In fact, some lenders have a lower threshold, such as seven or eight years. Even if the car falls within the allowed age group for refinancing, some lenders may not [refinance](https://www.investopedia.com/best-auto-refinance-loans-5069118) it if the car’s mileage is high, such as 100,000 miles or more. Sales and prices for older used cars, often with high mileage, have gone up dramatically in the past few years due to chip shortages and supply chain issues impeding the production and sales of new cars, however. This market force has eased the financing restrictions for older vehicles to some degree. ### You’ll Have a Prepayment Penalty If your current car loan has a [prepayment penalty](https://www.investopedia.com/terms/p/prepaymentpenalty.asp), you may be better off paying the loan as agreed. For example, if the amount of the penalty is more than the overall savings you would reap with refinancing, skip the refinancing. You don’t want to pay even more than you owe already.  ### Your Loan Term Is Almost Over Car loans are structured so that you pay the majority of [loan interest](https://www.investopedia.com/articles/personal-finance/061615/how-interest-rates-work-car-loans.asp) in the first years of the loan. Therefore, if you only have a year or so left on your loan, you’re likely making a majority of your car payment toward the loan [principal](https://www.investopedia.com/terms/p/principal.asp). If you refinance at that time, you could end up paying even more interest on the loan with a new loan. ## How to Refinance a Car Loan Refinancing a car loan is a straightforward process similar to getting a new loan. Here are the main steps: 1. Review your car loan documents so you know your original loan terms, including interest rate, loan length, and any prepayment penalty. 2. Shop around with a minimum of three lenders and compare rate quotes and terms to find the best offer. 3. Fill out a loan application. 4. Pay off original car loan with the funds from the new loan, and start payments for new loan. ## Can I Refinance My Car Loan with Bad Credit? Some lenders will work with borrowers with bad credit. If your credit score has declined since you first took out your car loan, you may find that lenders are not willing to offer you a better interest rates. If you finance with worse credit, you could end up paying more in interest in the long-term. ## Does Refinancing Your Car Loan Hurt Your Credit? When you refinance your car loan, the lender likely will check your credit with a hard inquiry. As a result, your credit score could decline temporarily. However, if refinancing helps you pay down the loan faster, your credit could benefit in the long-term. ## How Soon Can I Refinance My Car Loan After the Purchase? How soon you can refinance your car loan after a purchase will depend on several factors, including whether you have equity in your loan and your lender's requirements. Some lenders will allow you to refinance your car loan immediately after you purchase the car. Others have prepayment penalties. Generally, aim to wait at least six months before refinancing.  ## The Bottom Line The best time to refinance a car loan depends on a number of factors. Aim to find a time when refinancing benefits you, such as when you can get a lower interest rate or lower your monthly payment. Make sure to calculate the costs of your original loan and a new loan to see how much money you may save. Finally, [compare car loan offers](https://www.investopedia.com/best-auto-refinance-loans-5069118) from several lenders to get the best interest rate.

The best time to refinance a car loan is when interest rates are low so that you can save money on a new loan compared to your original loan. The best time is when you can lower your monthly payments, reduce the total interest you pay, or both. Generally, you'll want to refinance until you have had your loan for about a year, but not toward the very end of paying it off, to get the maximum benefit. Key Takeaways The best time to refinance a car loan is when you can secure a lower interest rate, a lower monthly payment, or both.You likely won't be able to refinance your car loan until the loan is six months to a year old.Refinancing when the car is almost paid off likely won't provide any benefits, and you may pay more in interest.Refinancing your car loan within the first two years of the loan could result in a lower monthly payment. When Is the Best Time to Refinance a Car Loan? The best time to refinance a car loan is when you can get a lower interest rate to save money, or change the terms of the loan so you will have a lower monthly payment, which can help your budget. Exactly when you can get a lower interest rate or a lower monthly payment on your car loan depends on a number of factors, like the broader interest rate environment and whether you have positive equity in the loan. You'll want to take into account how long you’ve had the car loan. If you try to refinance your car loan too early or too late, you won't get the maximum benefits from refinancing. Let's look in more detail at how refinancing a car loan works with various timeframes. Refinancing During the First 60 to 90 Days of the Car Loan You might find it hard to refinance a car loan in the first few months of your current car loan. First, some lenders may not be willing to offer a new loan until you have an established payment history that indicates you will likely pay off the loan. Second, when you apply for a car loan, the lender will run a hard inquiry on your credit report to verify that you are a responsible borrower. This hard inquiry can temporarily lower your credit score, perhaps for several months. If you apply soon after opening a car loan and you have a lower credit score as a result, you may not qualify for better terms. A new lender that refinances your current car loan will need the title to be transferred to them as the new lien holder. However, it can take up to 90 days before a copy of your car title is sent to you by your state's DMV after originally purchasing and financing a new vehicle in most states. So, if you try to refinance too soon, before you receive a copy of the title or before your original lender receives the title from your state, your new lender may not be able to get access to the title in a timely manner. This could deter a new lender from refinancing the loan.  Refinancing Six Months Into the Loan In many cases, waiting six months could be a more opportune time to refinance your car loan because it provides time for your credit score to rebound and for your lender to receive the car title. However, six months may not be long enough to see such benefits as a lower interest rate that could result in savings, depending on broader market trends. When you can get a lower interest rate, you will save money in the long-term. Refinancing at the same interest rate may not always make financial sense. Refinancing With Two Years or More Remaining on the Loan  After you have had your loan for at least a year but before you have only a year remaining may be ideal to refinance a car loan to get the maximum financial benefits. During this timeframe, enough time has passed for your credit score to potentially improve with your repayment history. You will likely still be paying enough in interest to make a lower interest payment worth getting refinancing. When to Refinance a Car Loan The best time to refinance a car loan can also depend on factors like your financial situation, your loan terms, the amount of equity in the loan you have, and broader market trends like Federal Reserve actions to lower the prime rate, on which most car loan interest rates are based. Let's look in more depth when refinancing would be a good option. When Your Finances Have Improved  If your credit score is higher than it was when you initially financed the car, you could potentially refinance to a loan with a lower interest rate. Lenders are more likely to offer better terms to borrowers with stronger credit histories because they view them as lower risk. If your income has increased since you took out your auto loan, such as if you got a new job or a raise, it may be a good time to refinance. Lenders will see that you can afford to pay a bit more and perhaps view you as a less risky borrower, so they may offer you a better interest rate. When Interest Rates Have Dropped  If the interest rates on car loans have dropped since you originally financed your car loan, you could likely refinance at a lower rate, which can save you money. Even if your credit score is the same as when you secured your original car loan, you may be able to get a lower rate if the broader market trends are toward lower interest rates. When You Have Positive Equity When you buy a new car, the value of the car typically depreciates over time. If you are in a situation where you owe more on the loan than the car is worth, consider delaying refinancing until you have positive equity. With positive equity, lenders will be more likely to offer better terms because they can rely on the collateral in the event you fail to make payments. Essentially, having positive equity in your loan makes you a lower risk to lenders. When to Delay Refinancing In some cases, refinancing your car loan may not be in your best financial interest, such as if you will pay more in interest in the long-term. Here are some situations when it would be better not to refinance.  When You Have Negative Equity You can have negative equity in your car loan when your car's value depreciates and you owe more to the lender than the car is worth—known as being upside-down in the loan. In these cases, it is unlikely a lender will approve a new loan for better terms. Consider continuing to make payments on your original loan until you have positive equity before you refinance a car loan. When You Have an Older Car Many lenders will not refinance a car loan if the car is 10 years old or older. In fact, some lenders have a lower threshold, such as seven or eight years. Even if the car falls within the allowed age group for refinancing, some lenders may not refinance it if the car’s mileage is high, such as 100,000 miles or more. Sales and prices for older used cars, often with high mileage, have gone up dramatically in the past few years due to chip shortages and supply chain issues impeding the production and sales of new cars, however. This market force has eased the financing restrictions for older vehicles to some degree. You’ll Have a Prepayment Penalty  If your current car loan has a prepayment penalty, you may be better off paying the loan as agreed. For example, if the amount of the penalty is more than the overall savings you would reap with refinancing, skip the refinancing. You don’t want to pay even more than you owe already.  Your Loan Term Is Almost Over Car loans are structured so that you pay the majority of loan interest in the first years of the loan. Therefore, if you only have a year or so left on your loan, you’re likely making a majority of your car payment toward the loan principal. If you refinance at that time, you could end up paying even more interest on the loan with a new loan. How to Refinance a Car Loan Refinancing a car loan is a straightforward process similar to getting a new loan. Here are the main steps: Review your car loan documents so you know your original loan terms, including interest rate, loan length, and any prepayment penalty. Shop around with a minimum of three lenders and compare rate quotes and terms to find the best offer.Fill out a loan application. Pay off original car loan with the funds from the new loan, and start payments for new loan.  Can I Refinance My Car Loan with Bad Credit? Some lenders will work with borrowers with bad credit. If your credit score has declined since you first took out your car loan, you may find that lenders are not willing to offer you a better interest rates. If you finance with worse credit, you could end up paying more in interest in the long-term. Does Refinancing Your Car Loan Hurt Your Credit? When you refinance your car loan, the lender likely will check your credit with a hard inquiry. As a result, your credit score could decline temporarily. However, if refinancing helps you pay down the loan faster, your credit could benefit in the long-term. How Soon Can I Refinance My Car Loan After the Purchase? How soon you can refinance your car loan after a purchase will depend on several factors, including whether you have equity in your loan and your lender's requirements. Some lenders will allow you to refinance your car loan immediately after you purchase the car. Others have prepayment penalties. Generally, aim to wait at least six months before refinancing.  The Bottom Line The best time to refinance a car loan depends on a number of factors. Aim to find a time when refinancing benefits you, such as when you can get a lower interest rate or lower your monthly payment. Make sure to calculate the costs of your original loan and a new loan to see how much money you may save. Finally, compare car loan offers from several lenders to get the best interest rate.

https://www.investopedia.com/us-economy-news-today-april-26-8639430

US Economy News Today: Fed's Preferred Inflation Measure Shows Stubborn Inflation Increasing

<div class="loc article-content"><div class="comp article__primary-video-container--jw mntl-block" id="article__primary-video-container--jw_1-0"></div> <div class="comp liveblog mntl-block" id="liveblog_1-0"><div class="comp mntl-block article-content__description" id="mntl-block_12-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Welcome to Investopedia's economics live blog, where we explain what the day's news says about the state of the U.S. economy and how that's likely to affect your finances. Here we compile data releases, economic reports, quotes from expert sources and anything else that helps explain economic issues and why they matter to you. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Today, the Federal Reserve's preferred measure of inflation showed inflation remained stubbornly high, with the annual tally up from last month. </p></div> <div class="comp liveblog__content mntl-sc-page mntl-block" data-bind-scroll-on-start="true" data-rail-bp="mntl-bp-md" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[1, 3, 6, 9, 12, 15, 18]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="liveblog__content_1-0"><div class="comp finance-liveblog-content mntl-liveblog-content mntl-block" id="finance-liveblog-content_1-0"><div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_1-0"><span class="heading-toc" id="toc-2024-04-26t160152451z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_1-0"><p><strong>Consumer Sentiment Dips in April as Inflation Expectations Worsen</strong></p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_1-0">April 26, 2024 12:01 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/us-economy-news-today-april-26-8639430#toc-2024-04-26t160152451z" id="mntl-blogpost__copylink_1-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Consumers’ feelings about the overall economy aren’t changing much, however, fears of inflation are mounting, according to Friday's edition of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mcsi.asp">University of Michigan consumer sentiment survey</a>. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The Consumer Sentiment Index fell by more than two points to come in at 77.2 in April, just below analyst estimates, but Director Joanne Hsu said the survey has bounced within a two-and-a-half point range for most of this year.<span class="ql-inline-citation" data-cite="2"></span>  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> “Consumer sentiment continued to plateau and was virtually unchanged for the third month in a row,” she said.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The final survey for April showed inflation fears are creeping back in, with consumers’ year-ahead expectations for price increases moving up to 3.2%, while the long-run expectations were for prices to rise 3% year-over-year.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The inflation expectations match <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-heated-up-in-march-8629363">recent upticks in inflation readings</a>, including today’s<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-april-26-8639430#toc-2024-04-26t124208430z"> Personal Consumption Expenditures (PCE)</a> inflation data. It also could give Federal Reserve officials more to think about when evaluating interest rate changes at its upcoming meeting, as <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-the-fed-cares-what-you-think-about-inflation-8634999">consumer inflation expectations</a> are a key element officials consider.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The survey also showed some diverging opinions among different groups of consumers.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> “Sentiment for younger consumers rose, in contrast to middle-aged and older adults whose sentiment changed little or fell.," Hsu said. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <em>-Terry Lane</em> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="1" id="mntl-sc-block-adslot_1-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_2-0"><span class="heading-toc" id="toc-2024-04-26t131410962z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_2-0"><p><strong>What Does Today's Inflation Information Mean for the Federal Reserve?</strong></p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_2-0">April 26, 2024 09:14 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/us-economy-news-today-april-26-8639430#toc-2024-04-26t131410962z" id="mntl-blogpost__copylink_2-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Rate cuts may be less likely in the immediate future after today's report on inflation. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> While today's report didn't shock by coming in too much higher than expectations, it did show the opposite of what the Federal Reserve is looking for. The annual inflation rate moved further from its 2% goal by rising to 2.7% in March. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> "Whichever way you crunch the numbers, this clearly isn’t the sort of inflation momentum where the Fed could be comfortable cutting rates," wrote Deutsche Bank's Jim Reid before the data was released. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> In the past few weeks, the Fed had already been attempting to walk back expectations for rate cuts on the back of higher-than-expected data in jobs, consumer spending and inflation. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Today's report continues to make their job more difficult as they head into their meeting next week. While they are not expected to move their influential fed funds rate, their communications after the meeting will be highly scrutinized for hints at how they're thinking about the path ahead </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="2" id="mntl-sc-block-adslot_2-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_3-0"><span class="heading-toc" id="toc-2024-04-26t124208430z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_3-0"><p><strong>Inflation Comes in High But Mostly As Expected</strong></p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_3-0">April 26, 2024 08:42 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/us-economy-news-today-april-26-8639430#toc-2024-04-26t124208430z" id="mntl-blogpost__copylink_3-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The cost of living measured by the Bureau of Economic Analysis’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pce.asp">Personal Consumption Expenditures (PCE) </a>index increased on par over the month in March at 0.3%. It rose slightly hotter than expected on a yearly basis at 2.7%.<span class="ql-inline-citation" data-cite="1"></span> Economists expected it to have increased 2.6% over the 12 months ending in March, according to a survey of forecasters by Dow Jones Newswires and The <em>Wall Street Journal</em>. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> That is an acceleration from the 2.5% annual rate <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/feds-favorite-inflation-gauge-sent-mixed-signals-in-february-8622078">reported in February</a>, and still above the 2% rate officials at the Federal Reserve target when they set the nation’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/monetary-policy-4689792">monetary policy</a>.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> PCE did not drastically jump, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/todays-gdp-report-not-only-showed-weak-economic-growth-but-worrisome-inflation-8638966">as was expected by some</a> after yesterday's GDP report. January's annual rate was revised, up from 2.4% to 2.5%. That could come as a relief to some market watchers who were worried the quarterly figure belied hidden inflation in March. </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="3" id="mntl-sc-block-adslot_3-0"></div></div></div></div> <div class="comp textnote-placeholder mntl-block" id="textnote-placeholder_1-0"></div> <div class="comp textnote mm-ads-gpt-adunit gpt textnote" id="textnote_1-0"> <div class="wrapper" id="textnote"></div> </div> </div>

Welcome to Investopedia's economics live blog, where we explain what the day's news says about the state of the U.S. economy and how that's likely to affect your finances. Here we compile data releases, economic reports, quotes from expert sources and anything else that helps explain economic issues and why they matter to you. Today, the Federal Reserve's preferred measure of inflation showed inflation remained stubbornly high, with the annual tally up from last month. ## **Consumer Sentiment Dips in April as Inflation Expectations Worsen** April 26, 2024 12:01 PM EDT Consumers’ feelings about the overall economy aren’t changing much, however, fears of inflation are mounting, according to Friday's edition of the [University of Michigan consumer sentiment survey](https://www.investopedia.com/terms/m/mcsi.asp). The Consumer Sentiment Index fell by more than two points to come in at 77.2 in April, just below analyst estimates, but Director Joanne Hsu said the survey has bounced within a two-and-a-half point range for most of this year.  “Consumer sentiment continued to plateau and was virtually unchanged for the third month in a row,” she said.  The final survey for April showed inflation fears are creeping back in, with consumers’ year-ahead expectations for price increases moving up to 3.2%, while the long-run expectations were for prices to rise 3% year-over-year.  The inflation expectations match [recent upticks in inflation readings](https://www.investopedia.com/inflation-heated-up-in-march-8629363), including today’s [Personal Consumption Expenditures (PCE)](https://www.investopedia.com/us-economy-news-today-april-26-8639430#toc-2024-04-26t124208430z) inflation data. It also could give Federal Reserve officials more to think about when evaluating interest rate changes at its upcoming meeting, as [consumer inflation expectations](https://www.investopedia.com/why-the-fed-cares-what-you-think-about-inflation-8634999) are a key element officials consider.  The survey also showed some diverging opinions among different groups of consumers.  “Sentiment for younger consumers rose, in contrast to middle-aged and older adults whose sentiment changed little or fell.," Hsu said. *-Terry Lane* ## **What Does Today's Inflation Information Mean for the Federal Reserve?** April 26, 2024 09:14 AM EDT Rate cuts may be less likely in the immediate future after today's report on inflation. While today's report didn't shock by coming in too much higher than expectations, it did show the opposite of what the Federal Reserve is looking for. The annual inflation rate moved further from its 2% goal by rising to 2.7% in March. "Whichever way you crunch the numbers, this clearly isn’t the sort of inflation momentum where the Fed could be comfortable cutting rates," wrote Deutsche Bank's Jim Reid before the data was released. In the past few weeks, the Fed had already been attempting to walk back expectations for rate cuts on the back of higher-than-expected data in jobs, consumer spending and inflation. Today's report continues to make their job more difficult as they head into their meeting next week. While they are not expected to move their influential fed funds rate, their communications after the meeting will be highly scrutinized for hints at how they're thinking about the path ahead ## **Inflation Comes in High But Mostly As Expected** April 26, 2024 08:42 AM EDT The cost of living measured by the Bureau of Economic Analysis’s [Personal Consumption Expenditures (PCE)](https://www.investopedia.com/terms/p/pce.asp)index increased on par over the month in March at 0.3%. It rose slightly hotter than expected on a yearly basis at 2.7%. Economists expected it to have increased 2.6% over the 12 months ending in March, according to a survey of forecasters by Dow Jones Newswires and The *Wall Street Journal*. That is an acceleration from the 2.5% annual rate [reported in February](https://www.investopedia.com/feds-favorite-inflation-gauge-sent-mixed-signals-in-february-8622078), and still above the 2% rate officials at the Federal Reserve target when they set the nation’s [monetary policy](https://www.investopedia.com/monetary-policy-4689792).  PCE did not drastically jump, [as was expected by some](https://www.investopedia.com/todays-gdp-report-not-only-showed-weak-economic-growth-but-worrisome-inflation-8638966) after yesterday's GDP report. January's annual rate was revised, up from 2.4% to 2.5%. That could come as a relief to some market watchers who were worried the quarterly figure belied hidden inflation in March.

Welcome to Investopedia's economics live blog, where we explain what the day's news says about the state of the U.S. economy and how that's likely to affect your finances. Here we compile data releases, economic reports, quotes from expert sources and anything else that helps explain economic issues and why they matter to you. Today, the Federal Reserve's preferred measure of inflation showed inflation remained stubbornly high, with the annual tally up from last month. Consumer Sentiment Dips in April as Inflation Expectations Worsen April 26, 2024 12:01 PM EDT Consumers’ feelings about the overall economy aren’t changing much, however, fears of inflation are mounting, according to Friday's edition of the University of Michigan consumer sentiment survey. The Consumer Sentiment Index fell by more than two points to come in at 77.2 in April, just below analyst estimates, but Director Joanne Hsu said the survey has bounced within a two-and-a-half point range for most of this year.  “Consumer sentiment continued to plateau and was virtually unchanged for the third month in a row,” she said.  The final survey for April showed inflation fears are creeping back in, with consumers’ year-ahead expectations for price increases moving up to 3.2%, while the long-run expectations were for prices to rise 3% year-over-year.  The inflation expectations match recent upticks in inflation readings, including today’s Personal Consumption Expenditures (PCE) inflation data. It also could give Federal Reserve officials more to think about when evaluating interest rate changes at its upcoming meeting, as consumer inflation expectations are a key element officials consider.  The survey also showed some diverging opinions among different groups of consumers.  “Sentiment for younger consumers rose, in contrast to middle-aged and older adults whose sentiment changed little or fell.," Hsu said. -Terry Lane What Does Today's Inflation Information Mean for the Federal Reserve? April 26, 2024 09:14 AM EDT Rate cuts may be less likely in the immediate future after today's report on inflation. While today's report didn't shock by coming in too much higher than expectations, it did show the opposite of what the Federal Reserve is looking for. The annual inflation rate moved further from its 2% goal by rising to 2.7% in March. "Whichever way you crunch the numbers, this clearly isn’t the sort of inflation momentum where the Fed could be comfortable cutting rates," wrote Deutsche Bank's Jim Reid before the data was released. In the past few weeks, the Fed had already been attempting to walk back expectations for rate cuts on the back of higher-than-expected data in jobs, consumer spending and inflation. Today's report continues to make their job more difficult as they head into their meeting next week. While they are not expected to move their influential fed funds rate, their communications after the meeting will be highly scrutinized for hints at how they're thinking about the path ahead Inflation Comes in High But Mostly As Expected April 26, 2024 08:42 AM EDT The cost of living measured by the Bureau of Economic Analysis’s Personal Consumption Expenditures (PCE) index increased on par over the month in March at 0.3%. It rose slightly hotter than expected on a yearly basis at 2.7%. Economists expected it to have increased 2.6% over the 12 months ending in March, according to a survey of forecasters by Dow Jones Newswires and The Wall Street Journal. That is an acceleration from the 2.5% annual rate reported in February, and still above the 2% rate officials at the Federal Reserve target when they set the nation’s monetary policy.  PCE did not drastically jump, as was expected by some after yesterday's GDP report. January's annual rate was revised, up from 2.4% to 2.5%. That could come as a relief to some market watchers who were worried the quarterly figure belied hidden inflation in March.

https://www.investopedia.com/terms/a/advance-deposit-wagering.asp

Advance-Deposit Wagering (ADW): Meaning, Legality

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-definition-of-advance-deposit-wagering-adw"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> Definition of Advance-Deposit Wagering (ADW) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Advanced-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deposit.asp">deposit</a> wagering is a form of gambling in which the bettor must <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fund.asp">fund</a> their account before being allowed to place bets. Advanced-deposit wagering is usually used to bet on the outcome of horse or greyhound dog races, though it can also apply to casinos.  </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-advance-deposit-wagering-adw"></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 Advance-Deposit Wagering (ADW) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Advanced-deposit wagering is often conducted online or by phone. In contrast to advanced-deposit <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/042715/what-difference-between-speculation-and-gambling.asp">wagering</a>, where accounts must be funded in advance, credit shops allow wagers without advance funding; accounts are settled at the end of the month. </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-adw-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"> ADW Explained </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> To participate in advance-deposit wagering, you need to ensure you have a funded account prior to placing a wager. Once the funds have been deposited, you can bet on horses, greyhounds and even on pari-mutuel pools (a betting system in which all bets of a particular type are placed together in a pool; payoff odds are calculated by sharing the pool among all winning bets). Winnings are usually deposited back into the account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> There are some major companies that offer ADW betting exchanges. These include TVG Network, TwinSpires.com, Xpressbet.com, and KeenelandSelect.com. </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"> Betting without advance funding is done in credit shops that allow this form of gambling. Accounts using this type of action are usually settled at the end of the month. </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-legality-of-adw"></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"> Legality of ADW </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In 1999, seven states expressly allowed advance deposit wagering: Connecticut, Illinois, Maryland, New York, Ohio, Oklahoma, and Pennsylvania. By 2015, 21 more states approved advance-deposit wagering, including Louisiana, Washington, Pennsylvania, Kentucky, and Nevada. Several major advance-deposit waging websites accept wagers from people located in up to 13 additional states, presumably based on the premise that those states do not affirmatively prohibit such activity.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Racetrack owners, horse trainers, and state governments sometimes receive a share of ADW revenues. This happens in New York and Nevada and provides a large source of income for those who benefit from it. The state of Illinois made advance-deposit wagering legal in 1999 as part of the Illinois Horse Racing Act of 1975, and it receives part of the revenue.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> A 2012 report by the State of New York Racing and Wagering Board found that New York residents placed more than $165.5 million in bets with out-of-state advance-deposit wagering providers in 2010 and more than $416.8 million with in-state wagering providers. The report also noted that in-state racetracks charged fees to advance-deposit wagering entities, which tended to be higher for out-of-state-providers, sometimes as high as 8.5%.<span class="ql-inline-citation" data-cite="3"></span> </p></div>

## Definition of Advance-Deposit Wagering (ADW) Advanced-[deposit](https://www.investopedia.com/terms/d/deposit.asp) wagering is a form of gambling in which the bettor must [fund](https://www.investopedia.com/terms/f/fund.asp) their account before being allowed to place bets. Advanced-deposit wagering is usually used to bet on the outcome of horse or greyhound dog races, though it can also apply to casinos.  ## Understanding Advance-Deposit Wagering (ADW) Advanced-deposit wagering is often conducted online or by phone. In contrast to advanced-deposit [wagering](https://www.investopedia.com/ask/answers/042715/what-difference-between-speculation-and-gambling.asp), where accounts must be funded in advance, credit shops allow wagers without advance funding; accounts are settled at the end of the month. ## ADW Explained To participate in advance-deposit wagering, you need to ensure you have a funded account prior to placing a wager. Once the funds have been deposited, you can bet on horses, greyhounds and even on pari-mutuel pools (a betting system in which all bets of a particular type are placed together in a pool; payoff odds are calculated by sharing the pool among all winning bets). Winnings are usually deposited back into the account. There are some major companies that offer ADW betting exchanges. These include TVG Network, TwinSpires.com, Xpressbet.com, and KeenelandSelect.com. Betting without advance funding is done in credit shops that allow this form of gambling. Accounts using this type of action are usually settled at the end of the month. ## Legality of ADW In 1999, seven states expressly allowed advance deposit wagering: Connecticut, Illinois, Maryland, New York, Ohio, Oklahoma, and Pennsylvania. By 2015, 21 more states approved advance-deposit wagering, including Louisiana, Washington, Pennsylvania, Kentucky, and Nevada. Several major advance-deposit waging websites accept wagers from people located in up to 13 additional states, presumably based on the premise that those states do not affirmatively prohibit such activity. Racetrack owners, horse trainers, and state governments sometimes receive a share of ADW revenues. This happens in New York and Nevada and provides a large source of income for those who benefit from it. The state of Illinois made advance-deposit wagering legal in 1999 as part of the Illinois Horse Racing Act of 1975, and it receives part of the revenue. A 2012 report by the State of New York Racing and Wagering Board found that New York residents placed more than $165.5 million in bets with out-of-state advance-deposit wagering providers in 2010 and more than $416.8 million with in-state wagering providers. The report also noted that in-state racetracks charged fees to advance-deposit wagering entities, which tended to be higher for out-of-state-providers, sometimes as high as 8.5%.

Definition of Advance-Deposit Wagering (ADW) Advanced-deposit wagering is a form of gambling in which the bettor must fund their account before being allowed to place bets. Advanced-deposit wagering is usually used to bet on the outcome of horse or greyhound dog races, though it can also apply to casinos.  Understanding Advance-Deposit Wagering (ADW) Advanced-deposit wagering is often conducted online or by phone. In contrast to advanced-deposit wagering, where accounts must be funded in advance, credit shops allow wagers without advance funding; accounts are settled at the end of the month. ADW Explained To participate in advance-deposit wagering, you need to ensure you have a funded account prior to placing a wager. Once the funds have been deposited, you can bet on horses, greyhounds and even on pari-mutuel pools (a betting system in which all bets of a particular type are placed together in a pool; payoff odds are calculated by sharing the pool among all winning bets). Winnings are usually deposited back into the account. There are some major companies that offer ADW betting exchanges. These include TVG Network, TwinSpires.com, Xpressbet.com, and KeenelandSelect.com. Betting without advance funding is done in credit shops that allow this form of gambling. Accounts using this type of action are usually settled at the end of the month. Legality of ADW In 1999, seven states expressly allowed advance deposit wagering: Connecticut, Illinois, Maryland, New York, Ohio, Oklahoma, and Pennsylvania. By 2015, 21 more states approved advance-deposit wagering, including Louisiana, Washington, Pennsylvania, Kentucky, and Nevada. Several major advance-deposit waging websites accept wagers from people located in up to 13 additional states, presumably based on the premise that those states do not affirmatively prohibit such activity. Racetrack owners, horse trainers, and state governments sometimes receive a share of ADW revenues. This happens in New York and Nevada and provides a large source of income for those who benefit from it. The state of Illinois made advance-deposit wagering legal in 1999 as part of the Illinois Horse Racing Act of 1975, and it receives part of the revenue. A 2012 report by the State of New York Racing and Wagering Board found that New York residents placed more than $165.5 million in bets with out-of-state advance-deposit wagering providers in 2010 and more than $416.8 million with in-state wagering providers. The report also noted that in-state racetracks charged fees to advance-deposit wagering entities, which tended to be higher for out-of-state-providers, sometimes as high as 8.5%.

https://www.investopedia.com/terms/r/ruleof72.asp

The Rule of 72: Definition, Usefulness, and How to Use It

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-rule-of-72"></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 Rule of 72? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rateofreturn.asp">rate of return</a>. Alternatively, it can compute the annual rate of compounded return from an investment, given how many years it will take to double the investment. </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"> While calculators and spreadsheet programs like Microsoft Excel have functions to accurately calculate the precise time required to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0711/how-to-double-your-money-every-6-years.aspx">double the invested money</a>, the Rule of 72 comes in handy for mental calculations to quickly gauge an approximate value. For this reason, the Rule of 72 is often taught to beginning investors as it is easy to comprehend and calculate. The Security and Exchange Commission also cites the Rule of 72 in grade-level financial literacy resources.<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_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 Rule of 72 is a simplified formula that calculates how long it'll take for an investment to double in value, based on its rate of return.</li><li>The Rule of 72 applies to compounded interest rates and is reasonably accurate for interest rates that fall in the range of 6% and 10%.</li><li>The Rule of 72 can be applied to anything that increases exponentially, such as GDP or inflation; it can also indicate the long-term effect of annual fees on an investment's growth.</li><li>This estimation tool can also be used to estimate the rate of return needed for an investment to double given an investment period. </li><li>For different situations, it's often better to use the Rule of 69, Rule of 70, or Rule of 73.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_8-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Rule of 72" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/YyGm-y2Dus_Rq1ylOAlaD8-8TjA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Ruleof72-891af13fb6fe4acf89df0720aa50b340.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/YyGm-y2Dus_Rq1ylOAlaD8-8TjA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Ruleof72-891af13fb6fe4acf89df0720aa50b340.jpg" data-srcset="https://www.investopedia.com/thmb/bIrmn8YokcGmc9iUpNW1Z3f7HLs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Ruleof72-891af13fb6fe4acf89df0720aa50b340.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Rule of 72" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/YyGm-y2Dus_Rq1ylOAlaD8-8TjA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Ruleof72-891af13fb6fe4acf89df0720aa50b340.jpg" srcset="https://www.investopedia.com/thmb/bIrmn8YokcGmc9iUpNW1Z3f7HLs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Ruleof72-891af13fb6fe4acf89df0720aa50b340.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 / Daniel Fishel</p></span> </figcaption></figure> <span class="heading-toc" id="toc-the-formula-for-the-rule-of-72"></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 Formula for the Rule of 72 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The Rule of 72 can be leveraged in two different ways to determine an expected doubling period or required rate of return. </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>Years To Double: 72 / Expected Rate of Return</strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> To calculate the time period an investment will double, divide the integer 72 by the expected rate of return. The formula relies on a single average rate over the life of the investment. The findings hold true for fractional results, as all decimals represent an additional portion of a year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <strong>Expected Rate of Return: 72 / Years To Double</strong> </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"> To calculate the expected rate of interest, divide the integer 72 by the number of years required to double your investment. The number of years does not need to be a whole number; the formula can handle fractions or portions of a year. In addition, the resulting expected rate of return assumes compounding interest at that rate over the entire <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/holdingperiod.asp">holding period</a> of an investment. </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>The Rule of 72 applies to cases of compound interest, not simple interest. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/simple_interest.asp">Simple interest</a> is determined by multiplying the daily <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rate</a> by the principal amount and by the number of days that elapse between payments. Compound interest is calculated on both the initial principal and the accumulated interest of previous periods of a deposit.</p></div></div></div> <span class="heading-toc" id="toc-how-to-use-the-rule-of-72"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> How to Use the Rule of 72 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The Rule of 72 could apply to anything that grows at a compounded rate, such as population, macroeconomic numbers, charges, or loans. If the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gdp.asp">gross domestic product (GDP)</a> grows at 4% annually, the economy will be expected to double in 72 / 4% = 18 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> With regards to the fee that eats into investment gains, the Rule of 72 can be used to demonstrate the long-term effects of these costs. A mutual fund that charges 3% in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">annual expense fees</a> will reduce the investment principal to half in around 24 years. A borrower who pays 12% interest on their credit card (or any other form of loan that is charging compound interest) will double the amount they owe in six years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The rule can also be used to find the amount of time it takes for money's value to halve due to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a>. If inflation is 6%, then a given purchasing power of the money will be worth half in around 12 years (72 / 6 = 12). If inflation decreases from 6% to 4%, an investment will be expected to lose half its value in 18 years, instead of 12 years. </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, the Rule of 72 can be applied across all kinds of durations provided the rate of return is compounded annually. If the interest per quarter is 4% (but interest is only compounded annually), then it will take (72 / 4) = 18 quarters or 4.5 years to double the principal. If the population of a nation increases at the rate of 1% per month, it will double in 72 months, or six years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-who-came-up-with-the-rule-of-72"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Came Up With the Rule of 72?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Rule of 72 dates back to 1494 when Luca Pacioli referenced the rule in his comprehensive mathematics book called Summa de Arithmetica.<span class="ql-inline-citation" data-cite="3"></span> Pacioli makes no derivation or explanation of why the rule may work, so some suspect the rule pre-dates Pacioli's novel.<span class="ql-inline-citation" data-cite="1"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-how-do-you-calculate-the-rule-of-72"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Calculate the Rule of 72?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Here's how the Rule of 72 works. You take the number 72 and divide it by the investment's projected annual return. The result is the number of years, approximately, it'll take for your money to double.</p><p>For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money. Note that a compound annual return of 8% is plugged into this equation as 8, and not 0.08, giving a result of nine years (and not 900).</p><p>If it takes nine years to double a $1,000 investment, then the investment will grow to $2,000 in year 9, $4,000 in year 18, $8,000 in year 27, and so on.</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-accurate-is-the-rule-of-72"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Accurate Is the Rule of 72?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Rule of 72 formula provides a reasonably accurate, but approximate, timeline—reflecting the fact that it's a simplification of a more complex logarithmic equation. To get the exact doubling time, you'd need to do the entire calculation.</p><p>The precise formula for calculating the exact doubling time for an investment earning a compounded interest rate of r% per period is:</p><p>To find out exactly how long it would take to double an investment that returns 8% annually, you would use the following equation:<br/></p><p>T = ln(2) / ln (1 + (8 / 100)) = 9.006 years</p><p>As you can see, this result is very close to the approximate value obtained by (72 / 8) = 9 years.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-what-is-the-difference-between-the-rule-of-72-and-the-rule-of-73"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between the Rule of 72 and the Rule of 73?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The rule of 72 primarily works with interest rates or rates of return that fall in the range of 6% and 10%. When dealing with rates outside this range, the rule can be adjusted by adding or subtracting 1 from 72 for every 3 points the interest rate diverges from the 8% threshold. For example, the rate of 11% annual compounding interest is 3 percentage points higher than 8%.</p><p>Hence, adding 1 (for the 3 points higher than 8%) to 72 leads to using the rule of 73 for higher precision. For a 14% rate of return, it would be the rule of 74 (adding 2 for 6 percentage points higher), and for a 5% rate of return, it will mean reducing 1 (for 3 percentage points lower) to lead to the rule of 71.</p><p>For example, say you have a very attractive investment offering a 22% rate of return. The basic rule of 72 says the initial investment will double in 3.27 years. However, since (22 – 8) is 14, and (14 ÷ 3) is 4.67 ≈ 5, the adjusted rule should use 72 + 5 = 77 for the numerator. This gives a value of 3.5 years, indicating that you'll have to wait an additional quarter to double your money compared to the result of 3.27 years obtained from the basic rule of 72. The period given by the logarithmic equation is 3.49, so the result obtained from the adjusted rule is more accurate.</p><p>For daily or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/continuouscompounding.asp">continuous compounding</a>, using 69.3 in the numerator gives a more accurate result. Some people adjust this to 69 or 70 for the sake of easy calculations.</p></div> </div></div>

## What Is the Rule of 72? The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual [rate of return](https://www.investopedia.com/terms/r/rateofreturn.asp). Alternatively, it can compute the annual rate of compounded return from an investment, given how many years it will take to double the investment. While calculators and spreadsheet programs like Microsoft Excel have functions to accurately calculate the precise time required to [double the invested money](https://www.investopedia.com/financial-edge/0711/how-to-double-your-money-every-6-years.aspx), the Rule of 72 comes in handy for mental calculations to quickly gauge an approximate value. For this reason, the Rule of 72 is often taught to beginning investors as it is easy to comprehend and calculate. The Security and Exchange Commission also cites the Rule of 72 in grade-level financial literacy resources. ### Key Takeaways * The Rule of 72 is a simplified formula that calculates how long it'll take for an investment to double in value, based on its rate of return. * The Rule of 72 applies to compounded interest rates and is reasonably accurate for interest rates that fall in the range of 6% and 10%. * The Rule of 72 can be applied to anything that increases exponentially, such as GDP or inflation; it can also indicate the long-term effect of annual fees on an investment's growth. * This estimation tool can also be used to estimate the rate of return needed for an investment to double given an investment period. * For different situations, it's often better to use the Rule of 69, Rule of 70, or Rule of 73. ![Rule of 72]() :max_bytes(150000):strip_icc()/Ruleof72-891af13fb6fe4acf89df0720aa50b340.jpg) Investopedia / Daniel Fishel ## The Formula for the Rule of 72 The Rule of 72 can be leveraged in two different ways to determine an expected doubling period or required rate of return. **Years To Double: 72 / Expected Rate of Return** To calculate the time period an investment will double, divide the integer 72 by the expected rate of return. The formula relies on a single average rate over the life of the investment. The findings hold true for fractional results, as all decimals represent an additional portion of a year. **Expected Rate of Return: 72 / Years To Double** To calculate the expected rate of interest, divide the integer 72 by the number of years required to double your investment. The number of years does not need to be a whole number; the formula can handle fractions or portions of a year. In addition, the resulting expected rate of return assumes compounding interest at that rate over the entire [holding period](https://www.investopedia.com/terms/h/holdingperiod.asp) of an investment. ### The Rule of 72 applies to cases of compound interest, not simple interest. [Simple interest](https://www.investopedia.com/terms/s/simple_interest.asp) is determined by multiplying the daily [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) by the principal amount and by the number of days that elapse between payments. Compound interest is calculated on both the initial principal and the accumulated interest of previous periods of a deposit. ## How to Use the Rule of 72 The Rule of 72 could apply to anything that grows at a compounded rate, such as population, macroeconomic numbers, charges, or loans. If the [gross domestic product (GDP)](https://www.investopedia.com/terms/g/gdp.asp) grows at 4% annually, the economy will be expected to double in 72 / 4% = 18 years. With regards to the fee that eats into investment gains, the Rule of 72 can be used to demonstrate the long-term effects of these costs. A mutual fund that charges 3% in [annual expense fees](https://www.investopedia.com/terms/e/expenseratio.asp) will reduce the investment principal to half in around 24 years. A borrower who pays 12% interest on their credit card (or any other form of loan that is charging compound interest) will double the amount they owe in six years. The rule can also be used to find the amount of time it takes for money's value to halve due to [inflation](https://www.investopedia.com/terms/i/inflation.asp). If inflation is 6%, then a given purchasing power of the money will be worth half in around 12 years (72 / 6 = 12). If inflation decreases from 6% to 4%, an investment will be expected to lose half its value in 18 years, instead of 12 years. Additionally, the Rule of 72 can be applied across all kinds of durations provided the rate of return is compounded annually. If the interest per quarter is 4% (but interest is only compounded annually), then it will take (72 / 4) = 18 quarters or 4.5 years to double the principal. If the population of a nation increases at the rate of 1% per month, it will double in 72 months, or six years. ## Who Came Up With the Rule of 72? The Rule of 72 dates back to 1494 when Luca Pacioli referenced the rule in his comprehensive mathematics book called Summa de Arithmetica. Pacioli makes no derivation or explanation of why the rule may work, so some suspect the rule pre-dates Pacioli's novel. ## How Do You Calculate the Rule of 72? Here's how the Rule of 72 works. You take the number 72 and divide it by the investment's projected annual return. The result is the number of years, approximately, it'll take for your money to double. For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money. Note that a compound annual return of 8% is plugged into this equation as 8, and not 0.08, giving a result of nine years (and not 900). If it takes nine years to double a $1,000 investment, then the investment will grow to $2,000 in year 9, $4,000 in year 18, $8,000 in year 27, and so on. ## How Accurate Is the Rule of 72? The Rule of 72 formula provides a reasonably accurate, but approximate, timeline—reflecting the fact that it's a simplification of a more complex logarithmic equation. To get the exact doubling time, you'd need to do the entire calculation. The precise formula for calculating the exact doubling time for an investment earning a compounded interest rate of r% per period is: To find out exactly how long it would take to double an investment that returns 8% annually, you would use the following equation: T = ln(2) / ln (1 + (8 / 100)) = 9.006 years As you can see, this result is very close to the approximate value obtained by (72 / 8) = 9 years. ## What Is the Difference Between the Rule of 72 and the Rule of 73? The rule of 72 primarily works with interest rates or rates of return that fall in the range of 6% and 10%. When dealing with rates outside this range, the rule can be adjusted by adding or subtracting 1 from 72 for every 3 points the interest rate diverges from the 8% threshold. For example, the rate of 11% annual compounding interest is 3 percentage points higher than 8%. Hence, adding 1 (for the 3 points higher than 8%) to 72 leads to using the rule of 73 for higher precision. For a 14% rate of return, it would be the rule of 74 (adding 2 for 6 percentage points higher), and for a 5% rate of return, it will mean reducing 1 (for 3 percentage points lower) to lead to the rule of 71. For example, say you have a very attractive investment offering a 22% rate of return. The basic rule of 72 says the initial investment will double in 3.27 years. However, since (22 – 8) is 14, and (14 ÷ 3) is 4.67 ≈ 5, the adjusted rule should use 72 + 5 = 77 for the numerator. This gives a value of 3.5 years, indicating that you'll have to wait an additional quarter to double your money compared to the result of 3.27 years obtained from the basic rule of 72. The period given by the logarithmic equation is 3.49, so the result obtained from the adjusted rule is more accurate. For daily or [continuous compounding](https://www.investopedia.com/terms/c/continuouscompounding.asp), using 69.3 in the numerator gives a more accurate result. Some people adjust this to 69 or 70 for the sake of easy calculations.

What Is the Rule of 72? The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return. Alternatively, it can compute the annual rate of compounded return from an investment, given how many years it will take to double the investment. While calculators and spreadsheet programs like Microsoft Excel have functions to accurately calculate the precise time required to double the invested money, the Rule of 72 comes in handy for mental calculations to quickly gauge an approximate value. For this reason, the Rule of 72 is often taught to beginning investors as it is easy to comprehend and calculate. The Security and Exchange Commission also cites the Rule of 72 in grade-level financial literacy resources. Key Takeaways The Rule of 72 is a simplified formula that calculates how long it'll take for an investment to double in value, based on its rate of return.The Rule of 72 applies to compounded interest rates and is reasonably accurate for interest rates that fall in the range of 6% and 10%.The Rule of 72 can be applied to anything that increases exponentially, such as GDP or inflation; it can also indicate the long-term effect of annual fees on an investment's growth.This estimation tool can also be used to estimate the rate of return needed for an investment to double given an investment period. For different situations, it's often better to use the Rule of 69, Rule of 70, or Rule of 73. Investopedia / Daniel Fishel The Formula for the Rule of 72 The Rule of 72 can be leveraged in two different ways to determine an expected doubling period or required rate of return. Years To Double: 72 / Expected Rate of Return To calculate the time period an investment will double, divide the integer 72 by the expected rate of return. The formula relies on a single average rate over the life of the investment. The findings hold true for fractional results, as all decimals represent an additional portion of a year. Expected Rate of Return: 72 / Years To Double To calculate the expected rate of interest, divide the integer 72 by the number of years required to double your investment. The number of years does not need to be a whole number; the formula can handle fractions or portions of a year. In addition, the resulting expected rate of return assumes compounding interest at that rate over the entire holding period of an investment. The Rule of 72 applies to cases of compound interest, not simple interest. Simple interest is determined by multiplying the daily interest rate by the principal amount and by the number of days that elapse between payments. Compound interest is calculated on both the initial principal and the accumulated interest of previous periods of a deposit. How to Use the Rule of 72 The Rule of 72 could apply to anything that grows at a compounded rate, such as population, macroeconomic numbers, charges, or loans. If the gross domestic product (GDP) grows at 4% annually, the economy will be expected to double in 72 / 4% = 18 years. With regards to the fee that eats into investment gains, the Rule of 72 can be used to demonstrate the long-term effects of these costs. A mutual fund that charges 3% in annual expense fees will reduce the investment principal to half in around 24 years. A borrower who pays 12% interest on their credit card (or any other form of loan that is charging compound interest) will double the amount they owe in six years. The rule can also be used to find the amount of time it takes for money's value to halve due to inflation. If inflation is 6%, then a given purchasing power of the money will be worth half in around 12 years (72 / 6 = 12). If inflation decreases from 6% to 4%, an investment will be expected to lose half its value in 18 years, instead of 12 years. Additionally, the Rule of 72 can be applied across all kinds of durations provided the rate of return is compounded annually. If the interest per quarter is 4% (but interest is only compounded annually), then it will take (72 / 4) = 18 quarters or 4.5 years to double the principal. If the population of a nation increases at the rate of 1% per month, it will double in 72 months, or six years. Who Came Up With the Rule of 72? The Rule of 72 dates back to 1494 when Luca Pacioli referenced the rule in his comprehensive mathematics book called Summa de Arithmetica. Pacioli makes no derivation or explanation of why the rule may work, so some suspect the rule pre-dates Pacioli's novel. How Do You Calculate the Rule of 72? Here's how the Rule of 72 works. You take the number 72 and divide it by the investment's projected annual return. The result is the number of years, approximately, it'll take for your money to double.For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money. Note that a compound annual return of 8% is plugged into this equation as 8, and not 0.08, giving a result of nine years (and not 900).If it takes nine years to double a $1,000 investment, then the investment will grow to $2,000 in year 9, $4,000 in year 18, $8,000 in year 27, and so on. How Accurate Is the Rule of 72? The Rule of 72 formula provides a reasonably accurate, but approximate, timeline—reflecting the fact that it's a simplification of a more complex logarithmic equation. To get the exact doubling time, you'd need to do the entire calculation.The precise formula for calculating the exact doubling time for an investment earning a compounded interest rate of r% per period is:To find out exactly how long it would take to double an investment that returns 8% annually, you would use the following equation:T = ln(2) / ln (1 + (8 / 100)) = 9.006 yearsAs you can see, this result is very close to the approximate value obtained by (72 / 8) = 9 years. What Is the Difference Between the Rule of 72 and the Rule of 73? The rule of 72 primarily works with interest rates or rates of return that fall in the range of 6% and 10%. When dealing with rates outside this range, the rule can be adjusted by adding or subtracting 1 from 72 for every 3 points the interest rate diverges from the 8% threshold. For example, the rate of 11% annual compounding interest is 3 percentage points higher than 8%.Hence, adding 1 (for the 3 points higher than 8%) to 72 leads to using the rule of 73 for higher precision. For a 14% rate of return, it would be the rule of 74 (adding 2 for 6 percentage points higher), and for a 5% rate of return, it will mean reducing 1 (for 3 percentage points lower) to lead to the rule of 71.For example, say you have a very attractive investment offering a 22% rate of return. The basic rule of 72 says the initial investment will double in 3.27 years. However, since (22 – 8) is 14, and (14 ÷ 3) is 4.67 ≈ 5, the adjusted rule should use 72 + 5 = 77 for the numerator. This gives a value of 3.5 years, indicating that you'll have to wait an additional quarter to double your money compared to the result of 3.27 years obtained from the basic rule of 72. The period given by the logarithmic equation is 3.49, so the result obtained from the adjusted rule is more accurate.For daily or continuous compounding, using 69.3 in the numerator gives a more accurate result. Some people adjust this to 69 or 70 for the sake of easy calculations.

https://www.investopedia.com/nearly-six-months-into-fiscal-year-congress-approves-a-spending-bill-8619362

Nearly Six Months Into Fiscal Year, Congress Approves a Spending Bill

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Congress passed a spending package early Saturday morning that will keep the federal government funded through Sept. 30.</li><li>The bill was passed after the midnight shutdown deadline but had no effects on operations. </li><li>The path to passing this bill included four stopgap measures before completing full government funding over nearly six months.</li><li>Appropriations bills that make up federal spending are supposed to be passed by the beginning of the fiscal year in October under law, but that rarely happens.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Despite missing their midnight deadline, Congress has approved a spending package that keeps the federal government fully funded through Sept. 30. </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 Senate voted 74-24 to pass the bill around 1 a.m. Eastern Time and President Joe Biden has said he will sign it when it comes to his desk.<span class="ql-inline-citation" data-cite="1"></span> The House of Representatives had passed the spending package around midday Friday. By passing this bill, Congress avoided a government shutdown, which would have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-a-government-shutdown-would-hurt-the-economy-7973671">likely damaged the U.S. economy</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Congress passed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/congress-passes-yet-another-stopgap-bill-to-avert-government-shutdown-8602733">four stopgap measures</a> before fully funding the government, and this bill passed six months after the start of the fiscal year. It funds 70% of the government including Defense, Homeland Security, Labor, Health and Human Services, Education, State departments. The rest of the funding was <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-march-11-8607237#toc-2024-03-11t192256537z">approved in early March</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Working against a shutdown deadline has become the norm for Congress members in recent years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> While appropriations bills that make up federal budgets are supposed to be passed by the beginning of the fiscal year in October under law, that rarely happens. The last time the budget was passed on time was 27 years ago and has only happened four times total since 1977, according to Pew Research Center.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> This also isn't the latest a federal budget has been passed. In 2017, appropriation bills weren't passed in full until May. </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 * Congress passed a spending package early Saturday morning that will keep the federal government funded through Sept. 30. * The bill was passed after the midnight shutdown deadline but had no effects on operations. * The path to passing this bill included four stopgap measures before completing full government funding over nearly six months. * Appropriations bills that make up federal spending are supposed to be passed by the beginning of the fiscal year in October under law, but that rarely happens. Despite missing their midnight deadline, Congress has approved a spending package that keeps the federal government fully funded through Sept. 30. The Senate voted 74-24 to pass the bill around 1 a.m. Eastern Time and President Joe Biden has said he will sign it when it comes to his desk. The House of Representatives had passed the spending package around midday Friday. By passing this bill, Congress avoided a government shutdown, which would have [likely damaged the U.S. economy](https://www.investopedia.com/how-a-government-shutdown-would-hurt-the-economy-7973671). Congress passed [four stopgap measures](https://www.investopedia.com/congress-passes-yet-another-stopgap-bill-to-avert-government-shutdown-8602733) before fully funding the government, and this bill passed six months after the start of the fiscal year. It funds 70% of the government including Defense, Homeland Security, Labor, Health and Human Services, Education, State departments. The rest of the funding was [approved in early March](https://www.investopedia.com/us-economy-news-today-march-11-8607237#toc-2024-03-11t192256537z). Working against a shutdown deadline has become the norm for Congress members in recent years. While appropriations bills that make up federal budgets are supposed to be passed by the beginning of the fiscal year in October under law, that rarely happens. The last time the budget was passed on time was 27 years ago and has only happened four times total since 1977, according to Pew Research Center. This also isn't the latest a federal budget has been passed. In 2017, appropriation bills weren't passed in full until May. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Congress passed a spending package early Saturday morning that will keep the federal government funded through Sept. 30.The bill was passed after the midnight shutdown deadline but had no effects on operations. The path to passing this bill included four stopgap measures before completing full government funding over nearly six months.Appropriations bills that make up federal spending are supposed to be passed by the beginning of the fiscal year in October under law, but that rarely happens. Despite missing their midnight deadline, Congress has approved a spending package that keeps the federal government fully funded through Sept. 30. The Senate voted 74-24 to pass the bill around 1 a.m. Eastern Time and President Joe Biden has said he will sign it when it comes to his desk. The House of Representatives had passed the spending package around midday Friday. By passing this bill, Congress avoided a government shutdown, which would have likely damaged the U.S. economy. Congress passed four stopgap measures before fully funding the government, and this bill passed six months after the start of the fiscal year. It funds 70% of the government including Defense, Homeland Security, Labor, Health and Human Services, Education, State departments. The rest of the funding was approved in early March. Working against a shutdown deadline has become the norm for Congress members in recent years. While appropriations bills that make up federal budgets are supposed to be passed by the beginning of the fiscal year in October under law, that rarely happens. The last time the budget was passed on time was 27 years ago and has only happened four times total since 1977, according to Pew Research Center. This also isn't the latest a federal budget has been passed. In 2017, appropriation bills weren't passed in full until May. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/zero-days-to-expiration-0dte-options-and-how-do-they-work-6753832

Zero Days to Expiration (0DTE) Options and How They Work

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-are-zero-days-to-expiration-0dte-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Are Zero Days to Expiration (0DTE) Options? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Zero days to expiration options, or 0DTE options for short, are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/optionscontract.asp">options contracts</a> that expire and become void the same day that they’re traded. When an option reaches this stage, there’s not much more time left to act on the right to buy or sell the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underlying-asset.asp">underlying asset</a>. The window is small, and the move that the trader is plotting needs to happen fast. </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"> 0DTE options trading has entered the mainstream in recent years and is a popular <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/premium.asp">premium</a> collecting strategy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Zero days to expiration options (0DTE) are options contracts due to expire within a day.</li><li>0DTE options enable traders to potentially make a quick buck.</li><li>The window is small, and the move that the buyer is plotting needs to happen fast.</li><li>A popular play is to sell options on the last day that they are valid and capitalize on the premium decay.</li><li>Knowledge of how to execute and hedge these trades is needed, and market catalysts may not pan out as expected.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-do-zero-days-to-expiration-0dte-options-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 Do Zero Days to Expiration (0DTE) Options Work? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> An option is a contract that gives the buyer the right—but not the obligation—to buy or sell an underlying asset at a specific price within a specified period. Each option contract comes with an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expirationdate.asp">expiration date</a>. If the option isn’t taken up by then, it becomes useless and is no longer valid.<span class="ql-inline-citation" data-cite="1"></span><br/><br/>With zero days to expiration options, the expiration date is imminent. The 0 before DTE indicates that this is the last day to make use of the option. Normally, with options, the trader has a fair bit of time to wait and see if the underlying asset moves in the direction bet on. That’s not the case with 0DTEs. At this late stage, time is of the essence. </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 some traders, the last day before expiry is the best moment to invest in options. Traders like 0DTE options because they allow an opportunity to capitalize on positions quickly and tie up capital for short periods. Entering and exiting trades on the same day also eliminates the risk of the price moving overnight while the trader is asleep and not in front of the computer screen.<br> </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-are-zero-days-to-expiration-0dte-options-profitable"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Are Zero Days to Expiration (0DTE) Options Profitable? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Selling and buying options at zero days to expiration can be extremely lucrative or costly. The stakes are high at this late stage, and a lot can happen in a day. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> There are mixed tales about this type of investment strategy. Numerous stories have surfaced of people getting burned, leading 0DTE options to be labeled as the equivalent of a lotto trade. When buying an option on the last day before expiry, there’s lots of pressure for the predicted move to happen fast. 0DTE options should be reserved for high-conviction trades only and be <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedged</a> accordingly just in case things don’t go according to plan. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/writer.asp">option writers</a>, 0DTE trading is generally much more popular. There are many people out there who swear by this strategy, claiming that it’s possible to make potentially large profits without taking on much risk by selling options that expire within a day. </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> 0DTE options are often traded to take advantage of the exponential decay of premium. </p></div></div></div> <span class="heading-toc" id="toc-what-kind-of-trader-typically-uses-this-strategy"></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 Kind of Trader Typically Uses This Strategy? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> 0DTE trades are popular among option writers. The play is to offload on the last day that the option is valid and collect the rapidly decaying premium.<span class="ql-inline-citation" data-cite="2"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Premium Decay </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> When purchasing an option, you pay the person selling it (the other party in the trade) for the privilege of giving you the right to buy the underlying asset at the specified <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/strikeprice.asp">strike price</a>. That payment or charge is known as the premium.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Usually, options more likely to be exercised command higher premiums. That means that those “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inthemoney.asp">in the money</a>” are more expensive than those “<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outofthemoney.asp">out of the money</a>.”<span class="ql-inline-citation" data-cite="1"></span> It also generally means that the cost of an option steadily decays as it moves closer to the expiration date and rapidly decays on the last day.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_30-0"><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_31-0"><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 most popular strategy used by 0DTE option traders is to sell an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ironbutterfly.asp">iron butterfly</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ironcondor.asp">iron condor</a>, according to Option Alpha.<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_32-0"> Lots of traders try to take advantage of the last day of action. Their goal is to collect premium, and they have the edge of time being on their side and the ability to set the strike price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> The strategy here is to open the position in the morning, hold it until the desired premium has been collected, and then either repurchase the option for a lower price before the end of the day or let it expire. If all goes to plan, the trader makes a quick profit. </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"> Trading Expertise a Must </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Contrary to what many people say on the internet, selling 0DTE options isn’t a guaranteed way to strike it rich. A lot can change in a day, and something that seemed certain in the morning may end up backfiring in the afternoon. </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"> Those with experience trading have a greater chance of getting the pricing, timing, and everything right. A novice trying to get rich fast without doing their homework could be left nursing a really nasty loss. </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-warning" 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_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Don’t be fooled into believing that premium collecting is an infallible strategy. Knowledge of how to execute and hedge these trades is needed, and market catalysts may not pan out as expected.</p></div></div></div> <span class="heading-toc" id="toc-what-types-of-security-is-this-strategy-typically-used-on"></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"> What Types of Security Is This Strategy Typically Used On? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Most <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 <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indexfund.asp">indexes</a> are optionable. However, some are much more popular than others. </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"> 0DTE option traders typically opt for tickers with high daily volume and more frequent expiration cycles.<span class="ql-inline-citation" data-cite="2"></span> Classic examples include ETFs that track 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>, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq100.asp">Nasdaq 100</a>, or the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell2000.asp">Russell 2000</a>.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_48-0"><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_49-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stop-lossorder.asp">Stop-loss orders</a> should be used to prevent catastrophic losses.<span class="ql-inline-citation" data-cite="3"></span></p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-what-does-dte-stand-for-in-options"></span> <h2 class="mntl-sc-block-questionandanswer__question">What does DTE stand for in options?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>DTE is short for “days to expiration” and basically tells us how many days the right to buy or sell an underlying asset at the specified price is available. Once this time is up, the option is rendered null and void and expires worthless.</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-when-do-0dte-options-expire"></span> <h2 class="mntl-sc-block-questionandanswer__question">When do 0DTE options expire?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A 0 before DTE signifies that the option is set to expire that same day.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-what-happens-if-the-option-isnt-exercised-before-it-expires"></span> <h2 class="mntl-sc-block-questionandanswer__question">What happens if the option isn’t exercised before it expires?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Option buyers are not bound to fulfill the contract. If it is not acted upon by the specified date, the option simply expires. In this case, the buyer would walk away empty-handed and lose whatever sum was paid to the writer (the premium) for the opportunity presented.<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_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"> There’s a lot of talk on the internet about premium collecting on 0DTE contracts representing guaranteed, easy money. Don’t listen to that noise. Unfortunately, there is no such thing as a risk-free, high-return investment. </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"> Yes, 0DTE options serve a purpose and can make investors money. However, they are also fairly complex and volatile, and they can easily blow up in your face if you don’t know what you are doing. </p></div>

## What Are Zero Days to Expiration (0DTE) Options? Zero days to expiration options, or 0DTE options for short, are [options contracts](https://www.investopedia.com/terms/o/optionscontract.asp) that expire and become void the same day that they’re traded. When an option reaches this stage, there’s not much more time left to act on the right to buy or sell the [underlying asset](https://www.investopedia.com/terms/u/underlying-asset.asp). The window is small, and the move that the trader is plotting needs to happen fast. 0DTE options trading has entered the mainstream in recent years and is a popular [premium](https://www.investopedia.com/terms/p/premium.asp) collecting strategy. ### Key Takeaways * Zero days to expiration options (0DTE) are options contracts due to expire within a day. * 0DTE options enable traders to potentially make a quick buck. * The window is small, and the move that the buyer is plotting needs to happen fast. * A popular play is to sell options on the last day that they are valid and capitalize on the premium decay. * Knowledge of how to execute and hedge these trades is needed, and market catalysts may not pan out as expected. ## How Do Zero Days to Expiration (0DTE) Options Work? An option is a contract that gives the buyer the right—but not the obligation—to buy or sell an underlying asset at a specific price within a specified period. Each option contract comes with an [expiration date](https://www.investopedia.com/terms/e/expirationdate.asp). If the option isn’t taken up by then, it becomes useless and is no longer valid. With zero days to expiration options, the expiration date is imminent. The 0 before DTE indicates that this is the last day to make use of the option. Normally, with options, the trader has a fair bit of time to wait and see if the underlying asset moves in the direction bet on. That’s not the case with 0DTEs. At this late stage, time is of the essence. For some traders, the last day before expiry is the best moment to invest in options. Traders like 0DTE options because they allow an opportunity to capitalize on positions quickly and tie up capital for short periods. Entering and exiting trades on the same day also eliminates the risk of the price moving overnight while the trader is asleep and not in front of the computer screen. ## Are Zero Days to Expiration (0DTE) Options Profitable? Selling and buying options at zero days to expiration can be extremely lucrative or costly. The stakes are high at this late stage, and a lot can happen in a day. There are mixed tales about this type of investment strategy. Numerous stories have surfaced of people getting burned, leading 0DTE options to be labeled as the equivalent of a lotto trade. When buying an option on the last day before expiry, there’s lots of pressure for the predicted move to happen fast. 0DTE options should be reserved for high-conviction trades only and be [hedged](https://www.investopedia.com/terms/h/hedge.asp) accordingly just in case things don’t go according to plan. For [option writers](https://www.investopedia.com/terms/w/writer.asp), 0DTE trading is generally much more popular. There are many people out there who swear by this strategy, claiming that it’s possible to make potentially large profits without taking on much risk by selling options that expire within a day. ###  0DTE options are often traded to take advantage of the exponential decay of premium.  ## What Kind of Trader Typically Uses This Strategy? 0DTE trades are popular among option writers. The play is to offload on the last day that the option is valid and collect the rapidly decaying premium. ### Premium Decay When purchasing an option, you pay the person selling it (the other party in the trade) for the privilege of giving you the right to buy the underlying asset at the specified [strike price](https://www.investopedia.com/terms/s/strikeprice.asp). That payment or charge is known as the premium. Usually, options more likely to be exercised command higher premiums. That means that those “[in the money](https://www.investopedia.com/terms/i/inthemoney.asp)” are more expensive than those “[out of the money](https://www.investopedia.com/terms/o/outofthemoney.asp).” It also generally means that the cost of an option steadily decays as it moves closer to the expiration date and rapidly decays on the last day. ### The most popular strategy used by 0DTE option traders is to sell an [iron butterfly](https://www.investopedia.com/terms/i/ironbutterfly.asp) or [iron condor](https://www.investopedia.com/terms/i/ironcondor.asp), according to Option Alpha. Lots of traders try to take advantage of the last day of action. Their goal is to collect premium, and they have the edge of time being on their side and the ability to set the strike price. The strategy here is to open the position in the morning, hold it until the desired premium has been collected, and then either repurchase the option for a lower price before the end of the day or let it expire. If all goes to plan, the trader makes a quick profit. ### Trading Expertise a Must Contrary to what many people say on the internet, selling 0DTE options isn’t a guaranteed way to strike it rich. A lot can change in a day, and something that seemed certain in the morning may end up backfiring in the afternoon. Those with experience trading have a greater chance of getting the pricing, timing, and everything right. A novice trying to get rich fast without doing their homework could be left nursing a really nasty loss. ### Don’t be fooled into believing that premium collecting is an infallible strategy. Knowledge of how to execute and hedge these trades is needed, and market catalysts may not pan out as expected. ## What Types of Security Is This Strategy Typically Used On? Most [stocks](https://www.investopedia.com/terms/s/stock.asp), [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp), and [indexes](https://www.investopedia.com/terms/i/indexfund.asp) are optionable. However, some are much more popular than others. 0DTE option traders typically opt for tickers with high daily volume and more frequent expiration cycles. Classic examples include ETFs that track the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp), the [Nasdaq 100](https://www.investopedia.com/terms/n/nasdaq100.asp), or the [Russell 2000](https://www.investopedia.com/terms/r/russell2000.asp). ### [Stop-loss orders](https://www.investopedia.com/terms/s/stop-lossorder.asp) should be used to prevent catastrophic losses. ## What does DTE stand for in options? DTE is short for “days to expiration” and basically tells us how many days the right to buy or sell an underlying asset at the specified price is available. Once this time is up, the option is rendered null and void and expires worthless. ## When do 0DTE options expire? A 0 before DTE signifies that the option is set to expire that same day. ## What happens if the option isn’t exercised before it expires? Option buyers are not bound to fulfill the contract. If it is not acted upon by the specified date, the option simply expires. In this case, the buyer would walk away empty-handed and lose whatever sum was paid to the writer (the premium) for the opportunity presented. ## The Bottom Line There’s a lot of talk on the internet about premium collecting on 0DTE contracts representing guaranteed, easy money. Don’t listen to that noise. Unfortunately, there is no such thing as a risk-free, high-return investment. Yes, 0DTE options serve a purpose and can make investors money. However, they are also fairly complex and volatile, and they can easily blow up in your face if you don’t know what you are doing.

What Are Zero Days to Expiration (0DTE) Options? Zero days to expiration options, or 0DTE options for short, are options contracts that expire and become void the same day that they’re traded. When an option reaches this stage, there’s not much more time left to act on the right to buy or sell the underlying asset. The window is small, and the move that the trader is plotting needs to happen fast. 0DTE options trading has entered the mainstream in recent years and is a popular premium collecting strategy. Key Takeaways Zero days to expiration options (0DTE) are options contracts due to expire within a day.0DTE options enable traders to potentially make a quick buck.The window is small, and the move that the buyer is plotting needs to happen fast.A popular play is to sell options on the last day that they are valid and capitalize on the premium decay.Knowledge of how to execute and hedge these trades is needed, and market catalysts may not pan out as expected. How Do Zero Days to Expiration (0DTE) Options Work? An option is a contract that gives the buyer the right—but not the obligation—to buy or sell an underlying asset at a specific price within a specified period. Each option contract comes with an expiration date. If the option isn’t taken up by then, it becomes useless and is no longer valid.With zero days to expiration options, the expiration date is imminent. The 0 before DTE indicates that this is the last day to make use of the option. Normally, with options, the trader has a fair bit of time to wait and see if the underlying asset moves in the direction bet on. That’s not the case with 0DTEs. At this late stage, time is of the essence. For some traders, the last day before expiry is the best moment to invest in options. Traders like 0DTE options because they allow an opportunity to capitalize on positions quickly and tie up capital for short periods. Entering and exiting trades on the same day also eliminates the risk of the price moving overnight while the trader is asleep and not in front of the computer screen. Are Zero Days to Expiration (0DTE) Options Profitable? Selling and buying options at zero days to expiration can be extremely lucrative or costly. The stakes are high at this late stage, and a lot can happen in a day. There are mixed tales about this type of investment strategy. Numerous stories have surfaced of people getting burned, leading 0DTE options to be labeled as the equivalent of a lotto trade. When buying an option on the last day before expiry, there’s lots of pressure for the predicted move to happen fast. 0DTE options should be reserved for high-conviction trades only and be hedged accordingly just in case things don’t go according to plan. For option writers, 0DTE trading is generally much more popular. There are many people out there who swear by this strategy, claiming that it’s possible to make potentially large profits without taking on much risk by selling options that expire within a day.  0DTE options are often traded to take advantage of the exponential decay of premium.  What Kind of Trader Typically Uses This Strategy? 0DTE trades are popular among option writers. The play is to offload on the last day that the option is valid and collect the rapidly decaying premium. Premium Decay When purchasing an option, you pay the person selling it (the other party in the trade) for the privilege of giving you the right to buy the underlying asset at the specified strike price. That payment or charge is known as the premium. Usually, options more likely to be exercised command higher premiums. That means that those “in the money” are more expensive than those “out of the money.” It also generally means that the cost of an option steadily decays as it moves closer to the expiration date and rapidly decays on the last day. The most popular strategy used by 0DTE option traders is to sell an iron butterfly or iron condor, according to Option Alpha. Lots of traders try to take advantage of the last day of action. Their goal is to collect premium, and they have the edge of time being on their side and the ability to set the strike price. The strategy here is to open the position in the morning, hold it until the desired premium has been collected, and then either repurchase the option for a lower price before the end of the day or let it expire. If all goes to plan, the trader makes a quick profit. Trading Expertise a Must Contrary to what many people say on the internet, selling 0DTE options isn’t a guaranteed way to strike it rich. A lot can change in a day, and something that seemed certain in the morning may end up backfiring in the afternoon. Those with experience trading have a greater chance of getting the pricing, timing, and everything right. A novice trying to get rich fast without doing their homework could be left nursing a really nasty loss. Don’t be fooled into believing that premium collecting is an infallible strategy. Knowledge of how to execute and hedge these trades is needed, and market catalysts may not pan out as expected. What Types of Security Is This Strategy Typically Used On? Most stocks, exchange-traded funds (ETFs), and indexes are optionable. However, some are much more popular than others. 0DTE option traders typically opt for tickers with high daily volume and more frequent expiration cycles. Classic examples include ETFs that track the S&P 500, the Nasdaq 100, or the Russell 2000. Stop-loss orders should be used to prevent catastrophic losses. What does DTE stand for in options? DTE is short for “days to expiration” and basically tells us how many days the right to buy or sell an underlying asset at the specified price is available. Once this time is up, the option is rendered null and void and expires worthless. When do 0DTE options expire? A 0 before DTE signifies that the option is set to expire that same day. What happens if the option isn’t exercised before it expires? Option buyers are not bound to fulfill the contract. If it is not acted upon by the specified date, the option simply expires. In this case, the buyer would walk away empty-handed and lose whatever sum was paid to the writer (the premium) for the opportunity presented. The Bottom Line There’s a lot of talk on the internet about premium collecting on 0DTE contracts representing guaranteed, easy money. Don’t listen to that noise. Unfortunately, there is no such thing as a risk-free, high-return investment. Yes, 0DTE options serve a purpose and can make investors money. However, they are also fairly complex and volatile, and they can easily blow up in your face if you don’t know what you are doing.

https://www.investopedia.com/car-loan-after-bankruptcy-7503458

How Long After Bankruptcy Can I Get a Car Loan?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The time it takes to get a car loan after bankruptcy can depend on whether you filed for Chapter 7 or Chapter 13 bankruptcy. It’s also necessary to shop around to find lenders that work with borrowers after bankruptcy. </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 get a car loan after <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankruptcy</a>, but it may be a little more challenging to qualify for auto financing. There are lenders that will approve you for a car loan post-bankruptcy, though you might pay a higher interest rate to borrow. Lenders may also tack on a steep origination fee to underwrite the loan. </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"> Learn more about how long after bankruptcy it may take for you to get a car loan. </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>How long you have to wait to get a car loan after bankruptcy can depend on whether you filed for Chapter 7 or Chapter 13 bankruptcy protection.</li><li>It’s possible to get a loan after filing bankruptcy, though you may find it much more difficult to qualify and interest rates will likely be higher.</li><li>When comparing lenders that offer auto financing for bankruptcy filers, it’s important to consider the interest rate, fees, and loan terms.</li><li>Getting a co-signer on a car loan after bankruptcy could make it easier to qualify and potentially help you get a lower interest rate.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-long-do-you-have-to-wait-to-get-a-car-loan-after-bankruptcy"></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 Long Do You Have to Wait to Get a Car Loan After Bankruptcy? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> How quickly you’re able to get a car loan after bankruptcy can depend in part on which type of bankruptcy you filed. You can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/07/bankruptcy.asp">file for bankruptcy protection</a> under Chapter 7 or Chapter 13 of the federal bankruptcy code. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chapter7.asp">Chapter 7 bankruptcy</a> is also known as liquidation bankruptcy, as debtors are usually required to liquidate some of their assets as a condition of clearing their debts. In this type of bankruptcy filing, you ask the court to erase your debts. In exchange, the court can take some of your assets, liquidate them, and use them to pay your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditor.asp">creditors</a>.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> A Chapter 7 filing may be appropriate in situations where you have largely unsecured debts, such as credit cards or medical bills, and you don’t have sufficient assets to pay them off. The process for filing and completing a Chapter 7 bankruptcy can take anywhere from one to six months. Once your case is discharged, you would no longer be responsible for paying any of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp">debts</a> included in your filing.<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_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chapter13.asp">Chapter 13 bankruptcy</a> gives you an opportunity to repay debts over time while retaining all of your assets. This type of filing is designed to help you repay your creditors over a period of three to five years, without having to go through liquidation.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> You might choose a Chapter 13 bankruptcy if you have assets you want to keep, such as a home, vehicles, or bank accounts, and you have the means to pay something toward your debts. If you own a business, you might file for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/061815/what-are-differences-between-chapter-11-and-chapter-13-bankruptcy.asp">Chapter 11 bankruptcy</a> instead to create a plan for repaying what you owe.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="2"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A Chapter 7 bankruptcy can remain on your credit report for up to 10 years. Chapter 13 bankruptcy, meanwhile, can stay on your credit for up to seven years. That doesn’t mean you’ll need to wait seven to 10 years to get a car loan. However, you can expect there to be an immediate impact on your credit scores when filing for bankruptcy.<span class="ql-inline-citation" data-cite="3"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-warning" 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">Warning</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you miss payments on a Chapter 13 plan, the bankruptcy court may switch you to a Chapter 7 filing or dismiss your petition altogether.<span class="ql-inline-citation" data-cite="2"></span></p></div></div></div> <span class="heading-toc" id="toc-how-bankruptcy-affects-your-car-loan-eligibility"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> How Bankruptcy Affects Your Car Loan Eligibility </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> When you apply for a car loan, lenders can check your credit reports and credit scores. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> is a three-digit number that lenders use to measure risk. The higher your score, the less risky you appear to lenders. Bankruptcy can be extremely damaging to your credit—it’s possible that your score might drop 100 points or more, depending on where it was before your filing.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">Lenders</a> may view borrowers with a previous bankruptcy as higher risk. In terms of how that affects your car loan eligibility, any of the following may be true: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <li>Lenders may be reluctant to approve you for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/auto-loans-4689734">car loan</a>, especially if you’re only a few months out of bankruptcy.</li> <li>If approved, the lender may charge a higher <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rate</a> for the loan to offset the perceived risk of lending to you post-bankruptcy.</li> <li>You may be charged a higher <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/origination-fee.asp">origination fee</a> to have the lender underwrite the loan, which again, is a risk management measure.</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"> It’s not impossible to get a car loan after bankruptcy, but you should be prepared to have your <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> come under closer scrutiny from lenders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_33-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_34-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">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/car-loan-calculator-5084761">car loan calculator</a> can help you to estimate what you might pay monthly and overall using different interest rates.</p></div></div></div> <span class="heading-toc" id="toc-how-to-get-a-car-loan-after-bankruptcy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> How to Get a Car Loan After Bankruptcy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Bankruptcy takes many years to fall off your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit reports</a>. However, if you would like to get a car loan after bankruptcy, there are some steps you can take to increase your odds of being approved. </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"> Step 1: Check Your Credit </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Before applying for a car loan, you should understand what lenders will see on your credit reports and what they will factor into their lending decisions. Checking your credit reports and scores can give you an idea of how risky you’re likely to appear. </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"> Here are some of the things to look for when checking your credit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <li><strong>Bankruptcy reporting</strong>: If your bankruptcy case has been discharged, it’s important to ensure that any debts included in your filing are being reported as closed accounts with a zero balance.<span class="ql-inline-citation" data-cite="3"></span></li> <li><strong>Errors</strong>: It’s also a good idea to look for errors on your credit reports that may be hurting your score. That includes improper reporting of debts included in the bankruptcy, as well as errors related to debts that were not.</li> <li><strong>Negative information</strong>: Negative information, such as late payments or high <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-utilization-rate.asp">credit utilization</a>, can hurt your score. While you can’t dispute negative information that’s accurate, you can identify and stop negative habits that may be dragging your score down.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_45-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_46-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_4-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>You are entitled to a free credit report each year from each of the three major credit bureaus. You can access that report at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.annualcreditreport.com/index.action">AnnualCreditReport.com</a>. You have the right to dispute errors on your credit reports. To dispute errors, you’ll need to file a written request with the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp">credit bureau</a> that’s reporting the information.<span class="ql-inline-citation" data-cite="4"></span></p></div></div></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"> Step 2: Start Rebuilding Credit </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Rebuilding credit after bankruptcy can take time, and the sooner you get started, the better. Some of the best ways to rebuild credit after bankruptcy include: </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>Paying bills on time, especially any debts that were not included in the bankruptcy.</li><li>Getting added as an authorized user to another person’s credit card account, which can reflect their good credit habits onto your credit report.</li><li>Applying for a secured credit card, charging small amounts to it each month and paying the balance in full.</li><li>Getting a credit builder loan through your bank or credit union to reestablish a positive payment history.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-subheading__text"> Step 3: Save a Down Payment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> The more you put down on a new or used car, the less you have to finance. Saving a larger <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/down_payment.asp">down payment</a> could make it easier to qualify if you don’t need a larger loan. </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"> If you’re planning to save money for a down payment on a vehicle, remember to keep it in the right place. A high-yield savings account, for example, can be a safe and secure way to grow your money if you’re earning a higher interest rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-subheading__text"> Step 4: Compare Lenders and Shop Around </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> If you’re working on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/101614/build-your-credit-score.asp">rebuilding credit</a> and you have a down payment saved, the next step is finding the right lender to work with. It’s a good idea to shop around and compare car loans from multiple lenders to get a sense of what you might qualify for and how much you’ll pay. </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"> There are a few options for getting a car loan after bankruptcy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> <li><strong>Credit unions</strong>: A credit union may be more willing to work with borrowers post-bankruptcy than a bank. You’ll need to meet membership requirements to join a credit union, but it may be possible to find car loan options with rates that aren’t astronomical.</li> <li><strong>Online lenders</strong>: Online lenders can offer bad-credit car loans for people who have been through bankruptcy or have lower credit scores due to foreclosure. Some online lenders may give more weight to factors other than credit scores for approval, such as your income and employment history.</li> <li><strong>In-house financing</strong>: Car dealerships can offer in-house financing for borrowers with bad credit, including people who have been through bankruptcy. These are usually subprime loans, meaning they have higher interest rates, but you might consider <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buy-here-pay-here.asp">buy here, pay here</a> financing if you’re not able to qualify for a car loan elsewhere.<br/></li> </ul> <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-considerations-when-applying-for-a-car-loan-after-bankruptcy"></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"> Considerations When Applying for a Car Loan After Bankruptcy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Getting a car loan after bankruptcy is a little different from applying for financing when you have good or excellent credit. Here are a few things to keep in mind as you compare your borrowing options. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_67-0"> <span class="mntl-sc-block-subheading__text"> Interest Rates </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> You’re more likely to pay higher interest rates for a car loan following bankruptcy. Again, that’s because lenders are likely to see you as a higher risk. The higher the rate on your loan, the more you’ll pay in total <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> and the higher your monthly payments will likely be. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_70-0"> <span class="mntl-sc-block-subheading__text"> Co-signers </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Asking someone to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/co_sign.asp">co-sign</a> a car loan for you after bankruptcy could make it easier to get approved. It could also save you money if you’re able to qualify for a lower interest rate. Keep in mind, however, that a co-signed loan can show up on both of your credit reports. If you <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a> on the loan payments, you run the risk of harming your co-signer’s credit and your relationship with them.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_73-0"> <span class="mntl-sc-block-subheading__text"> Predatory Lenders </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> When you emerge from bankruptcy, you are in a vulnerable financial position. Some less reputable lenders try to take advantage of that. For example, a lender may offer car loans with no credit check, but the fine print outlines terms for exorbitant interest rates and/or fees. </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"> That’s why it’s important to thoroughly research lenders before applying for a car loan after bankruptcy. It can also be helpful to read online reviews from customers and check out their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bbb.org/us/category/auto-financing">Better Business Bureau (BBB) ratings</a> to learn about their reputation.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_78-0"><span class="heading-toc" id="toc-can-you-buy-a-car-during-active-bankruptcy"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Buy a Car During Active Bankruptcy?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It’s difficult but possible to buy a car while you’re in the middle of Chapter 7 or Chapter 13 bankruptcy, if you’re able to find a lender that will work with you. However, if you buy a car during bankruptcy but then can’t afford it, you won’t be able to add that new debt to a bankruptcy case that’s already in progress.<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_79-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_80-0"><span class="heading-toc" id="toc-how-long-does-bankruptcy-stay-on-my-credit-report"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does Bankruptcy Stay on My Credit Report?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A Chapter 7 bankruptcy can stay on your credit report for up to 10 years, while a Chapter 13 filing can stay on your credit for up to seven years. That time begins for Chapter 7 bankruptcy cases when they’re filed and for Chapter 13 cases when they’re completed.<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_81-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_82-0"><span class="heading-toc" id="toc-what-is-the-average-credit-score-after-bankrutpcy"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Average Credit Score After Bankrutpcy?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There’s no set average credit score you can expect to have after bankruptcy, but it will most likely be significantly lower. What your score is when you emerge from bankruptcy will largely depend on what it was when you started the process. The higher your score was before filing, the bigger the decrease you can expect to see.<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_83-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_84-0"><span class="heading-toc" id="toc-how-long-does-it-take-to-build-credit-after-chapter-7"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does It Take to Build Credit After Chapter 7?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>How long it takes to rebuild credit after Chapter 7 bankruptcy can depend on how much your score dropped and what you’re doing to improve it. If you’re consistently paying bills on time and building positive credit history, such as through using a secured credit card responsibly, then you may see your credit score start to improve in as little as six months.</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"> Getting a car loan after bankruptcy can help you rebuild credit if you’re making payments on time. However, it’s important to know what you can expect when it comes to qualifying for a loan and how much you’ll pay. Taking steps to improve your credit after coming out of bankruptcy can help you get back on track financially so that you can qualify for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">best car loan rates</a> sooner. </p></div>

The time it takes to get a car loan after bankruptcy can depend on whether you filed for Chapter 7 or Chapter 13 bankruptcy. It’s also necessary to shop around to find lenders that work with borrowers after bankruptcy. You can get a car loan after [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp), but it may be a little more challenging to qualify for auto financing. There are lenders that will approve you for a car loan post-bankruptcy, though you might pay a higher interest rate to borrow. Lenders may also tack on a steep origination fee to underwrite the loan. Learn more about how long after bankruptcy it may take for you to get a car loan. ### Key Takeaways * How long you have to wait to get a car loan after bankruptcy can depend on whether you filed for Chapter 7 or Chapter 13 bankruptcy protection. * It’s possible to get a loan after filing bankruptcy, though you may find it much more difficult to qualify and interest rates will likely be higher. * When comparing lenders that offer auto financing for bankruptcy filers, it’s important to consider the interest rate, fees, and loan terms. * Getting a co-signer on a car loan after bankruptcy could make it easier to qualify and potentially help you get a lower interest rate. ## How Long Do You Have to Wait to Get a Car Loan After Bankruptcy? How quickly you’re able to get a car loan after bankruptcy can depend in part on which type of bankruptcy you filed. You can [file for bankruptcy protection](https://www.investopedia.com/articles/pf/07/bankruptcy.asp) under Chapter 7 or Chapter 13 of the federal bankruptcy code. [Chapter 7 bankruptcy](https://www.investopedia.com/terms/c/chapter7.asp) is also known as liquidation bankruptcy, as debtors are usually required to liquidate some of their assets as a condition of clearing their debts. In this type of bankruptcy filing, you ask the court to erase your debts. In exchange, the court can take some of your assets, liquidate them, and use them to pay your [creditors](https://www.investopedia.com/terms/c/creditor.asp). A Chapter 7 filing may be appropriate in situations where you have largely unsecured debts, such as credit cards or medical bills, and you don’t have sufficient assets to pay them off. The process for filing and completing a Chapter 7 bankruptcy can take anywhere from one to six months. Once your case is discharged, you would no longer be responsible for paying any of the [debts](https://www.investopedia.com/terms/d/debt.asp) included in your filing. [Chapter 13 bankruptcy](https://www.investopedia.com/terms/c/chapter13.asp) gives you an opportunity to repay debts over time while retaining all of your assets. This type of filing is designed to help you repay your creditors over a period of three to five years, without having to go through liquidation. You might choose a Chapter 13 bankruptcy if you have assets you want to keep, such as a home, vehicles, or bank accounts, and you have the means to pay something toward your debts. If you own a business, you might file for [Chapter 11 bankruptcy](https://www.investopedia.com/ask/answers/061815/what-are-differences-between-chapter-11-and-chapter-13-bankruptcy.asp) instead to create a plan for repaying what you owe. A Chapter 7 bankruptcy can remain on your credit report for up to 10 years. Chapter 13 bankruptcy, meanwhile, can stay on your credit for up to seven years. That doesn’t mean you’ll need to wait seven to 10 years to get a car loan. However, you can expect there to be an immediate impact on your credit scores when filing for bankruptcy. ### Warning If you miss payments on a Chapter 13 plan, the bankruptcy court may switch you to a Chapter 7 filing or dismiss your petition altogether. ## How Bankruptcy Affects Your Car Loan Eligibility When you apply for a car loan, lenders can check your credit reports and credit scores. A [credit score](https://www.investopedia.com/terms/c/credit_score.asp) is a three-digit number that lenders use to measure risk. The higher your score, the less risky you appear to lenders. Bankruptcy can be extremely damaging to your credit—it’s possible that your score might drop 100 points or more, depending on where it was before your filing. [Lenders](https://www.investopedia.com/terms/l/lender.asp) may view borrowers with a previous bankruptcy as higher risk. In terms of how that affects your car loan eligibility, any of the following may be true: * Lenders may be reluctant to approve you for a [car loan](https://www.investopedia.com/auto-loans-4689734), especially if you’re only a few months out of bankruptcy. * If approved, the lender may charge a higher [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) for the loan to offset the perceived risk of lending to you post-bankruptcy. * You may be charged a higher [origination fee](https://www.investopedia.com/terms/o/origination-fee.asp) to have the lender underwrite the loan, which again, is a risk management measure. It’s not impossible to get a car loan after bankruptcy, but you should be prepared to have your [credit history](https://www.investopedia.com/terms/c/credit-history.asp) come under closer scrutiny from lenders. ### Tip Using a [car loan calculator](https://www.investopedia.com/car-loan-calculator-5084761) can help you to estimate what you might pay monthly and overall using different interest rates. ## How to Get a Car Loan After Bankruptcy Bankruptcy takes many years to fall off your [credit reports](https://www.investopedia.com/terms/c/creditreport.asp). However, if you would like to get a car loan after bankruptcy, there are some steps you can take to increase your odds of being approved. ### Step 1: Check Your Credit Before applying for a car loan, you should understand what lenders will see on your credit reports and what they will factor into their lending decisions. Checking your credit reports and scores can give you an idea of how risky you’re likely to appear. Here are some of the things to look for when checking your credit. * **Bankruptcy reporting**: If your bankruptcy case has been discharged, it’s important to ensure that any debts included in your filing are being reported as closed accounts with a zero balance. * **Errors**: It’s also a good idea to look for errors on your credit reports that may be hurting your score. That includes improper reporting of debts included in the bankruptcy, as well as errors related to debts that were not. * **Negative information**: Negative information, such as late payments or high [credit utilization](https://www.investopedia.com/terms/c/credit-utilization-rate.asp), can hurt your score. While you can’t dispute negative information that’s accurate, you can identify and stop negative habits that may be dragging your score down. ### Note You are entitled to a free credit report each year from each of the three major credit bureaus. You can access that report at [AnnualCreditReport.com](https://www.annualcreditreport.com/index.action). You have the right to dispute errors on your credit reports. To dispute errors, you’ll need to file a written request with the [credit bureau](https://www.investopedia.com/terms/c/creditbureau.asp) that’s reporting the information. ### Step 2: Start Rebuilding Credit Rebuilding credit after bankruptcy can take time, and the sooner you get started, the better. Some of the best ways to rebuild credit after bankruptcy include: * Paying bills on time, especially any debts that were not included in the bankruptcy. * Getting added as an authorized user to another person’s credit card account, which can reflect their good credit habits onto your credit report. * Applying for a secured credit card, charging small amounts to it each month and paying the balance in full. * Getting a credit builder loan through your bank or credit union to reestablish a positive payment history. ### Step 3: Save a Down Payment The more you put down on a new or used car, the less you have to finance. Saving a larger [down payment](https://www.investopedia.com/terms/d/down_payment.asp) could make it easier to qualify if you don’t need a larger loan. If you’re planning to save money for a down payment on a vehicle, remember to keep it in the right place. A high-yield savings account, for example, can be a safe and secure way to grow your money if you’re earning a higher interest rate. ### Step 4: Compare Lenders and Shop Around If you’re working on [rebuilding credit](https://www.investopedia.com/articles/personal-finance/101614/build-your-credit-score.asp) and you have a down payment saved, the next step is finding the right lender to work with. It’s a good idea to shop around and compare car loans from multiple lenders to get a sense of what you might qualify for and how much you’ll pay. There are a few options for getting a car loan after bankruptcy. * **Credit unions**: A credit union may be more willing to work with borrowers post-bankruptcy than a bank. You’ll need to meet membership requirements to join a credit union, but it may be possible to find car loan options with rates that aren’t astronomical. * **Online lenders**: Online lenders can offer bad-credit car loans for people who have been through bankruptcy or have lower credit scores due to foreclosure. Some online lenders may give more weight to factors other than credit scores for approval, such as your income and employment history. * **In-house financing**: Car dealerships can offer in-house financing for borrowers with bad credit, including people who have been through bankruptcy. These are usually subprime loans, meaning they have higher interest rates, but you might consider [buy here, pay here](https://www.investopedia.com/terms/b/buy-here-pay-here.asp) financing if you’re not able to qualify for a car loan elsewhere. ## Considerations When Applying for a Car Loan After Bankruptcy Getting a car loan after bankruptcy is a little different from applying for financing when you have good or excellent credit. Here are a few things to keep in mind as you compare your borrowing options. ### Interest Rates You’re more likely to pay higher interest rates for a car loan following bankruptcy. Again, that’s because lenders are likely to see you as a higher risk. The higher the rate on your loan, the more you’ll pay in total [interest](https://www.investopedia.com/terms/i/interest.asp) and the higher your monthly payments will likely be. ### Co-signers Asking someone to [co-sign](https://www.investopedia.com/terms/c/co_sign.asp) a car loan for you after bankruptcy could make it easier to get approved. It could also save you money if you’re able to qualify for a lower interest rate. Keep in mind, however, that a co-signed loan can show up on both of your credit reports. If you [default](https://www.investopedia.com/terms/d/default2.asp) on the loan payments, you run the risk of harming your co-signer’s credit and your relationship with them. ### Predatory Lenders When you emerge from bankruptcy, you are in a vulnerable financial position. Some less reputable lenders try to take advantage of that. For example, a lender may offer car loans with no credit check, but the fine print outlines terms for exorbitant interest rates and/or fees. That’s why it’s important to thoroughly research lenders before applying for a car loan after bankruptcy. It can also be helpful to read online reviews from customers and check out their [Better Business Bureau (BBB) ratings](https://www.bbb.org/us/category/auto-financing) to learn about their reputation. ## Can You Buy a Car During Active Bankruptcy? It’s difficult but possible to buy a car while you’re in the middle of Chapter 7 or Chapter 13 bankruptcy, if you’re able to find a lender that will work with you. However, if you buy a car during bankruptcy but then can’t afford it, you won’t be able to add that new debt to a bankruptcy case that’s already in progress. ## How Long Does Bankruptcy Stay on My Credit Report? A Chapter 7 bankruptcy can stay on your credit report for up to 10 years, while a Chapter 13 filing can stay on your credit for up to seven years. That time begins for Chapter 7 bankruptcy cases when they’re filed and for Chapter 13 cases when they’re completed. ## What Is the Average Credit Score After Bankrutpcy? There’s no set average credit score you can expect to have after bankruptcy, but it will most likely be significantly lower. What your score is when you emerge from bankruptcy will largely depend on what it was when you started the process. The higher your score was before filing, the bigger the decrease you can expect to see. ## How Long Does It Take to Build Credit After Chapter 7? How long it takes to rebuild credit after Chapter 7 bankruptcy can depend on how much your score dropped and what you’re doing to improve it. If you’re consistently paying bills on time and building positive credit history, such as through using a secured credit card responsibly, then you may see your credit score start to improve in as little as six months. ## The Bottom Line Getting a car loan after bankruptcy can help you rebuild credit if you’re making payments on time. However, it’s important to know what you can expect when it comes to qualifying for a loan and how much you’ll pay. Taking steps to improve your credit after coming out of bankruptcy can help you get back on track financially so that you can qualify for the [best car loan rates](https://www.investopedia.com/best-auto-loan-rates-4846394) sooner.

The time it takes to get a car loan after bankruptcy can depend on whether you filed for Chapter 7 or Chapter 13 bankruptcy. It’s also necessary to shop around to find lenders that work with borrowers after bankruptcy. You can get a car loan after bankruptcy, but it may be a little more challenging to qualify for auto financing. There are lenders that will approve you for a car loan post-bankruptcy, though you might pay a higher interest rate to borrow. Lenders may also tack on a steep origination fee to underwrite the loan. Learn more about how long after bankruptcy it may take for you to get a car loan. Key Takeaways How long you have to wait to get a car loan after bankruptcy can depend on whether you filed for Chapter 7 or Chapter 13 bankruptcy protection.It’s possible to get a loan after filing bankruptcy, though you may find it much more difficult to qualify and interest rates will likely be higher.When comparing lenders that offer auto financing for bankruptcy filers, it’s important to consider the interest rate, fees, and loan terms.Getting a co-signer on a car loan after bankruptcy could make it easier to qualify and potentially help you get a lower interest rate. How Long Do You Have to Wait to Get a Car Loan After Bankruptcy? How quickly you’re able to get a car loan after bankruptcy can depend in part on which type of bankruptcy you filed. You can file for bankruptcy protection under Chapter 7 or Chapter 13 of the federal bankruptcy code. Chapter 7 bankruptcy is also known as liquidation bankruptcy, as debtors are usually required to liquidate some of their assets as a condition of clearing their debts. In this type of bankruptcy filing, you ask the court to erase your debts. In exchange, the court can take some of your assets, liquidate them, and use them to pay your creditors. A Chapter 7 filing may be appropriate in situations where you have largely unsecured debts, such as credit cards or medical bills, and you don’t have sufficient assets to pay them off. The process for filing and completing a Chapter 7 bankruptcy can take anywhere from one to six months. Once your case is discharged, you would no longer be responsible for paying any of the debts included in your filing. Chapter 13 bankruptcy gives you an opportunity to repay debts over time while retaining all of your assets. This type of filing is designed to help you repay your creditors over a period of three to five years, without having to go through liquidation. You might choose a Chapter 13 bankruptcy if you have assets you want to keep, such as a home, vehicles, or bank accounts, and you have the means to pay something toward your debts. If you own a business, you might file for Chapter 11 bankruptcy instead to create a plan for repaying what you owe. A Chapter 7 bankruptcy can remain on your credit report for up to 10 years. Chapter 13 bankruptcy, meanwhile, can stay on your credit for up to seven years. That doesn’t mean you’ll need to wait seven to 10 years to get a car loan. However, you can expect there to be an immediate impact on your credit scores when filing for bankruptcy. Warning If you miss payments on a Chapter 13 plan, the bankruptcy court may switch you to a Chapter 7 filing or dismiss your petition altogether. How Bankruptcy Affects Your Car Loan Eligibility When you apply for a car loan, lenders can check your credit reports and credit scores. A credit score is a three-digit number that lenders use to measure risk. The higher your score, the less risky you appear to lenders. Bankruptcy can be extremely damaging to your credit—it’s possible that your score might drop 100 points or more, depending on where it was before your filing. Lenders may view borrowers with a previous bankruptcy as higher risk. In terms of how that affects your car loan eligibility, any of the following may be true: Lenders may be reluctant to approve you for a car loan, especially if you’re only a few months out of bankruptcy. If approved, the lender may charge a higher interest rate for the loan to offset the perceived risk of lending to you post-bankruptcy. You may be charged a higher origination fee to have the lender underwrite the loan, which again, is a risk management measure. It’s not impossible to get a car loan after bankruptcy, but you should be prepared to have your credit history come under closer scrutiny from lenders. Tip Using a car loan calculator can help you to estimate what you might pay monthly and overall using different interest rates. How to Get a Car Loan After Bankruptcy Bankruptcy takes many years to fall off your credit reports. However, if you would like to get a car loan after bankruptcy, there are some steps you can take to increase your odds of being approved. Step 1: Check Your Credit Before applying for a car loan, you should understand what lenders will see on your credit reports and what they will factor into their lending decisions. Checking your credit reports and scores can give you an idea of how risky you’re likely to appear. Here are some of the things to look for when checking your credit. Bankruptcy reporting: If your bankruptcy case has been discharged, it’s important to ensure that any debts included in your filing are being reported as closed accounts with a zero balance. Errors: It’s also a good idea to look for errors on your credit reports that may be hurting your score. That includes improper reporting of debts included in the bankruptcy, as well as errors related to debts that were not. Negative information: Negative information, such as late payments or high credit utilization, can hurt your score. While you can’t dispute negative information that’s accurate, you can identify and stop negative habits that may be dragging your score down. Note You are entitled to a free credit report each year from each of the three major credit bureaus. You can access that report at AnnualCreditReport.com. You have the right to dispute errors on your credit reports. To dispute errors, you’ll need to file a written request with the credit bureau that’s reporting the information. Step 2: Start Rebuilding Credit Rebuilding credit after bankruptcy can take time, and the sooner you get started, the better. Some of the best ways to rebuild credit after bankruptcy include: Paying bills on time, especially any debts that were not included in the bankruptcy.Getting added as an authorized user to another person’s credit card account, which can reflect their good credit habits onto your credit report.Applying for a secured credit card, charging small amounts to it each month and paying the balance in full.Getting a credit builder loan through your bank or credit union to reestablish a positive payment history. Step 3: Save a Down Payment The more you put down on a new or used car, the less you have to finance. Saving a larger down payment could make it easier to qualify if you don’t need a larger loan. If you’re planning to save money for a down payment on a vehicle, remember to keep it in the right place. A high-yield savings account, for example, can be a safe and secure way to grow your money if you’re earning a higher interest rate. Step 4: Compare Lenders and Shop Around If you’re working on rebuilding credit and you have a down payment saved, the next step is finding the right lender to work with. It’s a good idea to shop around and compare car loans from multiple lenders to get a sense of what you might qualify for and how much you’ll pay. There are a few options for getting a car loan after bankruptcy. Credit unions: A credit union may be more willing to work with borrowers post-bankruptcy than a bank. You’ll need to meet membership requirements to join a credit union, but it may be possible to find car loan options with rates that aren’t astronomical. Online lenders: Online lenders can offer bad-credit car loans for people who have been through bankruptcy or have lower credit scores due to foreclosure. Some online lenders may give more weight to factors other than credit scores for approval, such as your income and employment history. In-house financing: Car dealerships can offer in-house financing for borrowers with bad credit, including people who have been through bankruptcy. These are usually subprime loans, meaning they have higher interest rates, but you might consider buy here, pay here financing if you’re not able to qualify for a car loan elsewhere. Considerations When Applying for a Car Loan After Bankruptcy Getting a car loan after bankruptcy is a little different from applying for financing when you have good or excellent credit. Here are a few things to keep in mind as you compare your borrowing options. Interest Rates You’re more likely to pay higher interest rates for a car loan following bankruptcy. Again, that’s because lenders are likely to see you as a higher risk. The higher the rate on your loan, the more you’ll pay in total interest and the higher your monthly payments will likely be. Co-signers Asking someone to co-sign a car loan for you after bankruptcy could make it easier to get approved. It could also save you money if you’re able to qualify for a lower interest rate. Keep in mind, however, that a co-signed loan can show up on both of your credit reports. If you default on the loan payments, you run the risk of harming your co-signer’s credit and your relationship with them. Predatory Lenders When you emerge from bankruptcy, you are in a vulnerable financial position. Some less reputable lenders try to take advantage of that. For example, a lender may offer car loans with no credit check, but the fine print outlines terms for exorbitant interest rates and/or fees. That’s why it’s important to thoroughly research lenders before applying for a car loan after bankruptcy. It can also be helpful to read online reviews from customers and check out their Better Business Bureau (BBB) ratings to learn about their reputation. Can You Buy a Car During Active Bankruptcy? It’s difficult but possible to buy a car while you’re in the middle of Chapter 7 or Chapter 13 bankruptcy, if you’re able to find a lender that will work with you. However, if you buy a car during bankruptcy but then can’t afford it, you won’t be able to add that new debt to a bankruptcy case that’s already in progress. How Long Does Bankruptcy Stay on My Credit Report? A Chapter 7 bankruptcy can stay on your credit report for up to 10 years, while a Chapter 13 filing can stay on your credit for up to seven years. That time begins for Chapter 7 bankruptcy cases when they’re filed and for Chapter 13 cases when they’re completed. What Is the Average Credit Score After Bankrutpcy? There’s no set average credit score you can expect to have after bankruptcy, but it will most likely be significantly lower. What your score is when you emerge from bankruptcy will largely depend on what it was when you started the process. The higher your score was before filing, the bigger the decrease you can expect to see. How Long Does It Take to Build Credit After Chapter 7? How long it takes to rebuild credit after Chapter 7 bankruptcy can depend on how much your score dropped and what you’re doing to improve it. If you’re consistently paying bills on time and building positive credit history, such as through using a secured credit card responsibly, then you may see your credit score start to improve in as little as six months. The Bottom Line Getting a car loan after bankruptcy can help you rebuild credit if you’re making payments on time. However, it’s important to know what you can expect when it comes to qualifying for a loan and how much you’ll pay. Taking steps to improve your credit after coming out of bankruptcy can help you get back on track financially so that you can qualify for the best car loan rates sooner.

https://www.investopedia.com/the-express-podcast-episode-173-8558990

How To Prepare for the Thawing of the Real Estate 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"><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=MERE6363206731" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="How to Prepare for the Thawing of the Real Estate Market"></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"> Matt Garland, aka 'MG The Mortgage Guy,' on what to expect for the U.S real estate market this spring as mortgage rates fall and demand comes storming back. Whether you are a potential buyer, seller, investor, or broker, Matt shares his best advice on how to prepare to capitalize on the real estate reawakening. Plus, the stock market tops more record highs, but there are rising rumblings about the strength of one of the narrowest bull markets in history. And, why investors should hope for a blowout in Sunday's Super Bowl. </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>Links for Show Notes:</strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-we-learned-from-big-tech-earnings-enterprise-ai-is-paying-off-8557870">https://www.investopedia.com/what-we-learned-from-big-tech-earnings-enterprise-ai-is-paying-off-8557870</a><br/><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/individual-investors-warming-to-the-rally-as-markets-touch-new-highs-8556574">https://www.investopedia.com/individual-investors-warming-to-the-rally-as-markets-touch-new-highs-8556574</a><br/><a data-component="link" data-ordinal="3" 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><br/><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-feb-5-2024-8557875">https://www.investopedia.com/what-to-expect-in-the-markets-this-week-feb-5-2024-8557875</a><br/><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="externalLink" href="https://www.super.social/ss/mgthemortgageguy" rel="nofollow">https://www.super.social/ss/mgthemortgageguy</a><br/><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/superbowlindicator.asp">https://www.investopedia.com/terms/s/superbowlindicator.asp</a> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <strong>Do you have a news tip for Investopedia reporters?</strong> Please email us at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="mailto:[email protected]">[email protected]</a><br/> </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) Matt Garland, aka 'MG The Mortgage Guy,' on what to expect for the U.S real estate market this spring as mortgage rates fall and demand comes storming back. Whether you are a potential buyer, seller, investor, or broker, Matt shares his best advice on how to prepare to capitalize on the real estate reawakening. Plus, the stock market tops more record highs, but there are rising rumblings about the strength of one of the narrowest bull markets in history. And, why investors should hope for a blowout in Sunday's Super Bowl. **Links for Show Notes:** <https://www.investopedia.com/what-we-learned-from-big-tech-earnings-enterprise-ai-is-paying-off-8557870> <https://www.investopedia.com/individual-investors-warming-to-the-rally-as-markets-touch-new-highs-8556574> <https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html> <https://www.investopedia.com/what-to-expect-in-the-markets-this-week-feb-5-2024-8557875> <https://www.super.social/ss/mgthemortgageguy> <https://www.investopedia.com/terms/s/superbowlindicator.asp> **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 Matt Garland, aka 'MG The Mortgage Guy,' on what to expect for the U.S real estate market this spring as mortgage rates fall and demand comes storming back. Whether you are a potential buyer, seller, investor, or broker, Matt shares his best advice on how to prepare to capitalize on the real estate reawakening. Plus, the stock market tops more record highs, but there are rising rumblings about the strength of one of the narrowest bull markets in history. And, why investors should hope for a blowout in Sunday's Super Bowl. Links for Show Notes: https://www.investopedia.com/what-we-learned-from-big-tech-earnings-enterprise-ai-is-paying-off-8557870https://www.investopedia.com/individual-investors-warming-to-the-rally-as-markets-touch-new-highs-8556574https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.htmlhttps://www.investopedia.com/what-to-expect-in-the-markets-this-week-feb-5-2024-8557875https://www.super.social/ss/mgthemortgageguyhttps://www.investopedia.com/terms/s/superbowlindicator.asp Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Negotiable Order of Withdrawal Account: Overview, History

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-negotiable-order-of-withdrawal-now-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Negotiable Order of Withdrawal (NOW) Account? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A Negotiable Order of Withdrawal Account is an interest-earning <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/demanddeposit.asp">demand deposit</a> account. A customer with such an account is permitted to write drafts against money held on deposit. A Negotiable Order of Withdrawal Account is also known as a "NOW Account." </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 NOW Account was a popular interest-earning demand deposit account prior to the Dodd-Frank Act.</li><li>NOW Accounts served as an interest-bearing option for liquid funds.</li><li>The Dodd-Frank Act repealed Regulation Q, which prohibited interest on demand deposit accounts.<span class="ql-inline-citation" data-cite="1"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-negotiable-order-of-withdrawal-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Negotiable Order of Withdrawal Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> In the search to optimize returns on liquid funds, investors have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/091815/5-best-alternatives-bank-saving-accounts.asp">several choices</a>, including: interest-bearing <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/checkingaccount.asp">checking accounts</a>, high yield savings accounts, money market accounts, and certificates of deposit. The search for these types of accounts most often turns to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commercialbank.asp">commercial banks</a>, mutual savings banks, and savings-and-loan associations. </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"> Up until 2011, NOW Accounts were a viable choice for consumers looking to get at least some return from their idle cash. Prior to the 2010 Dodd-Frank Act, U.S. banking regulations distinguished between "NOW Accounts" and "demand deposit accounts"–although similarities exist. This was because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regulationq.asp">Regulation Q (Reg Q)</a> prohibited banks from paying any interest on demand deposit, checking accounts. NOW Accounts and Super NOW Accounts were demand deposit alternatives with a temporary holding period that could actually pay some interest. Dodd-Frank repealed Req Q, allowing banks to pay interest on demand deposits, which basically eliminated any advantage that NOW Accounts offered.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-history-of-negotiable-order-of-withdrawal-accounts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> History of Negotiable Order of Withdrawal Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The history of preventing depositors from earning interest on accounts dates back to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/great_depression.asp">Great Depression</a>. Significant bank turmoil marked this era in the 1930s. Many viewed the interest payments on demand deposits as “excessive competition,” leading to diminished profit margins. This was primarily a factor for large New York banks. </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 interest rates rose in the 1950s, many banks began trying to get around the ban. This started with non-pecuniary rewards, such as offering more convenient features, additional branch offices, and giveaways of consumer goods to attract new customers. Implicit interest also gradually gained traction. This included preferred <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loan.asp">loan</a> rates. Banks often correlated these with a customer's demand deposit balances. Banks also began to display below-cost charges for common services, such as check-clearing. </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"> Ronald Haselton, the former President and CEO of the Worcester, Massachusetts-based Consumer Savings Bank, was the first to develop the NOW Account officially. This became a direct challenge to the ban on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> payments on deposit accounts. In 1974 Congress permitted NOW Accounts in Massachusetts and New Hampshire. In 1976 the allowance was extended to all New England with a 5% interest rate ceiling. These accounts also came with the requirement of a seven-day advance notice.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> In 1980 access to NOW Accounts was expanded nationwide.<span class="ql-inline-citation" data-cite="4"></span> Then, in 1986 the 5% ceiling was lifted on these accounts.<span class="ql-inline-citation" data-cite="5"></span> The removal of the ceiling led to a new iteration of the NOW Account, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/supernowaccount.asp">Super NOW Account</a>. Super NOW Accounts were known for offering higher rates of interest than regular NOW Accounts. </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 2010, provisions of the Dodd-Frank Act led to a repeal of Reg Q. The repeal of Reg Q fully eliminated the prohibition on interest-earning checking accounts.<span class="ql-inline-citation" data-cite="1"></span> As a result, banks were given much broader latitude to develop interest-paying checking account offerings. </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-now-accounts-vs-demand-deposit-accounts"></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"> NOW Accounts vs. Demand Deposit Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> In the modern-day, NOW Accounts are generally only a thing of the past. Beyond the interest benefit, there main difference from demand deposit checking accounts when they were widely available was the seven-day holding period, which required customers to plan ahead for a possible seven-day advance notice. Not all banks invoked the holding period but it was the main attribute that characterized the accounts overall along with their measurable <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rate</a>. </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"> After the repeal of Req Q, checking account offerings became more widely varied. Throughout history, checking accounts have been relied on for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">immediate withdrawals</a>. They are also relied on by banks for some short-term cash needs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> In general, competition among mainstream banks is relatively low, with most banks offering little to no interest at all. Accounts that do offer the highest relative interest rates usually come with some lengthy requirements for balance levels, routine direct deposits, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp">debit card</a> usage. Specialty checking account products can also come with cash back offers or some other simple extra features as well. </p></div>

## What Is a Negotiable Order of Withdrawal (NOW) Account? A Negotiable Order of Withdrawal Account is an interest-earning [demand deposit](https://www.investopedia.com/terms/d/demanddeposit.asp) account. A customer with such an account is permitted to write drafts against money held on deposit. A Negotiable Order of Withdrawal Account is also known as a "NOW Account." ### Key Takeaways * A NOW Account was a popular interest-earning demand deposit account prior to the Dodd-Frank Act. * NOW Accounts served as an interest-bearing option for liquid funds. * The Dodd-Frank Act repealed Regulation Q, which prohibited interest on demand deposit accounts. ## Understanding Negotiable Order of Withdrawal Account In the search to optimize returns on liquid funds, investors have [several choices](https://www.investopedia.com/articles/personal-finance/091815/5-best-alternatives-bank-saving-accounts.asp), including: interest-bearing [checking accounts](https://www.investopedia.com/terms/c/checkingaccount.asp), high yield savings accounts, money market accounts, and certificates of deposit. The search for these types of accounts most often turns to [commercial banks](https://www.investopedia.com/terms/c/commercialbank.asp), mutual savings banks, and savings-and-loan associations. Up until 2011, NOW Accounts were a viable choice for consumers looking to get at least some return from their idle cash. Prior to the 2010 Dodd-Frank Act, U.S. banking regulations distinguished between "NOW Accounts" and "demand deposit accounts"–although similarities exist. This was because [Regulation Q (Reg Q)](https://www.investopedia.com/terms/r/regulationq.asp) prohibited banks from paying any interest on demand deposit, checking accounts. NOW Accounts and Super NOW Accounts were demand deposit alternatives with a temporary holding period that could actually pay some interest. Dodd-Frank repealed Req Q, allowing banks to pay interest on demand deposits, which basically eliminated any advantage that NOW Accounts offered. ## History of Negotiable Order of Withdrawal Accounts The history of preventing depositors from earning interest on accounts dates back to the [Great Depression](https://www.investopedia.com/terms/g/great_depression.asp). Significant bank turmoil marked this era in the 1930s. Many viewed the interest payments on demand deposits as “excessive competition,” leading to diminished profit margins. This was primarily a factor for large New York banks. As interest rates rose in the 1950s, many banks began trying to get around the ban. This started with non-pecuniary rewards, such as offering more convenient features, additional branch offices, and giveaways of consumer goods to attract new customers. Implicit interest also gradually gained traction. This included preferred [loan](https://www.investopedia.com/terms/l/loan.asp) rates. Banks often correlated these with a customer's demand deposit balances. Banks also began to display below-cost charges for common services, such as check-clearing. Ronald Haselton, the former President and CEO of the Worcester, Massachusetts-based Consumer Savings Bank, was the first to develop the NOW Account officially. This became a direct challenge to the ban on [interest](https://www.investopedia.com/terms/i/interest.asp) payments on deposit accounts. In 1974 Congress permitted NOW Accounts in Massachusetts and New Hampshire. In 1976 the allowance was extended to all New England with a 5% interest rate ceiling. These accounts also came with the requirement of a seven-day advance notice. In 1980 access to NOW Accounts was expanded nationwide. Then, in 1986 the 5% ceiling was lifted on these accounts. The removal of the ceiling led to a new iteration of the NOW Account, the [Super NOW Account](https://www.investopedia.com/terms/s/supernowaccount.asp). Super NOW Accounts were known for offering higher rates of interest than regular NOW Accounts. In 2010, provisions of the Dodd-Frank Act led to a repeal of Reg Q. The repeal of Reg Q fully eliminated the prohibition on interest-earning checking accounts. As a result, banks were given much broader latitude to develop interest-paying checking account offerings. ## NOW Accounts vs. Demand Deposit Accounts In the modern-day, NOW Accounts are generally only a thing of the past. Beyond the interest benefit, there main difference from demand deposit checking accounts when they were widely available was the seven-day holding period, which required customers to plan ahead for a possible seven-day advance notice. Not all banks invoked the holding period but it was the main attribute that characterized the accounts overall along with their measurable [interest rate](https://www.investopedia.com/terms/i/interestrate.asp). After the repeal of Req Q, checking account offerings became more widely varied. Throughout history, checking accounts have been relied on for [immediate withdrawals](https://www.investopedia.com/terms/f/fdic-insured-account.asp). They are also relied on by banks for some short-term cash needs. In general, competition among mainstream banks is relatively low, with most banks offering little to no interest at all. Accounts that do offer the highest relative interest rates usually come with some lengthy requirements for balance levels, routine direct deposits, and [debit card](https://www.investopedia.com/terms/d/debitcard.asp) usage. Specialty checking account products can also come with cash back offers or some other simple extra features as well.

What Is a Negotiable Order of Withdrawal (NOW) Account? A Negotiable Order of Withdrawal Account is an interest-earning demand deposit account. A customer with such an account is permitted to write drafts against money held on deposit. A Negotiable Order of Withdrawal Account is also known as a "NOW Account." Key Takeaways A NOW Account was a popular interest-earning demand deposit account prior to the Dodd-Frank Act.NOW Accounts served as an interest-bearing option for liquid funds.The Dodd-Frank Act repealed Regulation Q, which prohibited interest on demand deposit accounts. Understanding Negotiable Order of Withdrawal Account In the search to optimize returns on liquid funds, investors have several choices, including: interest-bearing checking accounts, high yield savings accounts, money market accounts, and certificates of deposit. The search for these types of accounts most often turns to commercial banks, mutual savings banks, and savings-and-loan associations. Up until 2011, NOW Accounts were a viable choice for consumers looking to get at least some return from their idle cash. Prior to the 2010 Dodd-Frank Act, U.S. banking regulations distinguished between "NOW Accounts" and "demand deposit accounts"–although similarities exist. This was because Regulation Q (Reg Q) prohibited banks from paying any interest on demand deposit, checking accounts. NOW Accounts and Super NOW Accounts were demand deposit alternatives with a temporary holding period that could actually pay some interest. Dodd-Frank repealed Req Q, allowing banks to pay interest on demand deposits, which basically eliminated any advantage that NOW Accounts offered. History of Negotiable Order of Withdrawal Accounts The history of preventing depositors from earning interest on accounts dates back to the Great Depression. Significant bank turmoil marked this era in the 1930s. Many viewed the interest payments on demand deposits as “excessive competition,” leading to diminished profit margins. This was primarily a factor for large New York banks. As interest rates rose in the 1950s, many banks began trying to get around the ban. This started with non-pecuniary rewards, such as offering more convenient features, additional branch offices, and giveaways of consumer goods to attract new customers. Implicit interest also gradually gained traction. This included preferred loan rates. Banks often correlated these with a customer's demand deposit balances. Banks also began to display below-cost charges for common services, such as check-clearing. Ronald Haselton, the former President and CEO of the Worcester, Massachusetts-based Consumer Savings Bank, was the first to develop the NOW Account officially. This became a direct challenge to the ban on interest payments on deposit accounts. In 1974 Congress permitted NOW Accounts in Massachusetts and New Hampshire. In 1976 the allowance was extended to all New England with a 5% interest rate ceiling. These accounts also came with the requirement of a seven-day advance notice. In 1980 access to NOW Accounts was expanded nationwide. Then, in 1986 the 5% ceiling was lifted on these accounts. The removal of the ceiling led to a new iteration of the NOW Account, the Super NOW Account. Super NOW Accounts were known for offering higher rates of interest than regular NOW Accounts. In 2010, provisions of the Dodd-Frank Act led to a repeal of Reg Q. The repeal of Reg Q fully eliminated the prohibition on interest-earning checking accounts. As a result, banks were given much broader latitude to develop interest-paying checking account offerings. NOW Accounts vs. Demand Deposit Accounts In the modern-day, NOW Accounts are generally only a thing of the past. Beyond the interest benefit, there main difference from demand deposit checking accounts when they were widely available was the seven-day holding period, which required customers to plan ahead for a possible seven-day advance notice. Not all banks invoked the holding period but it was the main attribute that characterized the accounts overall along with their measurable interest rate. After the repeal of Req Q, checking account offerings became more widely varied. Throughout history, checking accounts have been relied on for immediate withdrawals. They are also relied on by banks for some short-term cash needs. In general, competition among mainstream banks is relatively low, with most banks offering little to no interest at all. Accounts that do offer the highest relative interest rates usually come with some lengthy requirements for balance levels, routine direct deposits, and debit card usage. Specialty checking account products can also come with cash back offers or some other simple extra features as well.

https://www.investopedia.com/terms/p/peer-group.asp

Peer Group: Definition, How It's Used, Example, Pros & Cons

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-peer-group"></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 Peer Group? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The term peer group refers to a group of individuals or companies that share similar characteristics with one another. These characteristics may be age, education, ethnic background, size, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/industry.asp">industry</a>, or sector. Peer groups are known for their influential nature as they are able to shape the decisions of members of the group. As such, peer groups often contain hierarchies, with clear leaders who sit at the top. Peer groups are often used in analysis in a number of academic and professional fields. </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 peer group consists of individuals or organizations that share similar characteristics.</li><li>Peer groups are known for their influential nature as they're able to shape the decisions of other group members.</li><li>These groups often contain hierarchies with clear leaders who sit at the top.</li><li>Peer groups are commonly used for analysis in a number of fields, including financing, marketing, and sociology.</li><li>Peer group analysis in investing involves the use of financial data to compare similar companies to one another. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-peer-groups"></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 Peer Groups </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> As noted above, peer groups contain a number of people or other entities that share one or more similar characteristics. Peer groups allow individuals to be grouped together by certain defining features, such as age, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a>, education, race, and/or gender. Qualities among members for corporate peer groups include size, industry, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sector.asp">sector</a>, and/or financial position.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Peer groups are used in a number of different fields, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finance.asp">finance</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketing.asp">marketing</a>, as well as sociology. They are known for the influence they have among group members. They consist of hierarchies, which place one or a few individual group members at the top. These members can often shape the actions and decisions of the other group members. </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"> Peer group analysis or peer comparison involves an apples-to-apples comparison. This means the constituents of the peer group should be more or less similar to one another. Comparisons allow professionals to identify trends and anomalies in behavior and outcomes, and give them an opportunity to figure out <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/efficiency.asp">efficiencies</a> and opportunities: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> If not immediately obvious, peer groups are sometimes identified by a given company in its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/10-k.asp">10-K</a> filing and almost always in its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/proxystatement.asp">proxy filing</a>, though the latter can be more expansive in terms of specific business sectors and is used to set executive compensation plans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Insurance companies compile peer groups to underwrite life or health insurance policies on certain demographics, such as age-related groups or those who do or don't smoke.</p></div></div></div> <span class="heading-toc" id="toc-using-peer-groups"></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"> Using Peer Groups </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peer_perform.asp">Peer comparison</a> is one of the most widely used and accepted methods of equity analysis used by professional analysts, individual investors, and professionals. </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"> Investment Research </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Because companies in a peer group share similar traits, they lend themselves to relative value analysis. Peer group analysis establishes a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valuation.asp">valuation</a> for stocks in investment research, as long as the group consists of companies similar to the one being researched. This is especially key when it comes to business areas and <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>. Investors can use this analysis to spot valuation <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/anomaly.asp">anomalies</a> for certain stocks.<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"> For example, a stock trading at an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earningsmultiplier.asp">earnings multiple</a> of 15x (compared with a 10x multiple for its peer group) may be considered <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/overvalued.asp">overvalued</a>. Investors can uncover reasons for the higher earnings multiple and ultimately determine that it is deserved. </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"> Relative valuation among peers in a group can be efficient and effective, quickly showing which stocks may be overvalued, and which might make good additions to a portfolio. While there are other methods to determine when a stock is worth buying, such as discounted <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp">cash flow</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalanalysis.asp">technical analysis</a>, peer comparison analysis remains a key tool for uncovering <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/undervalued.asp">undervalued</a> stocks.<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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Because the data necessary to conduct the analysis is generally public and readily accessible on financial websites, it is easy for anybody to begin employing this method of analysis in order to identify opportunities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_29-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_30-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Peer group comparisons are also called comparables or comps.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-subheading__text"> Marketing </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Peer groups are important in advertising and marketing, especially in the age of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/social-media.asp">social media</a>. Leaders in the group or those who are at the top of the hierarchical ladder are commonly known as influencers. Professionals study peer groups to show how they influence buying patterns and consumer <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trend.asp">trends</a> for advertising and product development purposes.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-peer-groups"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of Peer Groups </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Peer group analysis helps shape many decisions in the financial and investment worlds. There are a number of different benefits to using peer groups, especially in investment analysis. But just like any other analytical tool, there are drawbacks to this form of analysis as well. We've listed some of the most common ones below. </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"> Advantages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> One of the most obvious benefits of using peer group analysis is that it helps investors and analysts uncover undervalued stocks. This is often accomplished by analyzing different metrics, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leverage</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/012715/what-difference-between-profitability-and-profit.asp">profitability</a> among others. Doing so allows the individual to determine companies that should carry higher-than-average valuations. A stock may be considered a buying opportunity if the current valuation is lower than what seems reasonable. </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 and professionals don't have to go far to get the information they need to perform peer group analysis. Data is easily available, either on company websites or through filings done with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission</a> (SEC). This means the individual doesn't need to do exhaustive research.<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_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Conducting peer comparisons give investors a chance to determine certain anomalies and trends that arise with different companies and in the market in general.<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> <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"> Disadvantages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Doing a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/07/peer-comparison.asp">peer comparison</a> isn't as easy as it seems. That's because quantitative factors aren't the only considerations. In fact, there are qualitative issues that must be taken into account. This means that the analysis can be fairly subjective. </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"> Peer groups often come with certain biases, which can sway an analyst or investor's analysis. For example, some groups come with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/survivorshipbias.asp">survivorship bias</a>. This means that the peer group may not contain any companies that underperform. This type of analysis, therefore, doesn't take companies that have gone under or phased out of the group into account.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> There may not be very many companies in the peer group. When this is the case, peer comparison becomes ineffective. In order for it to work, there needs to get a sizeable group of companies that can be compared to one another.<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_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_51-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_52-0"> <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>Helps uncover buying opportunities for undervalued securities</p></li> <li><p>Accessing data is easily available for comparison</p></li> <li><p>Allows anomalies and trends to be identified</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 be subjective because some investors also consider qualitative factors into account</p></li> <li><p>Survivorship bias doesn't account for members that are phased out of the group</p></li> <li><p>May not be enough companies in the group</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <span class="heading-toc" id="toc-example-of-a-peer-group"></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"> Example of a Peer Group </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Peer groups refer to companies that are in the same industry or sector. These are competitors that are roughly the same size. Peer groups can be found in analyst research reports or an individual company's financial statements. </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"> Lockheed Martin is an aerospace, defense, and security company headquartered in Maryland. According to the company's 2017 proxy statement, its peer group consists of other similar companies as its peers, including General Dynamics, Raytheon, and Northrup Grumman. It also lists Caterpillar, UPS, and 3M.<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_58-0"></div> <span class="heading-toc" id="toc-peer-group-faqs"></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"> Peer Group FAQs </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-subheading__text"> What Are the Types of Peer Groups? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> There are several different types of peer groups, including social groups (cliques, sports teams, etc). In investing and finance, peers may be grouped by industry or sector (consumer staples, retail, telecoms), size (usually by market cap), financial health (profitability, capital structure), or business factors (business models, location, seasonality). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-subheading__text"> What Is Peer Group Analysis? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Peer group analysis is a process involving the comparison of entities that share similar characteristics. It is an apples-to-apples comparison of subjects that are fairly similar to one another. This kind of analysis allows for the identification of trends and anomalies in behavior and outcomes. </p> <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"> What Is a Peer Group Index? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> A peer group index is one that groups individual companies together into a single, benchmark index. For instance, 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> can be considered a peer group index. This index is comprised of 500 of the largest public companies in the United States and is generally considered the best gauge of U.S. large-cap equities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_69-0"> <span class="mntl-sc-block-subheading__text"> How Can You Use a Peer Group Average in Investing? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> A peer group average is considered one of the most effective and efficient ways to determine the valuation of a security. Put simply, investors can use certain metrics drawn from corporate financial statements to assess a certain company's stock price compared to its peers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-subheading__text"> Why Are Firms Classified Into Peer Groups for Ratio Analysis? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Companies are grouped into peer groups for ratio analysis as part of fundamental analysis. It allows researchers to determine individual company liquidity, efficiencies, as well as profitability. This is done by examining each company's past and current financial statements and comparing them with one another. Some of the most popular ratios include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp">price-to-earnings (P/E)</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-to-bookratio.asp">price-to-book</a>, and price-to-dividend ratios. </p> <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"> Peer groups consist of similar entities that share one or more characteristics in common. They serve a very important purpose in many different fields of study. They can be one of the most useful tools when it comes to equity analysis for investors and financial professionals. Anyone can perform peer group comparisons using information that is widely available on corporate websites or through the SEC. </p></div>

## What Is a Peer Group? The term peer group refers to a group of individuals or companies that share similar characteristics with one another. These characteristics may be age, education, ethnic background, size, [industry](https://www.investopedia.com/terms/i/industry.asp), or sector. Peer groups are known for their influential nature as they are able to shape the decisions of members of the group. As such, peer groups often contain hierarchies, with clear leaders who sit at the top. Peer groups are often used in analysis in a number of academic and professional fields. ### Key Takeaways * A peer group consists of individuals or organizations that share similar characteristics. * Peer groups are known for their influential nature as they're able to shape the decisions of other group members. * These groups often contain hierarchies with clear leaders who sit at the top. * Peer groups are commonly used for analysis in a number of fields, including financing, marketing, and sociology. * Peer group analysis in investing involves the use of financial data to compare similar companies to one another. ## Understanding Peer Groups As noted above, peer groups contain a number of people or other entities that share one or more similar characteristics. Peer groups allow individuals to be grouped together by certain defining features, such as age, [income](https://www.investopedia.com/terms/i/income.asp), education, race, and/or gender. Qualities among members for corporate peer groups include size, industry, [sector](https://www.investopedia.com/terms/s/sector.asp), and/or financial position. Peer groups are used in a number of different fields, such as [finance](https://www.investopedia.com/terms/f/finance.asp) and [marketing](https://www.investopedia.com/terms/m/marketing.asp), as well as sociology. They are known for the influence they have among group members. They consist of hierarchies, which place one or a few individual group members at the top. These members can often shape the actions and decisions of the other group members. Peer group analysis or peer comparison involves an apples-to-apples comparison. This means the constituents of the peer group should be more or less similar to one another. Comparisons allow professionals to identify trends and anomalies in behavior and outcomes, and give them an opportunity to figure out [efficiencies](https://www.investopedia.com/terms/e/efficiency.asp) and opportunities: If not immediately obvious, peer groups are sometimes identified by a given company in its [10-K](https://www.investopedia.com/terms/1/10-k.asp) filing and almost always in its [proxy filing](https://www.investopedia.com/terms/p/proxystatement.asp), though the latter can be more expansive in terms of specific business sectors and is used to set executive compensation plans. ### Insurance companies compile peer groups to underwrite life or health insurance policies on certain demographics, such as age-related groups or those who do or don't smoke. ## Using Peer Groups [Peer comparison](https://www.investopedia.com/terms/p/peer_perform.asp) is one of the most widely used and accepted methods of equity analysis used by professional analysts, individual investors, and professionals. ### Investment Research Because companies in a peer group share similar traits, they lend themselves to relative value analysis. Peer group analysis establishes a [valuation](https://www.investopedia.com/terms/v/valuation.asp) for stocks in investment research, as long as the group consists of companies similar to the one being researched. This is especially key when it comes to business areas and [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp). Investors can use this analysis to spot valuation [anomalies](https://www.investopedia.com/terms/a/anomaly.asp) for certain stocks. For example, a stock trading at an [earnings multiple](https://www.investopedia.com/terms/e/earningsmultiplier.asp) of 15x (compared with a 10x multiple for its peer group) may be considered [overvalued](https://www.investopedia.com/terms/o/overvalued.asp). Investors can uncover reasons for the higher earnings multiple and ultimately determine that it is deserved. Relative valuation among peers in a group can be efficient and effective, quickly showing which stocks may be overvalued, and which might make good additions to a portfolio. While there are other methods to determine when a stock is worth buying, such as discounted [cash flow](https://www.investopedia.com/terms/c/cashflow.asp) or [technical analysis](https://www.investopedia.com/terms/t/technicalanalysis.asp), peer comparison analysis remains a key tool for uncovering [undervalued](https://www.investopedia.com/terms/u/undervalued.asp) stocks. Because the data necessary to conduct the analysis is generally public and readily accessible on financial websites, it is easy for anybody to begin employing this method of analysis in order to identify opportunities. ### Peer group comparisons are also called comparables or comps. ### Marketing Peer groups are important in advertising and marketing, especially in the age of [social media](https://www.investopedia.com/terms/s/social-media.asp). Leaders in the group or those who are at the top of the hierarchical ladder are commonly known as influencers. Professionals study peer groups to show how they influence buying patterns and consumer [trends](https://www.investopedia.com/terms/t/trend.asp) for advertising and product development purposes. ## Advantages and Disadvantages of Peer Groups Peer group analysis helps shape many decisions in the financial and investment worlds. There are a number of different benefits to using peer groups, especially in investment analysis. But just like any other analytical tool, there are drawbacks to this form of analysis as well. We've listed some of the most common ones below. ### Advantages One of the most obvious benefits of using peer group analysis is that it helps investors and analysts uncover undervalued stocks. This is often accomplished by analyzing different metrics, including [leverage](https://www.investopedia.com/terms/l/leverage.asp) and [profitability](https://www.investopedia.com/ask/answers/012715/what-difference-between-profitability-and-profit.asp) among others. Doing so allows the individual to determine companies that should carry higher-than-average valuations. A stock may be considered a buying opportunity if the current valuation is lower than what seems reasonable. Investors and professionals don't have to go far to get the information they need to perform peer group analysis. Data is easily available, either on company websites or through filings done with the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC). This means the individual doesn't need to do exhaustive research. Conducting peer comparisons give investors a chance to determine certain anomalies and trends that arise with different companies and in the market in general. ### Disadvantages Doing a [peer comparison](https://www.investopedia.com/articles/stocks/07/peer-comparison.asp) isn't as easy as it seems. That's because quantitative factors aren't the only considerations. In fact, there are qualitative issues that must be taken into account. This means that the analysis can be fairly subjective. Peer groups often come with certain biases, which can sway an analyst or investor's analysis. For example, some groups come with [survivorship bias](https://www.investopedia.com/terms/s/survivorshipbias.asp). This means that the peer group may not contain any companies that underperform. This type of analysis, therefore, doesn't take companies that have gone under or phased out of the group into account. There may not be very many companies in the peer group. When this is the case, peer comparison becomes ineffective. In order for it to work, there needs to get a sizeable group of companies that can be compared to one another. Pros * Helps uncover buying opportunities for undervalued securities * Accessing data is easily available for comparison * Allows anomalies and trends to be identified Cons * May be subjective because some investors also consider qualitative factors into account * Survivorship bias doesn't account for members that are phased out of the group * May not be enough companies in the group ## Example of a Peer Group Peer groups refer to companies that are in the same industry or sector. These are competitors that are roughly the same size. Peer groups can be found in analyst research reports or an individual company's financial statements. Lockheed Martin is an aerospace, defense, and security company headquartered in Maryland. According to the company's 2017 proxy statement, its peer group consists of other similar companies as its peers, including General Dynamics, Raytheon, and Northrup Grumman. It also lists Caterpillar, UPS, and 3M. ## Peer Group FAQs ### What Are the Types of Peer Groups? There are several different types of peer groups, including social groups (cliques, sports teams, etc). In investing and finance, peers may be grouped by industry or sector (consumer staples, retail, telecoms), size (usually by market cap), financial health (profitability, capital structure), or business factors (business models, location, seasonality). ### What Is Peer Group Analysis? Peer group analysis is a process involving the comparison of entities that share similar characteristics. It is an apples-to-apples comparison of subjects that are fairly similar to one another. This kind of analysis allows for the identification of trends and anomalies in behavior and outcomes. ### What Is a Peer Group Index? A peer group index is one that groups individual companies together into a single, benchmark index. For instance, the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) can be considered a peer group index. This index is comprised of 500 of the largest public companies in the United States and is generally considered the best gauge of U.S. large-cap equities. ### How Can You Use a Peer Group Average in Investing? A peer group average is considered one of the most effective and efficient ways to determine the valuation of a security. Put simply, investors can use certain metrics drawn from corporate financial statements to assess a certain company's stock price compared to its peers. ### Why Are Firms Classified Into Peer Groups for Ratio Analysis? Companies are grouped into peer groups for ratio analysis as part of fundamental analysis. It allows researchers to determine individual company liquidity, efficiencies, as well as profitability. This is done by examining each company's past and current financial statements and comparing them with one another. Some of the most popular ratios include [price-to-earnings (P/E)](https://www.investopedia.com/terms/p/price-earningsratio.asp), [price-to-book](https://www.investopedia.com/terms/p/price-to-bookratio.asp), and price-to-dividend ratios. ## The Bottom Line Peer groups consist of similar entities that share one or more characteristics in common. They serve a very important purpose in many different fields of study. They can be one of the most useful tools when it comes to equity analysis for investors and financial professionals. Anyone can perform peer group comparisons using information that is widely available on corporate websites or through the SEC.

What Is a Peer Group? The term peer group refers to a group of individuals or companies that share similar characteristics with one another. These characteristics may be age, education, ethnic background, size, industry, or sector. Peer groups are known for their influential nature as they are able to shape the decisions of members of the group. As such, peer groups often contain hierarchies, with clear leaders who sit at the top. Peer groups are often used in analysis in a number of academic and professional fields. Key Takeaways A peer group consists of individuals or organizations that share similar characteristics.Peer groups are known for their influential nature as they're able to shape the decisions of other group members.These groups often contain hierarchies with clear leaders who sit at the top.Peer groups are commonly used for analysis in a number of fields, including financing, marketing, and sociology.Peer group analysis in investing involves the use of financial data to compare similar companies to one another. Understanding Peer Groups As noted above, peer groups contain a number of people or other entities that share one or more similar characteristics. Peer groups allow individuals to be grouped together by certain defining features, such as age, income, education, race, and/or gender. Qualities among members for corporate peer groups include size, industry, sector, and/or financial position. Peer groups are used in a number of different fields, such as finance and marketing, as well as sociology. They are known for the influence they have among group members. They consist of hierarchies, which place one or a few individual group members at the top. These members can often shape the actions and decisions of the other group members. Peer group analysis or peer comparison involves an apples-to-apples comparison. This means the constituents of the peer group should be more or less similar to one another. Comparisons allow professionals to identify trends and anomalies in behavior and outcomes, and give them an opportunity to figure out efficiencies and opportunities: If not immediately obvious, peer groups are sometimes identified by a given company in its 10-K filing and almost always in its proxy filing, though the latter can be more expansive in terms of specific business sectors and is used to set executive compensation plans. Insurance companies compile peer groups to underwrite life or health insurance policies on certain demographics, such as age-related groups or those who do or don't smoke. Using Peer Groups Peer comparison is one of the most widely used and accepted methods of equity analysis used by professional analysts, individual investors, and professionals. Investment Research Because companies in a peer group share similar traits, they lend themselves to relative value analysis. Peer group analysis establishes a valuation for stocks in investment research, as long as the group consists of companies similar to the one being researched. This is especially key when it comes to business areas and market capitalization. Investors can use this analysis to spot valuation anomalies for certain stocks. For example, a stock trading at an earnings multiple of 15x (compared with a 10x multiple for its peer group) may be considered overvalued. Investors can uncover reasons for the higher earnings multiple and ultimately determine that it is deserved. Relative valuation among peers in a group can be efficient and effective, quickly showing which stocks may be overvalued, and which might make good additions to a portfolio. While there are other methods to determine when a stock is worth buying, such as discounted cash flow or technical analysis, peer comparison analysis remains a key tool for uncovering undervalued stocks. Because the data necessary to conduct the analysis is generally public and readily accessible on financial websites, it is easy for anybody to begin employing this method of analysis in order to identify opportunities. Peer group comparisons are also called comparables or comps. Marketing Peer groups are important in advertising and marketing, especially in the age of social media. Leaders in the group or those who are at the top of the hierarchical ladder are commonly known as influencers. Professionals study peer groups to show how they influence buying patterns and consumer trends for advertising and product development purposes. Advantages and Disadvantages of Peer Groups Peer group analysis helps shape many decisions in the financial and investment worlds. There are a number of different benefits to using peer groups, especially in investment analysis. But just like any other analytical tool, there are drawbacks to this form of analysis as well. We've listed some of the most common ones below. Advantages One of the most obvious benefits of using peer group analysis is that it helps investors and analysts uncover undervalued stocks. This is often accomplished by analyzing different metrics, including leverage and profitability among others. Doing so allows the individual to determine companies that should carry higher-than-average valuations. A stock may be considered a buying opportunity if the current valuation is lower than what seems reasonable. Investors and professionals don't have to go far to get the information they need to perform peer group analysis. Data is easily available, either on company websites or through filings done with the Securities and Exchange Commission (SEC). This means the individual doesn't need to do exhaustive research. Conducting peer comparisons give investors a chance to determine certain anomalies and trends that arise with different companies and in the market in general. Disadvantages Doing a peer comparison isn't as easy as it seems. That's because quantitative factors aren't the only considerations. In fact, there are qualitative issues that must be taken into account. This means that the analysis can be fairly subjective. Peer groups often come with certain biases, which can sway an analyst or investor's analysis. For example, some groups come with survivorship bias. This means that the peer group may not contain any companies that underperform. This type of analysis, therefore, doesn't take companies that have gone under or phased out of the group into account. There may not be very many companies in the peer group. When this is the case, peer comparison becomes ineffective. In order for it to work, there needs to get a sizeable group of companies that can be compared to one another. Pros Helps uncover buying opportunities for undervalued securities Accessing data is easily available for comparison Allows anomalies and trends to be identified Cons May be subjective because some investors also consider qualitative factors into account Survivorship bias doesn't account for members that are phased out of the group May not be enough companies in the group Example of a Peer Group Peer groups refer to companies that are in the same industry or sector. These are competitors that are roughly the same size. Peer groups can be found in analyst research reports or an individual company's financial statements. Lockheed Martin is an aerospace, defense, and security company headquartered in Maryland. According to the company's 2017 proxy statement, its peer group consists of other similar companies as its peers, including General Dynamics, Raytheon, and Northrup Grumman. It also lists Caterpillar, UPS, and 3M. Peer Group FAQs What Are the Types of Peer Groups? There are several different types of peer groups, including social groups (cliques, sports teams, etc). In investing and finance, peers may be grouped by industry or sector (consumer staples, retail, telecoms), size (usually by market cap), financial health (profitability, capital structure), or business factors (business models, location, seasonality). What Is Peer Group Analysis? Peer group analysis is a process involving the comparison of entities that share similar characteristics. It is an apples-to-apples comparison of subjects that are fairly similar to one another. This kind of analysis allows for the identification of trends and anomalies in behavior and outcomes. What Is a Peer Group Index? A peer group index is one that groups individual companies together into a single, benchmark index. For instance, the S&P 500 can be considered a peer group index. This index is comprised of 500 of the largest public companies in the United States and is generally considered the best gauge of U.S. large-cap equities. How Can You Use a Peer Group Average in Investing? A peer group average is considered one of the most effective and efficient ways to determine the valuation of a security. Put simply, investors can use certain metrics drawn from corporate financial statements to assess a certain company's stock price compared to its peers. Why Are Firms Classified Into Peer Groups for Ratio Analysis? Companies are grouped into peer groups for ratio analysis as part of fundamental analysis. It allows researchers to determine individual company liquidity, efficiencies, as well as profitability. This is done by examining each company's past and current financial statements and comparing them with one another. Some of the most popular ratios include price-to-earnings (P/E), price-to-book, and price-to-dividend ratios. The Bottom Line Peer groups consist of similar entities that share one or more characteristics in common. They serve a very important purpose in many different fields of study. They can be one of the most useful tools when it comes to equity analysis for investors and financial professionals. Anyone can perform peer group comparisons using information that is widely available on corporate websites or through the SEC.

https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

S&P 500 Average Return and Historical Performance

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-sp-500-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 S&amp;P 500 Index? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The S&amp;P 500 is a market <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalizationweightedindex.asp">capitalization-weighted index</a> of the 500 leading publicly traded companies in the U.S. The index is operated by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp.asp">Standard &amp; Poor's</a> Dow Jones Indices, which is a division of S&amp;P Global. While it assumed its present size (and name) in 1957, the S&amp;P dates back to the 1920s, becoming a composite index tracking 90 stocks in 1926.<span class="ql-inline-citation" data-cite="5"></span> The average annualized return since its inception in 1928 through Dec. 31, 2023, is 9.90%.<span class="ql-inline-citation" data-cite="11"></span> The average annualized return since adopting 500 stocks into the index in 1957 through Dec. 31, 2023, is 10.26%.<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_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aar.asp">average annual return (AAR)</a> is the percentage showing the return of a mutual fund in a given period. In other words, it measures a fund's long-term performance, so it's a vital tool for investors considering a mutual fund investment.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The S&amp;P 500 is a market-capitalization-weighted index of the 500 leading publicly traded companies in the U.S.</li><li>The index acts as a benchmark of the performance of the U.S. stock market overall, dating back to the 1920s.</li><li>The index has returned a historic annualized average return of around 10.26% since its 1957 inception through the end of 2023.</li><li>While that average number may sound attractive, timing is everything: Get in at a high or out at a relative low, and you will not enjoy such returns.</li></ul></div></div></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_8-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/UZZDG/6/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="S&amp;P 500 Returns"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-the-history-of-the-sp-500"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> The History of the S&amp;P 500 </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <li>During the first decade <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/041015/what-history-sp-500.asp">after its introduction</a> in 1957, and reflecting the economic expansion in the U.S after World War II, the value of the index rose to slightly over 800.</li> <li>From 1969 to 1981, the index gradually declined to fall under 360 as a sign of high inflation.<span class="ql-inline-citation" data-cite="12"></span></li> <li>During the 2008 financial crisis and the Great Recession, the S&amp;P 500 fell 56.8% from October 2007 to March 2009.<span class="ql-inline-citation" data-cite="13"></span></li> <li>The S&amp;P bounced back from the crisis and continued its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/market-milestones-as-the-bull-market-turns-10-4588903">10-year bull run</a> from 2009 to 2019 to climb 330%.<span class="ql-inline-citation" data-cite="14"></span></li> <li>The COVID-19 pandemic in 2020 and the subsequent recession caused the S&amp;P 500 to plummet over 15%.</li> <li>The S&amp;P 500 recovered during the second half of 2020, reaching several all-time highs in 2021, but dropped more than 1,500 points in 2022 before rebounding in October 2023.<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_12-0"></div> <span class="heading-toc" id="toc-sp-500-historical-returns"></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"> S&amp;P 500 Historical Returns </span> </h2> <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> <thead> <tr> <th>Year</th> <th>Annual Returns With Dividends</th> </tr> </thead> <tbody data-check="0"> <tr> <td>1995 </td> <td>37.20%</td> </tr> <tr> <td>1996 </td> <td>22.68% </td> </tr> <tr> <td>1997 </td> <td>33.10% </td> </tr> <tr> <td>1998 </td> <td>28.34% </td> </tr> <tr> <td>1999 </td> <td>20.89%</td> </tr> <tr> <td>2000 </td> <td>-9.03% </td> </tr> <tr> <td>2001 </td> <td>-11.85% </td> </tr> <tr> <td>2002 </td> <td>-21.97% </td> </tr> <tr> <td>2003 </td> <td>28.36% </td> </tr> <tr> <td>2004 </td> <td>10.74% </td> </tr> <tr> <td>2005</td> <td>4.83% </td> </tr> <tr> <td>2006 </td> <td>15.61% </td> </tr> <tr> <td>2007 </td> <td>5.48% </td> </tr> <tr> <td>2008 </td> <td>-36.55 </td> </tr> <tr> <td>2009 </td> <td>25.94% </td> </tr> <tr> <td>2010 </td> <td>14.82% </td> </tr> <tr> <td>2011 </td> <td>2.10% </td> </tr> <tr> <td>2012 </td> <td>15.89% </td> </tr> <tr> <td>2013 </td> <td>32.15%</td> </tr> <tr> <td>2014 </td> <td>13.52% </td> </tr> <tr> <td>2015 </td> <td>1.38% </td> </tr> <tr> <td>2016</td> <td>11.77</td> </tr> <tr> <td>2017</td> <td>21.61</td> </tr> <tr> <td>2018 </td> <td>-4.23</td> </tr> <tr> <td>2019 </td> <td>31.21% </td> </tr> <tr> <td>2020 </td> <td>18.02%</td> </tr> <tr> <td>2021</td> <td>28.47%</td> </tr> <tr> <td>2022</td> <td>-18.01%</td> </tr> </tbody> </table> <figcaption>Source: Aswath Damodaran, NYU Stern School of Business</figcaption> </div></figure> <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-inflation-affects-sp-500-returns"></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 Inflation Affects S&amp;P 500 Returns </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Inflation is one of the major problems for an investor hoping to recreate that 10.13% average return regularly. Adjusted for inflation, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/071616/history-sp-500-dividend-yield.asp">historical average annual return</a> is only around 6.37%.<span class="ql-inline-citation" data-cite="10"></span> There is an additional problem posed by the question of whether that inflation-adjusted average is accurate since the adjustment is made using the inflation figures from 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 index that some analysts believe vastly understates the true inflation rate. </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/Kh8rl/2/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="CPI vs S&amp;P"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-how-market-timing-affects-sp-500-returns"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> How Market Timing Affects S&amp;P 500 Returns </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Another major factor in annual returns for an investor in the S&amp;P 500 is when they choose to enter the market. For example, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/122215/spy-spdr-sp-500-trust-etf.asp">SPDR S&amp;P 500 ETF Trust</a> (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY">SPY</a>), which duplicates the index, performed very well for an investor who bought between 2014 and 2018 despite some negativity in their returns between 2020 and 2023.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Investors who buy during market lows and hold their investment or sell at market highs will experience larger returns than those who buy during market highs, particularly if they sell during dips. </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>Attempting to time the market is not advised, particularly for beginning investors.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Stock purchase timing plays a role in returns, but there are long periods between lows and highs. It is also difficult to know or predict these events. For those who want to avoid the missed opportunity of selling during market lows but don't want the risk of active trading, <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> is an option. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_30-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/bWNo7/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="SPY Price"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_32-0"><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_33-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_3-0">503</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The number of stocks listed on the S&amp;P 500. The total number tends to vary because there may be several companies with multiple share classes. These include Google, Meta Platforms, and Berkshire Hathaway.<span class="ql-inline-citation" data-cite="7"></span></p></div></div></div> <span class="heading-toc" id="toc-how-to-invest-in-the-sp-500"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> How to Invest In 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_35-0"> You can’t invest in the S&amp;P 500 directly because it is a stock market index, not an individual stock or fund you can buy. However, you can purchase the stock of S&amp;P Global (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPGI">SPGI</a>), the company that maintains the index.<span class="ql-inline-citation" data-cite="17"></span> You can also purchase one of every stock listed on the S&amp;P 500, but you'll need quite a bit of capital to do so—it might cost around $3,000 to purchase only one of each of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/top-10-s-and-p-500-stocks-by-index-weight-4843111">the top 10 stocks</a> on the index. </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 most people, the simplest and most affordable option for investing in the S&amp;P 500 is to buy shares of an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded fund (ETF)</a> or index fund that mirrors it. In these instruments, a company builds a portfolio of stocks that mirror the S&amp;P 500 index, securitizes and fractionalizes those stocks, and offers them as shares of a fund you can buy. These funds are often provided at a much lower cost than if you were to buy one of every stock on the index to get similar performance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The first step to investing in the index is to open an account with a reputable brokerage firm such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/vanguard-review-4587932">Vanguard</a>, Fidelity, or Charles Schwab. Modern brokers have easy-to-use online platforms, where you can buy and sell most types of investments for minimal or no fees.<br/> </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"> Then, look over the brokers' products and find an ETF or index fund that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/101415/4-best-sp-500-index-funds.asp">mirrors the S&amp;P 500</a>. Some examples are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <li>SPDR S&amp;P 500 ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY">SPY</a>)</li> <li>iShares Core S&amp;P 500 ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVV">IVV</a>)</li> <li>Vanguard S&amp;P 500 ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO">VOO</a>)</li> <li>Invesco S&amp;P 500 Equal Weight ETF (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://www.morningstar.com/etfs/arcx/rsp/quote" rel="sponsored nofollow">RSP</a>)</li> <li>Schwab S&amp;P 500 Index Fund (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="externalLink" href="https://www.morningstar.com/funds/XNAS/SWPPX/quote" rel="sponsored nofollow">SWPPX</a>)</li> <li>Fidelity 500 Index Fund (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="externalLink" href="https://www.morningstar.com/funds/XNAS/FXAIX/quote" rel="sponsored nofollow">FXAIX</a>)</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-what-is-the-average-rate-of-return-for-the-sp-500-for-the-last-20-years"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Average Rate of Return for the S&amp;P 500 for the Last 20 Years?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The average annualized return of the S&amp;P 500 between 2003 and 2023 is 10.20%.<span class="ql-inline-citation" data-cite="9"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-what-is-the-average-rate-of-return-for-the-sp-500-for-the-last-10-years"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Average Rate of Return for the S&amp;P 500 for the Last 10 Years?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The average rate of return for the S&amp;P 500 since 2013 is 13.05%.<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_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-does-the-sp-500-return-include-dividends"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does the S&amp;P 500 Return Include Dividends?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As calculated, S&amp;P 500 returns do not include dividends. However, you can find results from some analysts that include dividends. The list put together by NYU Stern School of Business finance professor Aswath Damodaran is one example.<span class="ql-inline-citation" data-cite="16"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> The S&amp;P 500 is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/041315/what-are-pros-and-cons-using-sp-500-benchmark.asp">standard for measuring overall market returns</a>. There have been many ups and downs in its century of existence, but generally, the index has produced returns over the long run. Since its inception, it has returned 9.81%. </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 can invest in the S&amp;P 500 using index funds and exchange-traded funds that mimic the index and not pay as much as you would for each stock. Investing in funds that track the S&amp;P 500 is a long game, not for the faint of heart—many investors have lost everything by panic selling during a dip. If you're looking for an investment with a long-standing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/071616/history-sp-500-dividend-yield.asp">history of decent long-term returns</a>, S&amp;P 500 funds might be a suitable choice for your portfolio. </p></div>

## What Is the S&P 500 Index? The S&P 500 is a market [capitalization-weighted index](https://www.investopedia.com/terms/c/capitalizationweightedindex.asp) of the 500 leading publicly traded companies in the U.S. The index is operated by [Standard & Poor's](https://www.investopedia.com/terms/s/sp.asp) Dow Jones Indices, which is a division of S&P Global. While it assumed its present size (and name) in 1957, the S&P dates back to the 1920s, becoming a composite index tracking 90 stocks in 1926. The average annualized return since its inception in 1928 through Dec. 31, 2023, is 9.90%. The average annualized return since adopting 500 stocks into the index in 1957 through Dec. 31, 2023, is 10.26%. The [average annual return (AAR)](https://www.investopedia.com/terms/a/aar.asp) is the percentage showing the return of a mutual fund in a given period. In other words, it measures a fund's long-term performance, so it's a vital tool for investors considering a mutual fund investment. ### Key Takeaways * The S&P 500 is a market-capitalization-weighted index of the 500 leading publicly traded companies in the U.S. * The index acts as a benchmark of the performance of the U.S. stock market overall, dating back to the 1920s. * The index has returned a historic annualized average return of around 10.26% since its 1957 inception through the end of 2023. * While that average number may sound attractive, timing is everything: Get in at a high or out at a relative low, and you will not enjoy such returns. ## The History of the S&P 500 * During the first decade [after its introduction](https://www.investopedia.com/ask/answers/041015/what-history-sp-500.asp) in 1957, and reflecting the economic expansion in the U.S after World War II, the value of the index rose to slightly over 800. * From 1969 to 1981, the index gradually declined to fall under 360 as a sign of high inflation. * During the 2008 financial crisis and the Great Recession, the S&P 500 fell 56.8% from October 2007 to March 2009. * The S&P bounced back from the crisis and continued its [10-year bull run](https://www.investopedia.com/market-milestones-as-the-bull-market-turns-10-4588903) from 2009 to 2019 to climb 330%. * The COVID-19 pandemic in 2020 and the subsequent recession caused the S&P 500 to plummet over 15%. * The S&P 500 recovered during the second half of 2020, reaching several all-time highs in 2021, but dropped more than 1,500 points in 2022 before rebounding in October 2023. ## S&P 500 Historical Returns | Year | Annual Returns With Dividends | | --- | --- | | 1995 | 37.20% | | 1996 | 22.68% | | 1997 | 33.10% | | 1998 | 28.34% | | 1999 | 20.89% | | 2000 | -9.03% | | 2001 | -11.85% | | 2002 | -21.97% | | 2003 | 28.36% | | 2004 | 10.74% | | 2005 | 4.83% | | 2006 | 15.61% | | 2007 | 5.48% | | 2008 | -36.55 | | 2009 | 25.94% | | 2010 | 14.82% | | 2011 | 2.10% | | 2012 | 15.89% | | 2013 | 32.15% | | 2014 | 13.52% | | 2015 | 1.38% | | 2016 | 11.77 | | 2017 | 21.61 | | 2018 | -4.23 | | 2019 | 31.21% | | 2020 | 18.02% | | 2021 | 28.47% | | 2022 | -18.01% | Source: Aswath Damodaran, NYU Stern School of Business ## How Inflation Affects S&P 500 Returns Inflation is one of the major problems for an investor hoping to recreate that 10.13% average return regularly. Adjusted for inflation, the [historical average annual return](https://www.investopedia.com/articles/markets/071616/history-sp-500-dividend-yield.asp) is only around 6.37%. There is an additional problem posed by the question of whether that inflation-adjusted average is accurate since the adjustment is made using the inflation figures from the [Consumer Price Index (CPI)](https://www.investopedia.com/terms/c/consumerpriceindex.asp), the index that some analysts believe vastly understates the true inflation rate. ## How Market Timing Affects S&P 500 Returns Another major factor in annual returns for an investor in the S&P 500 is when they choose to enter the market. For example, the [SPDR S&P 500 ETF Trust](https://www.investopedia.com/articles/investing/122215/spy-spdr-sp-500-trust-etf.asp) ([SPY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY)), which duplicates the index, performed very well for an investor who bought between 2014 and 2018 despite some negativity in their returns between 2020 and 2023. Investors who buy during market lows and hold their investment or sell at market highs will experience larger returns than those who buy during market highs, particularly if they sell during dips. ### Attempting to time the market is not advised, particularly for beginning investors. Stock purchase timing plays a role in returns, but there are long periods between lows and highs. It is also difficult to know or predict these events. For those who want to avoid the missed opportunity of selling during market lows but don't want the risk of active trading, [dollar-cost averaging](https://www.investopedia.com/terms/d/dollarcostaveraging.asp) is an option. ### 503 The number of stocks listed on the S&P 500. The total number tends to vary because there may be several companies with multiple share classes. These include Google, Meta Platforms, and Berkshire Hathaway. ## How to Invest In the S&P 500 You can’t invest in the S&P 500 directly because it is a stock market index, not an individual stock or fund you can buy. However, you can purchase the stock of S&P Global ([SPGI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPGI)), the company that maintains the index. You can also purchase one of every stock listed on the S&P 500, but you'll need quite a bit of capital to do so—it might cost around $3,000 to purchase only one of each of [the top 10 stocks](https://www.investopedia.com/top-10-s-and-p-500-stocks-by-index-weight-4843111) on the index. For most people, the simplest and most affordable option for investing in the S&P 500 is to buy shares of an [exchange-traded fund (ETF)](https://www.investopedia.com/terms/e/etf.asp) or index fund that mirrors it. In these instruments, a company builds a portfolio of stocks that mirror the S&P 500 index, securitizes and fractionalizes those stocks, and offers them as shares of a fund you can buy. These funds are often provided at a much lower cost than if you were to buy one of every stock on the index to get similar performance. The first step to investing in the index is to open an account with a reputable brokerage firm such as [Vanguard](https://www.investopedia.com/vanguard-review-4587932), Fidelity, or Charles Schwab. Modern brokers have easy-to-use online platforms, where you can buy and sell most types of investments for minimal or no fees. Then, look over the brokers' products and find an ETF or index fund that [mirrors the S&P 500](https://www.investopedia.com/articles/markets/101415/4-best-sp-500-index-funds.asp). Some examples are: * SPDR S&P 500 ETF ([SPY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY)) * iShares Core S&P 500 ETF ([IVV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVV)) * Vanguard S&P 500 ETF ([VOO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO)) * Invesco S&P 500 Equal Weight ETF ([RSP](https://www.morningstar.com/etfs/arcx/rsp/quote)) * Schwab S&P 500 Index Fund ([SWPPX](https://www.morningstar.com/funds/XNAS/SWPPX/quote)) * Fidelity 500 Index Fund ([FXAIX](https://www.morningstar.com/funds/XNAS/FXAIX/quote)) ## What Is the Average Rate of Return for the S&P 500 for the Last 20 Years? The average annualized return of the S&P 500 between 2003 and 2023 is 10.20%. ## What Is the Average Rate of Return for the S&P 500 for the Last 10 Years? The average rate of return for the S&P 500 since 2013 is 13.05%. ## Does the S&P 500 Return Include Dividends? As calculated, S&P 500 returns do not include dividends. However, you can find results from some analysts that include dividends. The list put together by NYU Stern School of Business finance professor Aswath Damodaran is one example. ## The Bottom Line The S&P 500 is the [standard for measuring overall market returns](https://www.investopedia.com/ask/answers/041315/what-are-pros-and-cons-using-sp-500-benchmark.asp). There have been many ups and downs in its century of existence, but generally, the index has produced returns over the long run. Since its inception, it has returned 9.81%. You can invest in the S&P 500 using index funds and exchange-traded funds that mimic the index and not pay as much as you would for each stock. Investing in funds that track the S&P 500 is a long game, not for the faint of heart—many investors have lost everything by panic selling during a dip. If you're looking for an investment with a long-standing [history of decent long-term returns](https://www.investopedia.com/articles/markets/071616/history-sp-500-dividend-yield.asp), S&P 500 funds might be a suitable choice for your portfolio.

What Is the S&P 500 Index? The S&P 500 is a market capitalization-weighted index of the 500 leading publicly traded companies in the U.S. The index is operated by Standard & Poor's Dow Jones Indices, which is a division of S&P Global. While it assumed its present size (and name) in 1957, the S&P dates back to the 1920s, becoming a composite index tracking 90 stocks in 1926. The average annualized return since its inception in 1928 through Dec. 31, 2023, is 9.90%. The average annualized return since adopting 500 stocks into the index in 1957 through Dec. 31, 2023, is 10.26%. The average annual return (AAR) is the percentage showing the return of a mutual fund in a given period. In other words, it measures a fund's long-term performance, so it's a vital tool for investors considering a mutual fund investment. Key Takeaways The S&P 500 is a market-capitalization-weighted index of the 500 leading publicly traded companies in the U.S.The index acts as a benchmark of the performance of the U.S. stock market overall, dating back to the 1920s.The index has returned a historic annualized average return of around 10.26% since its 1957 inception through the end of 2023.While that average number may sound attractive, timing is everything: Get in at a high or out at a relative low, and you will not enjoy such returns. The History of the S&P 500 During the first decade after its introduction in 1957, and reflecting the economic expansion in the U.S after World War II, the value of the index rose to slightly over 800. From 1969 to 1981, the index gradually declined to fall under 360 as a sign of high inflation. During the 2008 financial crisis and the Great Recession, the S&P 500 fell 56.8% from October 2007 to March 2009. The S&P bounced back from the crisis and continued its 10-year bull run from 2009 to 2019 to climb 330%. The COVID-19 pandemic in 2020 and the subsequent recession caused the S&P 500 to plummet over 15%. The S&P 500 recovered during the second half of 2020, reaching several all-time highs in 2021, but dropped more than 1,500 points in 2022 before rebounding in October 2023. S&P 500 Historical Returns Year Annual Returns With Dividends 1995  37.20% 1996  22.68%  1997  33.10%  1998  28.34%  1999  20.89% 2000  -9.03%  2001  -11.85%  2002  -21.97%  2003  28.36%  2004  10.74%  2005 4.83%  2006  15.61%  2007  5.48%  2008  -36.55  2009  25.94%  2010  14.82%  2011  2.10%  2012  15.89%  2013  32.15% 2014  13.52%  2015  1.38%  2016 11.77 2017 21.61 2018  -4.23 2019  31.21%  2020  18.02% 2021 28.47% 2022 -18.01% Source: Aswath Damodaran, NYU Stern School of Business How Inflation Affects S&P 500 Returns Inflation is one of the major problems for an investor hoping to recreate that 10.13% average return regularly. Adjusted for inflation, the historical average annual return is only around 6.37%. There is an additional problem posed by the question of whether that inflation-adjusted average is accurate since the adjustment is made using the inflation figures from the Consumer Price Index (CPI), the index that some analysts believe vastly understates the true inflation rate. How Market Timing Affects S&P 500 Returns Another major factor in annual returns for an investor in the S&P 500 is when they choose to enter the market. For example, the SPDR S&P 500 ETF Trust (SPY), which duplicates the index, performed very well for an investor who bought between 2014 and 2018 despite some negativity in their returns between 2020 and 2023. Investors who buy during market lows and hold their investment or sell at market highs will experience larger returns than those who buy during market highs, particularly if they sell during dips. Attempting to time the market is not advised, particularly for beginning investors. Stock purchase timing plays a role in returns, but there are long periods between lows and highs. It is also difficult to know or predict these events. For those who want to avoid the missed opportunity of selling during market lows but don't want the risk of active trading, dollar-cost averaging is an option. 503 The number of stocks listed on the S&P 500. The total number tends to vary because there may be several companies with multiple share classes. These include Google, Meta Platforms, and Berkshire Hathaway. How to Invest In the S&P 500 You can’t invest in the S&P 500 directly because it is a stock market index, not an individual stock or fund you can buy. However, you can purchase the stock of S&P Global (SPGI), the company that maintains the index. You can also purchase one of every stock listed on the S&P 500, but you'll need quite a bit of capital to do so—it might cost around $3,000 to purchase only one of each of the top 10 stocks on the index. For most people, the simplest and most affordable option for investing in the S&P 500 is to buy shares of an exchange-traded fund (ETF) or index fund that mirrors it. In these instruments, a company builds a portfolio of stocks that mirror the S&P 500 index, securitizes and fractionalizes those stocks, and offers them as shares of a fund you can buy. These funds are often provided at a much lower cost than if you were to buy one of every stock on the index to get similar performance. The first step to investing in the index is to open an account with a reputable brokerage firm such as Vanguard, Fidelity, or Charles Schwab. Modern brokers have easy-to-use online platforms, where you can buy and sell most types of investments for minimal or no fees. Then, look over the brokers' products and find an ETF or index fund that mirrors the S&P 500. Some examples are: SPDR S&P 500 ETF (SPY) iShares Core S&P 500 ETF (IVV) Vanguard S&P 500 ETF (VOO) Invesco S&P 500 Equal Weight ETF (RSP) Schwab S&P 500 Index Fund (SWPPX) Fidelity 500 Index Fund (FXAIX) What Is the Average Rate of Return for the S&P 500 for the Last 20 Years? The average annualized return of the S&P 500 between 2003 and 2023 is 10.20%. What Is the Average Rate of Return for the S&P 500 for the Last 10 Years? The average rate of return for the S&P 500 since 2013 is 13.05%. Does the S&P 500 Return Include Dividends? As calculated, S&P 500 returns do not include dividends. However, you can find results from some analysts that include dividends. The list put together by NYU Stern School of Business finance professor Aswath Damodaran is one example. The Bottom Line The S&P 500 is the standard for measuring overall market returns. There have been many ups and downs in its century of existence, but generally, the index has produced returns over the long run. Since its inception, it has returned 9.81%. You can invest in the S&P 500 using index funds and exchange-traded funds that mimic the index and not pay as much as you would for each stock. Investing in funds that track the S&P 500 is a long game, not for the faint of heart—many investors have lost everything by panic selling during a dip. If you're looking for an investment with a long-standing history of decent long-term returns, S&P 500 funds might be a suitable choice for your portfolio.

https://www.investopedia.com/capital-one-adds-new-perks-for-venture-cardholders-deadline-for-venture-x-bonus-5220798

Capital One Adds New Perks for Venture Cardholders, Deadline for Venture X Bonus

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Capital One has announced new additions to its list of travel transfer partners and is adding the option to cancel a flight through Capital One Travel for any reason. Additionally, the card issuer has added a deadline for the inaugural new-cardholder bonus on the Venture X credit card. </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>Capital One is beefing up its offering for select business and consumer cardholders.</li><li>The bank has added Virgin Red as a transfer partner and has introduced a limited-time offer on other transfers.</li><li>Venture and Spark Miles cardholders will also get more value through a flight cancellation feature on the Capital One Travel platform.</li><li>The card issuer has also set a deadline for new Venture X cardholders who want to earn the inaugural 100,000-mile and vacation rental offer.</li></ul></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-subheading__text"> Capital One Adds Value to Its Travel Offering </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Capital One has caught up with other top travel rewards programs in recent years, adding transfer partners to its Venture and Spark Miles rewards programs, launching Capital One Travel and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/capital-one-launches-new-premium-venture-x-credit-card-5208212">introducing the premium Venture X credit card</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Today, the card issuer has announced additional features that will add even more value for new and existing cardholders: </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>New transfer partner: </strong>Capital One will soon add Virgin Red to its list of 1:1 transfer partners. The new loyalty program works across all brands in the Virgin family, and Capital One is currently the only credit card issuer partnering with the program. The bank now has 16 travel transfer partners.<span class="ql-inline-citation" data-cite="1"></span></li><li><strong>Other transfer partner bonuses: </strong>The card issuer has launched a promotion offering 20% bonuses on transfers to Aeromexico Club Premier, Avianca LifeMiles, and Wyndham Hotels &amp; Resorts. In other words, if you transfer 1,000 miles to any of these partners from March 1 to March 31, you'll receive 1,200 points or miles with the partner airline or hotel group. </li><li><strong>New flight cancellation feature: </strong>Capital One will soon launch a feature on its booking platform, Capital One Travel. The new feature will allow Venture and Spark Miles cardholders<span class="ql-inline-citation" data-cite="2"></span> to cancel a flight for any reason and receive 70% to 90% of their money back in lieu of a travel voucher, for a small fee. There are no questions asked and you can cancel up to 24 hours before your first scheduled departure time. According to a Capital One representative, your fee and refund will depend on the flight route, how far in advance the flight was booked, the departure date and other factors. </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"> Additionally, Capital One has announced a deadline for the 100,000-mile offer on its new Venture X credit card. If you apply by March 14, you'll receive 100,000 bonus miles if you spend $10,000 in the first six months. You can also get up to $200 in statement credits toward Airbnb or VRBO purchases during your first year with the card. </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's unclear yet what the new-cardholder bonus will be after the March 14 deadline. </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>

Capital One has announced new additions to its list of travel transfer partners and is adding the option to cancel a flight through Capital One Travel for any reason. Additionally, the card issuer has added a deadline for the inaugural new-cardholder bonus on the Venture X credit card. ### Key Takeaways * Capital One is beefing up its offering for select business and consumer cardholders. * The bank has added Virgin Red as a transfer partner and has introduced a limited-time offer on other transfers. * Venture and Spark Miles cardholders will also get more value through a flight cancellation feature on the Capital One Travel platform. * The card issuer has also set a deadline for new Venture X cardholders who want to earn the inaugural 100,000-mile and vacation rental offer. ### Capital One Adds Value to Its Travel Offering Capital One has caught up with other top travel rewards programs in recent years, adding transfer partners to its Venture and Spark Miles rewards programs, launching Capital One Travel and [introducing the premium Venture X credit card](https://www.investopedia.com/capital-one-launches-new-premium-venture-x-credit-card-5208212). Today, the card issuer has announced additional features that will add even more value for new and existing cardholders: * **New transfer partner:** Capital One will soon add Virgin Red to its list of 1:1 transfer partners. The new loyalty program works across all brands in the Virgin family, and Capital One is currently the only credit card issuer partnering with the program. The bank now has 16 travel transfer partners. * **Other transfer partner bonuses:** The card issuer has launched a promotion offering 20% bonuses on transfers to Aeromexico Club Premier, Avianca LifeMiles, and Wyndham Hotels & Resorts. In other words, if you transfer 1,000 miles to any of these partners from March 1 to March 31, you'll receive 1,200 points or miles with the partner airline or hotel group. * **New flight cancellation feature:** Capital One will soon launch a feature on its booking platform, Capital One Travel. The new feature will allow Venture and Spark Miles cardholders to cancel a flight for any reason and receive 70% to 90% of their money back in lieu of a travel voucher, for a small fee. There are no questions asked and you can cancel up to 24 hours before your first scheduled departure time. According to a Capital One representative, your fee and refund will depend on the flight route, how far in advance the flight was booked, the departure date and other factors. Additionally, Capital One has announced a deadline for the 100,000-mile offer on its new Venture X credit card. If you apply by March 14, you'll receive 100,000 bonus miles if you spend $10,000 in the first six months. You can also get up to $200 in statement credits toward Airbnb or VRBO purchases during your first year with the card. It's unclear yet what the new-cardholder bonus will be after the March 14 deadline. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Capital One has announced new additions to its list of travel transfer partners and is adding the option to cancel a flight through Capital One Travel for any reason. Additionally, the card issuer has added a deadline for the inaugural new-cardholder bonus on the Venture X credit card. Key Takeaways Capital One is beefing up its offering for select business and consumer cardholders.The bank has added Virgin Red as a transfer partner and has introduced a limited-time offer on other transfers.Venture and Spark Miles cardholders will also get more value through a flight cancellation feature on the Capital One Travel platform.The card issuer has also set a deadline for new Venture X cardholders who want to earn the inaugural 100,000-mile and vacation rental offer. Capital One Adds Value to Its Travel Offering Capital One has caught up with other top travel rewards programs in recent years, adding transfer partners to its Venture and Spark Miles rewards programs, launching Capital One Travel and introducing the premium Venture X credit card. Today, the card issuer has announced additional features that will add even more value for new and existing cardholders: New transfer partner: Capital One will soon add Virgin Red to its list of 1:1 transfer partners. The new loyalty program works across all brands in the Virgin family, and Capital One is currently the only credit card issuer partnering with the program. The bank now has 16 travel transfer partners.Other transfer partner bonuses: The card issuer has launched a promotion offering 20% bonuses on transfers to Aeromexico Club Premier, Avianca LifeMiles, and Wyndham Hotels & Resorts. In other words, if you transfer 1,000 miles to any of these partners from March 1 to March 31, you'll receive 1,200 points or miles with the partner airline or hotel group. New flight cancellation feature: Capital One will soon launch a feature on its booking platform, Capital One Travel. The new feature will allow Venture and Spark Miles cardholders to cancel a flight for any reason and receive 70% to 90% of their money back in lieu of a travel voucher, for a small fee. There are no questions asked and you can cancel up to 24 hours before your first scheduled departure time. According to a Capital One representative, your fee and refund will depend on the flight route, how far in advance the flight was booked, the departure date and other factors. Additionally, Capital One has announced a deadline for the 100,000-mile offer on its new Venture X credit card. If you apply by March 14, you'll receive 100,000 bonus miles if you spend $10,000 in the first six months. You can also get up to $200 in statement credits toward Airbnb or VRBO purchases during your first year with the card. It's unclear yet what the new-cardholder bonus will be after the March 14 deadline. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Material News

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-material-news"></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 Material News? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Material news is news that a company releases that might affect the value of its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp" rel="noopener noreferrer">securities</a> or influence investors' decisions. It is any type of news that directly relates to the company's business, and depending on the news, it will move the company's share price up or down. </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>Material news includes information such as corporate events, earnings results, stock splits, and all other price-sensitive developments in a company.</li><li>The release of material news can move the share price of a company's stock, either up or down, depending on the news.</li><li>The New York Stock Exchange (NYSE) has rules around when a company can release material news.</li><li>Material news is different from material insider information, which is information that has not been made public but will affect a company's share price.</li><li>Many investors and funds have trading strategies based on material news.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-material-news"></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 Material News </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Material news includes information such as corporate events, earnings results, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stocksplit.asp" rel="noopener noreferrer">stock splits</a>, and all other price-sensitive developments in a company, including proposed <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/acquisition.asp" rel="noopener noreferrer">acquisitions</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/merger.asp" rel="noopener noreferrer">mergers</a>, profit warnings, and the resignation of directors. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp" rel="noopener noreferrer">New York Stock Exchange</a> (NYSE) <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://nyseguide.srorules.com/listed-company-manual" rel="noopener noreferrer nofollow">Listed Company Manual</a> requires listed companies to notify the NYSE at least 10 minutes in advance of any announcement of material news during trading hours so that NYSE can choose to temporarily halt trading in the company’s securities.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Because material news affects a company's stock price, depending on if the news is positive or negative, a company's share price will either increase or decrease. If there are significant drops in a company's share price, the NYSE can halt trading to prevent any market panic. </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-nyse-material-news-rules"></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"> NYSE Material News Rules </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> On Dec. 4, 2017, the NYSE changed its rules to prohibit listed companies from issuing material news after the close of trading, which is 4 p.m. Eastern Time, until the earlier of the following scenarios: publication of the company’s official NYSE <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closingprice.asp" rel="noopener noreferrer">closing price</a> or five minutes after the close of 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_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> This 2017 change amended the earlier 2015 amendment of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://nyseguide.srorules.com/listed-company-manual/document?treeNodeId=csh-da-filter!WKUS-TAL-DOCS-PHC-%7B0588BF4A-D3B5-4B91-94EA-BE9F17057DF0%7D--WKUS_TAL_5667%23teid-36" rel="noopener noreferrer nofollow">Section 202.06</a> of the NYSE Listed Company Manual, which merely requested or advised listed companies that wanted to release material news after the close of trading to wait 15 minutes, or till the publication of the company’s official closing price if posted earlier.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> This delay is meant to avoid investor confusion in cases where trading on other markets continued after the close of trading on the NYSE, and information released by a company after the close of trading on the NYSE caused differences between the NYSE closing price and trading prices on other markets. </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"> Despite the 2015 addition of advisory text in Section 202.06, the NYSE continued to experience situations where material news released shortly after the close of trading resulted in investor confusion. To avoid pricing disruptions when the NYSE closing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/auctionmarket.asp" rel="noopener noreferrer">auction</a> is delayed more than five minutes, Section 202.06 as amended will continue to include advisory text requesting that companies avoid issuing material news until 15 minutes after the NYSE’s official closing time, or earlier publication of the company's official closing price.<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"> The NYSE publishes its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_2020_Listed_Company_Compliance_Guidance_Memo.pdf" rel="noopener noreferrer">Listed Company Compliance Guidance</a> annually, which should always be consulted for any changes in any NYSE policy. </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-material-news-vs-material-insider-information"></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"> Material News vs. Material Insider Information </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Material news is the company's price-sensitive information announced publicly to shareholders, while <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/materialinsiderinformation.asp" rel="noopener noreferrer">material insider information</a> is material information about certain aspects of a company that has not yet been made public, but that will have an impact on the company's share price once released. </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 is illegal for holders of material <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insiderinformation.asp" rel="noopener noreferrer">insider information</a> to use the information to their advantage in trading the company's stock or in providing the information to family members or friends so that they can use it to make trades. </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 use of insider information, known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insidertrading.asp" rel="noopener noreferrer">insider trading</a>, is severely punished by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp" rel="noopener noreferrer">Securities and Exchange Commission</a> (SEC). Penalties include significant monetary fines and imprisonment. </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-trading-material-news"></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"> Trading Material News </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Algorithmic trading makes it easier for quantitative hedge funds to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/111313/how-trade-news.asp" rel="noopener noreferrer">trade off of news headlines</a>, compared to human reaction speeds. Oftentimes, when material news is released, a stock can move more pronounced initially, but recover after the new information has been digested by the marketplace. Traders can use algorithmic trading to take advantage of the few minutes or hours before the news has been digested and market recovery takes place. </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 general, trading the news is a common strategy employed by many investors, who make decisions before or after material news is announced. The key areas to consider when trading the news is if the news is already priced into the stock's valuation and has the news met market expectations. </p></div>

## What Is Material News? Material news is news that a company releases that might affect the value of its [securities](https://www.investopedia.com/terms/s/security.asp) or influence investors' decisions. It is any type of news that directly relates to the company's business, and depending on the news, it will move the company's share price up or down. ### Key Takeaways * Material news includes information such as corporate events, earnings results, stock splits, and all other price-sensitive developments in a company. * The release of material news can move the share price of a company's stock, either up or down, depending on the news. * The New York Stock Exchange (NYSE) has rules around when a company can release material news. * Material news is different from material insider information, which is information that has not been made public but will affect a company's share price. * Many investors and funds have trading strategies based on material news. ## Understanding Material News Material news includes information such as corporate events, earnings results, [stock splits](https://www.investopedia.com/terms/s/stocksplit.asp), and all other price-sensitive developments in a company, including proposed [acquisitions](https://www.investopedia.com/terms/a/acquisition.asp), [mergers](https://www.investopedia.com/terms/m/merger.asp), profit warnings, and the resignation of directors. The [New York Stock Exchange](https://www.investopedia.com/terms/n/nyse.asp) (NYSE) [Listed Company Manual](https://nyseguide.srorules.com/listed-company-manual) requires listed companies to notify the NYSE at least 10 minutes in advance of any announcement of material news during trading hours so that NYSE can choose to temporarily halt trading in the company’s securities. Because material news affects a company's stock price, depending on if the news is positive or negative, a company's share price will either increase or decrease. If there are significant drops in a company's share price, the NYSE can halt trading to prevent any market panic. ## NYSE Material News Rules On Dec. 4, 2017, the NYSE changed its rules to prohibit listed companies from issuing material news after the close of trading, which is 4 p.m. Eastern Time, until the earlier of the following scenarios: publication of the company’s official NYSE [closing price](https://www.investopedia.com/terms/c/closingprice.asp) or five minutes after the close of trading. This 2017 change amended the earlier 2015 amendment of [Section 202.06](https://nyseguide.srorules.com/listed-company-manual/document?treeNodeId=csh-da-filter!WKUS-TAL-DOCS-PHC-%7B0588BF4A-D3B5-4B91-94EA-BE9F17057DF0%7D--WKUS_TAL_5667%23teid-36) of the NYSE Listed Company Manual, which merely requested or advised listed companies that wanted to release material news after the close of trading to wait 15 minutes, or till the publication of the company’s official closing price if posted earlier. This delay is meant to avoid investor confusion in cases where trading on other markets continued after the close of trading on the NYSE, and information released by a company after the close of trading on the NYSE caused differences between the NYSE closing price and trading prices on other markets. Despite the 2015 addition of advisory text in Section 202.06, the NYSE continued to experience situations where material news released shortly after the close of trading resulted in investor confusion. To avoid pricing disruptions when the NYSE closing [auction](https://www.investopedia.com/terms/a/auctionmarket.asp) is delayed more than five minutes, Section 202.06 as amended will continue to include advisory text requesting that companies avoid issuing material news until 15 minutes after the NYSE’s official closing time, or earlier publication of the company's official closing price. The NYSE publishes its [Listed Company Compliance Guidance](https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_2020_Listed_Company_Compliance_Guidance_Memo.pdf) annually, which should always be consulted for any changes in any NYSE policy. ## Material News vs. Material Insider Information Material news is the company's price-sensitive information announced publicly to shareholders, while [material insider information](https://www.investopedia.com/terms/m/materialinsiderinformation.asp) is material information about certain aspects of a company that has not yet been made public, but that will have an impact on the company's share price once released. It is illegal for holders of material [insider information](https://www.investopedia.com/terms/i/insiderinformation.asp) to use the information to their advantage in trading the company's stock or in providing the information to family members or friends so that they can use it to make trades. The use of insider information, known as [insider trading](https://www.investopedia.com/terms/i/insidertrading.asp), is severely punished by the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC). Penalties include significant monetary fines and imprisonment. ## Trading Material News Algorithmic trading makes it easier for quantitative hedge funds to [trade off of news headlines](https://www.investopedia.com/articles/active-trading/111313/how-trade-news.asp), compared to human reaction speeds. Oftentimes, when material news is released, a stock can move more pronounced initially, but recover after the new information has been digested by the marketplace. Traders can use algorithmic trading to take advantage of the few minutes or hours before the news has been digested and market recovery takes place. In general, trading the news is a common strategy employed by many investors, who make decisions before or after material news is announced. The key areas to consider when trading the news is if the news is already priced into the stock's valuation and has the news met market expectations.

What Is Material News? Material news is news that a company releases that might affect the value of its securities or influence investors' decisions. It is any type of news that directly relates to the company's business, and depending on the news, it will move the company's share price up or down. Key Takeaways Material news includes information such as corporate events, earnings results, stock splits, and all other price-sensitive developments in a company.The release of material news can move the share price of a company's stock, either up or down, depending on the news.The New York Stock Exchange (NYSE) has rules around when a company can release material news.Material news is different from material insider information, which is information that has not been made public but will affect a company's share price.Many investors and funds have trading strategies based on material news. Understanding Material News Material news includes information such as corporate events, earnings results, stock splits, and all other price-sensitive developments in a company, including proposed acquisitions, mergers, profit warnings, and the resignation of directors. The New York Stock Exchange (NYSE) Listed Company Manual requires listed companies to notify the NYSE at least 10 minutes in advance of any announcement of material news during trading hours so that NYSE can choose to temporarily halt trading in the company’s securities. Because material news affects a company's stock price, depending on if the news is positive or negative, a company's share price will either increase or decrease. If there are significant drops in a company's share price, the NYSE can halt trading to prevent any market panic. NYSE Material News Rules On Dec. 4, 2017, the NYSE changed its rules to prohibit listed companies from issuing material news after the close of trading, which is 4 p.m. Eastern Time, until the earlier of the following scenarios: publication of the company’s official NYSE closing price or five minutes after the close of trading. This 2017 change amended the earlier 2015 amendment of Section 202.06 of the NYSE Listed Company Manual, which merely requested or advised listed companies that wanted to release material news after the close of trading to wait 15 minutes, or till the publication of the company’s official closing price if posted earlier. This delay is meant to avoid investor confusion in cases where trading on other markets continued after the close of trading on the NYSE, and information released by a company after the close of trading on the NYSE caused differences between the NYSE closing price and trading prices on other markets. Despite the 2015 addition of advisory text in Section 202.06, the NYSE continued to experience situations where material news released shortly after the close of trading resulted in investor confusion. To avoid pricing disruptions when the NYSE closing auction is delayed more than five minutes, Section 202.06 as amended will continue to include advisory text requesting that companies avoid issuing material news until 15 minutes after the NYSE’s official closing time, or earlier publication of the company's official closing price. The NYSE publishes its Listed Company Compliance Guidance annually, which should always be consulted for any changes in any NYSE policy. Material News vs. Material Insider Information Material news is the company's price-sensitive information announced publicly to shareholders, while material insider information is material information about certain aspects of a company that has not yet been made public, but that will have an impact on the company's share price once released. It is illegal for holders of material insider information to use the information to their advantage in trading the company's stock or in providing the information to family members or friends so that they can use it to make trades. The use of insider information, known as insider trading, is severely punished by the Securities and Exchange Commission (SEC). Penalties include significant monetary fines and imprisonment. Trading Material News Algorithmic trading makes it easier for quantitative hedge funds to trade off of news headlines, compared to human reaction speeds. Oftentimes, when material news is released, a stock can move more pronounced initially, but recover after the new information has been digested by the marketplace. Traders can use algorithmic trading to take advantage of the few minutes or hours before the news has been digested and market recovery takes place. In general, trading the news is a common strategy employed by many investors, who make decisions before or after material news is announced. The key areas to consider when trading the news is if the news is already priced into the stock's valuation and has the news met market expectations.

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

Unit Trust (UT): What It Is and How to Invest

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-unit-trust-ut"></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 Unit Trust (UT)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A unit trust is an unincorporated <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> structure that holds assets and provides profits to individual unit owners instead of reinvesting into the fund. A unit trust is established under a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustdeed.asp">trust deed</a>, and the investor is the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beneficiary-of-trust.asp">beneficiary</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>Unit trusts are unincorporated mutual funds that pass profits directly to investors rather than reinvest in the fund.</li><li>In the United Kingdom, a unit trust is regarded as similar to a mutual fund in the United States.</li><li>A fund manager directs the investments of a unit trust, and the investor is the beneficiary of the unit trust.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-unit-trusts-uts"></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 Unit Trusts (UTs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A unit trust is a collective investment packaged under a trust deed. The fund manager may invest in bonds or shares on the stock market, and the fund is split into units, which investors purchase. Unit trusts provide access to securities, mortgages, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashequivalents.asp">cash equivalents</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Unit trust structures vary by region but are offered in Guernsey, Jersey, Fiji, Ireland, New Zealand, Australia, Canada, Namibia, Kenya, Singapore, South Africa, the U.K., the Isle of Man, and Malaysia. In Asia, a unit trust is the same as a mutual fund. In Canada, these investments are called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/canadianincometrust.asp">income trusts</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-managing-a-unit-trust"></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"> Managing a Unit Trust </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundmanager.asp">Fund managers</a> direct the portfolio of unit trusts. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustee.asp">Trustees</a> are assigned to ensure that the fund manager runs the trust following the fund’s investment goals and objectives and are often <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiduciary.asp">fiduciaries</a> protecting the best interest of the beneficiaries. Owners of unit trusts are called unit-holders, and they hold the rights to the trust’s assets. Registrars act as <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/middleman.asp">middlemen</a> or liaisons for both parties. </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-unit-trusts-make-money"></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 Unit Trusts Make Money </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The underlying value of the assets in a unit trust portfolio is directly stated by the number of units issued multiplied by the price per unit minus transaction fees, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/managementfee.asp">management fees</a>, and associated costs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_18-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>In a unit trust, the price of each unit is based on the fund's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nav.asp">net asset value (NAV)</a> divided by the number of units outstanding.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Unit trusts allow for new contributions and withdrawals to and from the pool. When money is added to the trust, more units are made to match the current unit buying price. When units are withdrawn, assets are sold to match the current unit selling price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Fund managers make money through the difference between buying price, or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/ask.asp">offer price</a>, and the selling price, or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bid.asp">bid price</a>. The difference between the offer price and the bid price is called the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bid-askspread.asp">bid-offer spread</a> and depends on the assets managed. </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-advantages-and-disadvantages-of-a-unit-trust"></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"> Advantages and Disadvantages of a Unit Trust </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> As in all investments, there are risks and benefits associated with a unit trust.<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_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_26-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_27-0"> <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>Managed by a financial professional</p></li> <li><p>One unit includes investments in a diversified portfolio</p></li> <li><p>No obligation or fixed investment term required</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>Performance of the trust depends on the fund manager</p></li> <li><p>Management Fees</p></li> <li><p>Principal investment is not guaranteed</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_29-0"><span class="heading-toc" id="toc-how-do-unit-trusts-differ-from-mutual-funds"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Unit Trusts Differ From Mutual Funds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Mutual funds are investments made from pooled money from investors and can include bonds and equities. However, a unit trust differs from a mutual fund in that a unit trust is established under a trust deed, and the investor is effectively the beneficiary.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-what-is-the-risk-of-investing-in-a-unit-trust"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Risk of Investing in a Unit Trust?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A unit trust carries risk just like other investments. The unit value or income may decrease, and an investor's principal is not guaranteed.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-how-do-investors-withdraw-money-from-a-unit-trust"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Investors Withdraw Money From a Unit Trust?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investors can exit the fund by selling units at the bid price. To earn a profit, the bid price must be higher than the offer price initially paid for the unit.<span class="ql-inline-citation" data-cite="1"></span> </p><p><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> A unit trust is an unincorporated mutual fund that holds assets and provides profits to individual unit owners instead of reinvesting into the fund. A unit trust is established under a trust deed, with the investor as the beneficiary. Unit trusts often include diversified portfolios and are managed by a financial professional.<br/> </p></div>

## What Is a Unit Trust (UT)? A unit trust is an unincorporated [mutual fund](https://www.investopedia.com/terms/m/mutualfund.asp) structure that holds assets and provides profits to individual unit owners instead of reinvesting into the fund. A unit trust is established under a [trust deed](https://www.investopedia.com/terms/t/trustdeed.asp), and the investor is the [beneficiary](https://www.investopedia.com/terms/b/beneficiary-of-trust.asp). ### Key Takeaways * Unit trusts are unincorporated mutual funds that pass profits directly to investors rather than reinvest in the fund. * In the United Kingdom, a unit trust is regarded as similar to a mutual fund in the United States. * A fund manager directs the investments of a unit trust, and the investor is the beneficiary of the unit trust. ## Understanding Unit Trusts (UTs) A unit trust is a collective investment packaged under a trust deed. The fund manager may invest in bonds or shares on the stock market, and the fund is split into units, which investors purchase. Unit trusts provide access to securities, mortgages, and [cash equivalents](https://www.investopedia.com/terms/c/cashequivalents.asp). Unit trust structures vary by region but are offered in Guernsey, Jersey, Fiji, Ireland, New Zealand, Australia, Canada, Namibia, Kenya, Singapore, South Africa, the U.K., the Isle of Man, and Malaysia. In Asia, a unit trust is the same as a mutual fund. In Canada, these investments are called [income trusts](https://www.investopedia.com/terms/c/canadianincometrust.asp). ## Managing a Unit Trust [Fund managers](https://www.investopedia.com/terms/f/fundmanager.asp) direct the portfolio of unit trusts. [Trustees](https://www.investopedia.com/terms/t/trustee.asp) are assigned to ensure that the fund manager runs the trust following the fund’s investment goals and objectives and are often [fiduciaries](https://www.investopedia.com/terms/f/fiduciary.asp) protecting the best interest of the beneficiaries. Owners of unit trusts are called unit-holders, and they hold the rights to the trust’s assets. Registrars act as [middlemen](https://www.investopedia.com/terms/m/middleman.asp) or liaisons for both parties. ## How Unit Trusts Make Money The underlying value of the assets in a unit trust portfolio is directly stated by the number of units issued multiplied by the price per unit minus transaction fees, [management fees](https://www.investopedia.com/terms/m/managementfee.asp), and associated costs. ### In a unit trust, the price of each unit is based on the fund's [net asset value (NAV)](https://www.investopedia.com/terms/n/nav.asp) divided by the number of units outstanding. Unit trusts allow for new contributions and withdrawals to and from the pool. When money is added to the trust, more units are made to match the current unit buying price. When units are withdrawn, assets are sold to match the current unit selling price. Fund managers make money through the difference between buying price, or [offer price](https://www.investopedia.com/terms/a/ask.asp), and the selling price, or [bid price](https://www.investopedia.com/terms/b/bid.asp). The difference between the offer price and the bid price is called the [bid-offer spread](https://www.investopedia.com/terms/b/bid-askspread.asp) and depends on the assets managed. ## Advantages and Disadvantages of a Unit Trust As in all investments, there are risks and benefits associated with a unit trust. Pros * Managed by a financial professional * One unit includes investments in a diversified portfolio * No obligation or fixed investment term required Cons * Performance of the trust depends on the fund manager * Management Fees * Principal investment is not guaranteed ## How Do Unit Trusts Differ From Mutual Funds? Mutual funds are investments made from pooled money from investors and can include bonds and equities. However, a unit trust differs from a mutual fund in that a unit trust is established under a trust deed, and the investor is effectively the beneficiary. ## What Is the Risk of Investing in a Unit Trust? A unit trust carries risk just like other investments. The unit value or income may decrease, and an investor's principal is not guaranteed. ## How Do Investors Withdraw Money From a Unit Trust? Investors can exit the fund by selling units at the bid price. To earn a profit, the bid price must be higher than the offer price initially paid for the unit.  ## The Bottom Line A unit trust is an unincorporated mutual fund that holds assets and provides profits to individual unit owners instead of reinvesting into the fund. A unit trust is established under a trust deed, with the investor as the beneficiary. Unit trusts often include diversified portfolios and are managed by a financial professional.

What Is a Unit Trust (UT)? A unit trust is an unincorporated mutual fund structure that holds assets and provides profits to individual unit owners instead of reinvesting into the fund. A unit trust is established under a trust deed, and the investor is the beneficiary. Key Takeaways Unit trusts are unincorporated mutual funds that pass profits directly to investors rather than reinvest in the fund.In the United Kingdom, a unit trust is regarded as similar to a mutual fund in the United States.A fund manager directs the investments of a unit trust, and the investor is the beneficiary of the unit trust. Understanding Unit Trusts (UTs) A unit trust is a collective investment packaged under a trust deed. The fund manager may invest in bonds or shares on the stock market, and the fund is split into units, which investors purchase. Unit trusts provide access to securities, mortgages, and cash equivalents. Unit trust structures vary by region but are offered in Guernsey, Jersey, Fiji, Ireland, New Zealand, Australia, Canada, Namibia, Kenya, Singapore, South Africa, the U.K., the Isle of Man, and Malaysia. In Asia, a unit trust is the same as a mutual fund. In Canada, these investments are called income trusts. Managing a Unit Trust Fund managers direct the portfolio of unit trusts. Trustees are assigned to ensure that the fund manager runs the trust following the fund’s investment goals and objectives and are often fiduciaries protecting the best interest of the beneficiaries. Owners of unit trusts are called unit-holders, and they hold the rights to the trust’s assets. Registrars act as middlemen or liaisons for both parties. How Unit Trusts Make Money The underlying value of the assets in a unit trust portfolio is directly stated by the number of units issued multiplied by the price per unit minus transaction fees, management fees, and associated costs. In a unit trust, the price of each unit is based on the fund's net asset value (NAV) divided by the number of units outstanding. Unit trusts allow for new contributions and withdrawals to and from the pool. When money is added to the trust, more units are made to match the current unit buying price. When units are withdrawn, assets are sold to match the current unit selling price. Fund managers make money through the difference between buying price, or offer price, and the selling price, or bid price. The difference between the offer price and the bid price is called the bid-offer spread and depends on the assets managed. Advantages and Disadvantages of a Unit Trust As in all investments, there are risks and benefits associated with a unit trust. Pros Managed by a financial professional One unit includes investments in a diversified portfolio No obligation or fixed investment term required Cons Performance of the trust depends on the fund manager Management Fees Principal investment is not guaranteed How Do Unit Trusts Differ From Mutual Funds? Mutual funds are investments made from pooled money from investors and can include bonds and equities. However, a unit trust differs from a mutual fund in that a unit trust is established under a trust deed, and the investor is effectively the beneficiary. What Is the Risk of Investing in a Unit Trust? A unit trust carries risk just like other investments. The unit value or income may decrease, and an investor's principal is not guaranteed. How Do Investors Withdraw Money From a Unit Trust? Investors can exit the fund by selling units at the bid price. To earn a profit, the bid price must be higher than the offer price initially paid for the unit.  The Bottom Line A unit trust is an unincorporated mutual fund that holds assets and provides profits to individual unit owners instead of reinvesting into the fund. A unit trust is established under a trust deed, with the investor as the beneficiary. Unit trusts often include diversified portfolios and are managed by a financial professional.

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

Dually Employed With Kids (DEWKs): What It Means, How It Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-dually-employed-with-kids-dewks"></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 Dually Employed With Kids (DEWKS)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Dually employed with kids (DEWKS) refers to a household in which there are children and both partners earn an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp" rel="noopener noreferrer">income</a>. DEWKS families are marketing targets for toys, children's clothes, breakfast cereals, and other goods and services that pertain to children. </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"> DEWKS can be contrasted with households that are dual income but with no kids, or "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dinks.asp" rel="noopener noreferrer">DINKS</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>Dually employed with kids (DEWKS) describes a household structure where both parents work full time.</li><li>DEWKS households must often weigh the costs and benefits of outsourced child care with the amount of income earned.</li><li>The rise of boomerang children and a "sandwich generation" have put additional financial pressures and family obligations on households.</li><li>DEWKS stand in contrast to couples that both work but have no children, known as dual income, no kids (DINKS).</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-dually-employed-with-kids-dewks"></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 Dually Employed With Kids (DEWKS) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Dually employed with kids (DEWKS) is a slang phrase for a household in which there are two incomes and also children. Individuals living in a DEWKS household often have relatively less <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disposableincome.asp" rel="noopener noreferrer">disposable income</a> because they have the added expenses that come with raising children. They also often spend more per person on housing than singles because of the want for separate bedrooms, bathrooms, and play spaces. </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"> Having a dual income increases the household's overall <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp" rel="noopener noreferrer">cash flows</a>, but is also met with added expenses related to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/childanddependentcarecredit.asp" rel="noopener noreferrer">child care</a>. If both parents work full-time, daycare, pre-school, babysitting, and other forms of care work must be contracted out. These costs can be quite substantial, and may greatly reduce the net after-tax income brought in. </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"> Couples in a DEWKS household must often weigh the costs of child care with take-home income to see whether or not it makes financial sense to work or stay home and perform the child care themselves. Of course, non-economic motives may be a factor, too, such as a feeling of success, loving one's work, or having alone time from the rest of the family, and each situation will depend on its own unique circumstances. </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"> Companies may target DEWKS households for certain advertising and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketing.asp" rel="noopener noreferrer">marketing</a> campaigns, especially for those products and services that pertain to children. These often include baby and children's clothes and supplies, toys and games, sugary foods and snacks, and sporting goods such as bicycles or baseball gloves. Increasingly, certain digital offerings such as video games and online services target DEWKS 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-variations-on-dually-employed-with-kids-dewks"></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"> Variations on Dually Employed With Kids (DEWKS) </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-subheading__text"> Boomerang Children </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="internalLink" href="https://www.investopedia.com/terms/b/boomerangs.asp" rel="noopener noreferrer">Boomerang children</a>" is a slang term for adult children who return or are still living at home with their parents even after finishing school and reaching working age. Their parents face the challenges of managing their own finances and planning for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retirement.asp" rel="noopener noreferrer">retirement</a> while dealing with the added expense of housing and feeding their adult offspring. </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"> Boomerang children may also be known by the acronym <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/k/kippers.asp" rel="noopener noreferrer">KIPPERS</a> (Kids In Parents' Pockets Eroding Retirement Savings). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">17.8%</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The percentage of children aged 25-34 that lived with their parents in 2019.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-subheading__text"> Sandwich Households </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sandwichgeneration.asp" rel="noopener noreferrer">sandwich generation</a>" refers to households that are obligated to support both aging parents and growing children. The sandwich generation is named so because they are effectively "sandwiched" between the need to care for their older parents who may be ill, unable to perform various tasks, or in need of financial support; as well as for children, who require financial, physical, and emotional support. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The trends of increasing lifespans and having children at an older age have contributed to the sandwich generation phenomenon. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-subheading__text"> Same-Sex Families </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Same-sex married couples are a relatively new DEWKS category, but they are important to marketers for a variety of reasons. First, persistent gender <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income-inequality.asp" rel="noopener noreferrer">income inequality</a> still means that men usually make more money than women. So, gay married men typically will have even more disposable income than other dual-income couples with kids. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> While same-sex couples are still less likely to have children than traditional households, rising rates of adoption and surrogate pregnancies make them an increasingly relevant segment of the DEWKS. </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"> Empty Nesters </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> After the children have grown up and moved out, couples may become part of the dual income, no kids (DINK) demographic again. This time, the money they spent on kids <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/050814/common-retirement-advice-dinks-can-ignore.asp">is freed up</a>, and they might also gain funds by selling their house. </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"> Empty nesters might need to start getting serious about <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/051613/how-start-saving-retirement.asp">saving for retirement</a>. If they already have substantial savings, it could be time to start taking more vacations before the couple gets too old to enjoy them. </p></div>

## What Is Dually Employed With Kids (DEWKS)? Dually employed with kids (DEWKS) refers to a household in which there are children and both partners earn an [income](https://www.investopedia.com/terms/i/income.asp). DEWKS families are marketing targets for toys, children's clothes, breakfast cereals, and other goods and services that pertain to children. DEWKS can be contrasted with households that are dual income but with no kids, or "[DINKS](https://www.investopedia.com/terms/d/dinks.asp)." ### Key Takeaways * Dually employed with kids (DEWKS) describes a household structure where both parents work full time. * DEWKS households must often weigh the costs and benefits of outsourced child care with the amount of income earned. * The rise of boomerang children and a "sandwich generation" have put additional financial pressures and family obligations on households. * DEWKS stand in contrast to couples that both work but have no children, known as dual income, no kids (DINKS). ## Understanding Dually Employed With Kids (DEWKS) Dually employed with kids (DEWKS) is a slang phrase for a household in which there are two incomes and also children. Individuals living in a DEWKS household often have relatively less [disposable income](https://www.investopedia.com/terms/d/disposableincome.asp) because they have the added expenses that come with raising children. They also often spend more per person on housing than singles because of the want for separate bedrooms, bathrooms, and play spaces. Having a dual income increases the household's overall [cash flows](https://www.investopedia.com/terms/c/cashflow.asp), but is also met with added expenses related to [child care](https://www.investopedia.com/terms/c/childanddependentcarecredit.asp). If both parents work full-time, daycare, pre-school, babysitting, and other forms of care work must be contracted out. These costs can be quite substantial, and may greatly reduce the net after-tax income brought in. Couples in a DEWKS household must often weigh the costs of child care with take-home income to see whether or not it makes financial sense to work or stay home and perform the child care themselves. Of course, non-economic motives may be a factor, too, such as a feeling of success, loving one's work, or having alone time from the rest of the family, and each situation will depend on its own unique circumstances. Companies may target DEWKS households for certain advertising and [marketing](https://www.investopedia.com/terms/m/marketing.asp) campaigns, especially for those products and services that pertain to children. These often include baby and children's clothes and supplies, toys and games, sugary foods and snacks, and sporting goods such as bicycles or baseball gloves. Increasingly, certain digital offerings such as video games and online services target DEWKS as well. ## Variations on Dually Employed With Kids (DEWKS) ### Boomerang Children "[Boomerang children](https://www.investopedia.com/terms/b/boomerangs.asp)" is a slang term for adult children who return or are still living at home with their parents even after finishing school and reaching working age. Their parents face the challenges of managing their own finances and planning for [retirement](https://www.investopedia.com/terms/r/retirement.asp) while dealing with the added expense of housing and feeding their adult offspring. Boomerang children may also be known by the acronym [KIPPERS](https://www.investopedia.com/terms/k/kippers.asp) (Kids In Parents' Pockets Eroding Retirement Savings). ### 17.8% The percentage of children aged 25-34 that lived with their parents in 2019. ### Sandwich Households The "[sandwich generation](https://www.investopedia.com/terms/s/sandwichgeneration.asp)" refers to households that are obligated to support both aging parents and growing children. The sandwich generation is named so because they are effectively "sandwiched" between the need to care for their older parents who may be ill, unable to perform various tasks, or in need of financial support; as well as for children, who require financial, physical, and emotional support. The trends of increasing lifespans and having children at an older age have contributed to the sandwich generation phenomenon. ### Same-Sex Families Same-sex married couples are a relatively new DEWKS category, but they are important to marketers for a variety of reasons. First, persistent gender [income inequality](https://www.investopedia.com/terms/i/income-inequality.asp) still means that men usually make more money than women. So, gay married men typically will have even more disposable income than other dual-income couples with kids. While same-sex couples are still less likely to have children than traditional households, rising rates of adoption and surrogate pregnancies make them an increasingly relevant segment of the DEWKS. ### Empty Nesters After the children have grown up and moved out, couples may become part of the dual income, no kids (DINK) demographic again. This time, the money they spent on kids [is freed up](https://www.investopedia.com/articles/personal-finance/050814/common-retirement-advice-dinks-can-ignore.asp), and they might also gain funds by selling their house. Empty nesters might need to start getting serious about [saving for retirement](https://www.investopedia.com/articles/personal-finance/051613/how-start-saving-retirement.asp). If they already have substantial savings, it could be time to start taking more vacations before the couple gets too old to enjoy them.

What Is Dually Employed With Kids (DEWKS)? Dually employed with kids (DEWKS) refers to a household in which there are children and both partners earn an income. DEWKS families are marketing targets for toys, children's clothes, breakfast cereals, and other goods and services that pertain to children. DEWKS can be contrasted with households that are dual income but with no kids, or "DINKS." Key Takeaways Dually employed with kids (DEWKS) describes a household structure where both parents work full time.DEWKS households must often weigh the costs and benefits of outsourced child care with the amount of income earned.The rise of boomerang children and a "sandwich generation" have put additional financial pressures and family obligations on households.DEWKS stand in contrast to couples that both work but have no children, known as dual income, no kids (DINKS). Understanding Dually Employed With Kids (DEWKS) Dually employed with kids (DEWKS) is a slang phrase for a household in which there are two incomes and also children. Individuals living in a DEWKS household often have relatively less disposable income because they have the added expenses that come with raising children. They also often spend more per person on housing than singles because of the want for separate bedrooms, bathrooms, and play spaces. Having a dual income increases the household's overall cash flows, but is also met with added expenses related to child care. If both parents work full-time, daycare, pre-school, babysitting, and other forms of care work must be contracted out. These costs can be quite substantial, and may greatly reduce the net after-tax income brought in. Couples in a DEWKS household must often weigh the costs of child care with take-home income to see whether or not it makes financial sense to work or stay home and perform the child care themselves. Of course, non-economic motives may be a factor, too, such as a feeling of success, loving one's work, or having alone time from the rest of the family, and each situation will depend on its own unique circumstances. Companies may target DEWKS households for certain advertising and marketing campaigns, especially for those products and services that pertain to children. These often include baby and children's clothes and supplies, toys and games, sugary foods and snacks, and sporting goods such as bicycles or baseball gloves. Increasingly, certain digital offerings such as video games and online services target DEWKS as well. Variations on Dually Employed With Kids (DEWKS) Boomerang Children "Boomerang children" is a slang term for adult children who return or are still living at home with their parents even after finishing school and reaching working age. Their parents face the challenges of managing their own finances and planning for retirement while dealing with the added expense of housing and feeding their adult offspring. Boomerang children may also be known by the acronym KIPPERS (Kids In Parents' Pockets Eroding Retirement Savings). 17.8% The percentage of children aged 25-34 that lived with their parents in 2019. Sandwich Households The "sandwich generation" refers to households that are obligated to support both aging parents and growing children. The sandwich generation is named so because they are effectively "sandwiched" between the need to care for their older parents who may be ill, unable to perform various tasks, or in need of financial support; as well as for children, who require financial, physical, and emotional support. The trends of increasing lifespans and having children at an older age have contributed to the sandwich generation phenomenon. Same-Sex Families Same-sex married couples are a relatively new DEWKS category, but they are important to marketers for a variety of reasons. First, persistent gender income inequality still means that men usually make more money than women. So, gay married men typically will have even more disposable income than other dual-income couples with kids. While same-sex couples are still less likely to have children than traditional households, rising rates of adoption and surrogate pregnancies make them an increasingly relevant segment of the DEWKS. Empty Nesters After the children have grown up and moved out, couples may become part of the dual income, no kids (DINK) demographic again. This time, the money they spent on kids is freed up, and they might also gain funds by selling their house. Empty nesters might need to start getting serious about saving for retirement. If they already have substantial savings, it could be time to start taking more vacations before the couple gets too old to enjoy them.

https://www.investopedia.com/articles/investing/080715/top-6-energy-etfs.asp

Top Energy ETFs for 2023

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Oil and gas prices soared in 2022 after Russia's invasion of Ukraine caused economies around the world to boycott Russian resources, but they've since retreated as supply has normalized and rising interest rates have tempered demand. The Bloomberg Natural Gas Subindex declined 70% in the last year, while the Bloomberg Composite Crude Oil Subindex has fallen 28%.<span class="ql-inline-citation" data-cite="60"></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"> Subsequently, the energy sector has underperformed the broader market, with the S&amp;P Energy Select Sector Index up about 5.3%, compared with the S&amp;P 500's 14.6% increase.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Energy stocks have generally underperformed the market in the last year, with the energy sector trailing the S&amp;P 500 by nearly 10 percentage points. </li><li>Top energy ETFs include Fidelity MSCI Energy Index ETF, SPDR S&amp;P Oil &amp; Gas Equipment Services ETF, and the Energy Select Sector SPDR Fund.</li><li>These ETFs can provide broad exposure to energy companies or more targeted exposure to firms within select subindustries.</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"> Some 50 energy ETFs trade in the United States, excluding <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inverse-etf.asp">inverse</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leveraged-etf.asp">leveraged</a> ETFs, as well as funds with less than $50 million in <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">assets under management (AUM)</a>.<span class="ql-inline-citation" data-cite="41"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Below we look at the three energy ETFs with the lowest fees, the highest total return over the last year, and the most liquidity. All numbers are as of June 22.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-energy-etf-with-the-lowest-fees-fidelity-msci-energy-index-etf-feny"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FENY" rel="nocaes">Energy ETF with the Lowest Fees: Fidelity MSCI Energy Index ETF (FENY)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <li>Performance Over One Year: 15.6%</li><li>Expense Ratio: 0.08%</li><li>30-Day SEC Yield: 3.32%</li><li>30-Day Average Daily Volume: 847,721</li><li>Net Assets: $1.3 billion</li><li>Inception Date: Oct. 21, 2013</li><li>Issuer: Fidelity<span class="ql-inline-citation" data-cite="64"></span><span class="ql-inline-citation" data-cite="61"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> FENY is a passively managed fund that tracks the MSCI USA IMI Energy index, a capitalization-weighted index of large-, mid-, and small-cap energy companies. Exxon Mobil Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=XOM">XOM</a>) is the fund's largest holding, representing almost 23% of the fund. FENY provides exposure to primarily North American oil and gas companies, but a small portion of the fund is dedicated to energy equipment.<span class="ql-inline-citation" data-cite="61"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-energy-etf-with-the-best-1-year-return-spdr-sp-500-oil--gas-equipment--services-etf-xes"></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=XES" rel="nocaes">Energy ETF with the Best 1-Year Return: SPDR S&amp;P 500 Oil &amp; Gas Equipment &amp; Services ETF (XES)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li>Performance Over One Year: 29.8%</li><li>Expense Ratio: 0.35%</li><li>30-Day SEC Yield: 0.51%</li><li>30-Day Average Daily Volume: 85,094</li><li>Net Assets: $261.6 million</li><li>Inception Date: Jun. 19, 2006</li><li>Issuer: State Street Global Advisors<span class="ql-inline-citation" data-cite="65"></span><span class="ql-inline-citation" data-cite="63"></span></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"> XES tracks the S&amp;P Oil &amp; Gas Equipment &amp; Services Select Industry Index. The fund is a modified equal-weighted fund, meaning small-cap stocks have more influence over the fund's returns than they would in a capitalization-weighted fund holding the same stocks. The outsized influence of small-cap stocks on XES makes it inherently riskier compared with other funds, which may appeal to investors looking for greater upside potential in the energy market.<span class="ql-inline-citation" data-cite="63"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-most-liquid-energy-etf-energy-select-sector-spdr-fund-xle"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLE" rel="nocaes">Most Liquid Energy ETF: Energy Select Sector SPDR Fund (XLE)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li>Performance Over One Year: 14.8%</li><li>Expense Ratio: 0.10%</li><li>30-Day SEC Yield: 3.76%</li><li>30-Day Average Daily Volume: 20,217,487</li><li>Assets Under Management: $32.5 billion</li><li>Inception Date: Dec. 16, 1998</li><li>Issuer: State Street Global Advisors<span class="ql-inline-citation" data-cite="66"></span><span class="ql-inline-citation" data-cite="58"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> XLE targets the Energy Select Sector Index, an index of U.S. companies in the oil, gas and consumable fuel, and energy equipment and services industries. The fund has a low expense ratio and high liquidity, with more than 20 million shares changing hands on an average day. More than 90% of the fund's assets are allocated to oil, gas, and consumable fuels companies, with the rest spread among energy equipment and services companies.<span class="ql-inline-citation" data-cite="58"></span><br> </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"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer">warranty and liability disclaimer</a> for more info.</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <em>As of the date this article was written, the author does not own any of the above ETFs.</em> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

Oil and gas prices soared in 2022 after Russia's invasion of Ukraine caused economies around the world to boycott Russian resources, but they've since retreated as supply has normalized and rising interest rates have tempered demand. The Bloomberg Natural Gas Subindex declined 70% in the last year, while the Bloomberg Composite Crude Oil Subindex has fallen 28%. Subsequently, the energy sector has underperformed the broader market, with the S&P Energy Select Sector Index up about 5.3%, compared with the S&P 500's 14.6% increase. ### Key Takeaways * Energy stocks have generally underperformed the market in the last year, with the energy sector trailing the S&P 500 by nearly 10 percentage points. * Top energy ETFs include Fidelity MSCI Energy Index ETF, SPDR S&P Oil & Gas Equipment Services ETF, and the Energy Select Sector SPDR Fund. * These ETFs can provide broad exposure to energy companies or more targeted exposure to firms within select subindustries. Some 50 energy ETFs trade in the United States, excluding [inverse](https://www.investopedia.com/terms/i/inverse-etf.asp) and [leveraged](https://www.investopedia.com/terms/l/leveraged-etf.asp) ETFs, as well as funds with less than $50 million in [assets under management (AUM)](https://www.investopedia.com/terms/a/aum.asp). Below we look at the three energy ETFs with the lowest fees, the highest total return over the last year, and the most liquidity. All numbers are as of June 22. ## [Energy ETF with the Lowest Fees: Fidelity MSCI Energy Index ETF (FENY)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FENY) * Performance Over One Year: 15.6% * Expense Ratio: 0.08% * 30-Day SEC Yield: 3.32% * 30-Day Average Daily Volume: 847,721 * Net Assets: $1.3 billion * Inception Date: Oct. 21, 2013 * Issuer: Fidelity FENY is a passively managed fund that tracks the MSCI USA IMI Energy index, a capitalization-weighted index of large-, mid-, and small-cap energy companies. Exxon Mobil Corp. ([XOM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XOM)) is the fund's largest holding, representing almost 23% of the fund. FENY provides exposure to primarily North American oil and gas companies, but a small portion of the fund is dedicated to energy equipment. ## [Energy ETF with the Best 1-Year Return: SPDR S&P 500 Oil & Gas Equipment & Services ETF (XES)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XES) * Performance Over One Year: 29.8% * Expense Ratio: 0.35% * 30-Day SEC Yield: 0.51% * 30-Day Average Daily Volume: 85,094 * Net Assets: $261.6 million * Inception Date: Jun. 19, 2006 * Issuer: State Street Global Advisors XES tracks the S&P Oil & Gas Equipment & Services Select Industry Index. The fund is a modified equal-weighted fund, meaning small-cap stocks have more influence over the fund's returns than they would in a capitalization-weighted fund holding the same stocks. The outsized influence of small-cap stocks on XES makes it inherently riskier compared with other funds, which may appeal to investors looking for greater upside potential in the energy market. ## [Most Liquid Energy ETF: Energy Select Sector SPDR Fund (XLE)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLE) * Performance Over One Year: 14.8% * Expense Ratio: 0.10% * 30-Day SEC Yield: 3.76% * 30-Day Average Daily Volume: 20,217,487 * Assets Under Management: $32.5 billion * Inception Date: Dec. 16, 1998 * Issuer: State Street Global Advisors XLE targets the Energy Select Sector Index, an index of U.S. companies in the oil, gas and consumable fuel, and energy equipment and services industries. The fund has a low expense ratio and high liquidity, with more than 20 million shares changing hands on an average day. More than 90% of the fund's assets are allocated to oil, gas, and consumable fuels companies, with the rest spread among energy equipment and services companies. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.* *As of the date this article was written, the author does not own any of the above ETFs.* Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Oil and gas prices soared in 2022 after Russia's invasion of Ukraine caused economies around the world to boycott Russian resources, but they've since retreated as supply has normalized and rising interest rates have tempered demand. The Bloomberg Natural Gas Subindex declined 70% in the last year, while the Bloomberg Composite Crude Oil Subindex has fallen 28%. Subsequently, the energy sector has underperformed the broader market, with the S&P Energy Select Sector Index up about 5.3%, compared with the S&P 500's 14.6% increase. Key Takeaways Energy stocks have generally underperformed the market in the last year, with the energy sector trailing the S&P 500 by nearly 10 percentage points. Top energy ETFs include Fidelity MSCI Energy Index ETF, SPDR S&P Oil & Gas Equipment Services ETF, and the Energy Select Sector SPDR Fund.These ETFs can provide broad exposure to energy companies or more targeted exposure to firms within select subindustries. Some 50 energy ETFs trade in the United States, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). Below we look at the three energy ETFs with the lowest fees, the highest total return over the last year, and the most liquidity. All numbers are as of June 22. Energy ETF with the Lowest Fees: Fidelity MSCI Energy Index ETF (FENY) Performance Over One Year: 15.6%Expense Ratio: 0.08%30-Day SEC Yield: 3.32%30-Day Average Daily Volume: 847,721Net Assets: $1.3 billionInception Date: Oct. 21, 2013Issuer: Fidelity FENY is a passively managed fund that tracks the MSCI USA IMI Energy index, a capitalization-weighted index of large-, mid-, and small-cap energy companies. Exxon Mobil Corp. (XOM) is the fund's largest holding, representing almost 23% of the fund. FENY provides exposure to primarily North American oil and gas companies, but a small portion of the fund is dedicated to energy equipment. Energy ETF with the Best 1-Year Return: SPDR S&P 500 Oil & Gas Equipment & Services ETF (XES) Performance Over One Year: 29.8%Expense Ratio: 0.35%30-Day SEC Yield: 0.51%30-Day Average Daily Volume: 85,094Net Assets: $261.6 millionInception Date: Jun. 19, 2006Issuer: State Street Global Advisors XES tracks the S&P Oil & Gas Equipment & Services Select Industry Index. The fund is a modified equal-weighted fund, meaning small-cap stocks have more influence over the fund's returns than they would in a capitalization-weighted fund holding the same stocks. The outsized influence of small-cap stocks on XES makes it inherently riskier compared with other funds, which may appeal to investors looking for greater upside potential in the energy market. Most Liquid Energy ETF: Energy Select Sector SPDR Fund (XLE) Performance Over One Year: 14.8%Expense Ratio: 0.10%30-Day SEC Yield: 3.76%30-Day Average Daily Volume: 20,217,487Assets Under Management: $32.5 billionInception Date: Dec. 16, 1998Issuer: State Street Global Advisors XLE targets the Energy Select Sector Index, an index of U.S. companies in the oil, gas and consumable fuel, and energy equipment and services industries. The fund has a low expense ratio and high liquidity, with more than 20 million shares changing hands on an average day. More than 90% of the fund's assets are allocated to oil, gas, and consumable fuels companies, with the rest spread among energy equipment and services companies. The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own any of the above ETFs. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/ask/answers/who-or-what-is-dow-jones/

Who or What Is Dow Jones?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Dow Jones, or more precisely, Dow Jones &amp; Company, is one of the world's largest business and financial news companies. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/08/charles-dow.asp" rel="noopener noreferrer">Charles Dow</a>, Edward Jones, and Charles Bergstresser formed the company in the 19th century. Besides the famous <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp" rel="noopener noreferrer">Dow Jones Industrial Average</a>, the company also created various other market averages. </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>Dow Jones &amp; Company is one of the largest business and financial news companies in the world.</li><li>Dow Jones &amp; Company was founded in 1882 by Charles Dow, Edward Jones, and Charles Bergstresser.</li><li>Dow Jones started the Dow Jones Industrial Average (DJIA), as well as many other indexes.</li><li>The DJIA tracks publicly-owned corporations and is one of the most-watched stock indexes in the world.</li><li>Dow Jones sold the DJIA and its other indexes to S&amp;P Dow Jones Indices LLC, a joint venture between S&amp;P Global and the CME Group.</li></ul></div></div></div> <span class="heading-toc" id="toc-who-is-dow-jones"></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"> Who Is Dow Jones? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Dow Jones was not a single person, but two of the three people who founded Dow Jones &amp; Company in 1882. Charles Dow was the Dow in Dow Jones, Edward Jones was the Jones, and Charles Bergstresser was the company's third founder. In 1889, they went on to found The Wall Street Journal, which remains one of the world's most influential financial publications.<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_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Dow was known for his ability to explain complicated financial news to the public. He believed that investors needed a simple <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> to indicate whether the stock market was rising or declining. Dow chose several industrial-based stocks for the first index, and the first reported average was 40.94.<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_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Charles Dow also believed it was possible to predict stock market movements based on the price movements of different types of stocks. According to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dowtheory.asp">Dow Theory</a>, an upward trend in industrial stocks should be confirmed by a similar move up in transportation stocks. Charles Dow created various market averages to more accurately define which way " industrial stocks" or " transportation stocks" were headed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-what-is-dow-jones"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> What Is Dow Jones? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Dow Jones &amp; Company is the firm founded by Charles Dow, Edward Jones, and Charles Bergstresser in 1882, not the people themselves. Charles Dow and Edward Jones ran the company themselves in the early years and built a reputation for integrity. When Dow died in 1902, Clarence Barron and Jessie Waldron bought the company, and control eventually passed to the Bancroft family.<span class="ql-inline-citation" data-cite="17"></span> In 2007, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/100214/who-owns-dow-jones-company.asp">News Corp. purchased Dow Jones</a> &amp; Company from the Bancrofts.<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_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> As of 2024, Dow Jones &amp; Company continued to be a major source of financial news. Its publications included MarketWatch, Barron's, and, of course, The Wall Street Journal.<span class="ql-inline-citation" data-cite="26"></span> What is more, these financial news outlets maintained considerable independence from News Corp.<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_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> On the other hand, Dow Jones &amp; Company no longer directly controls the Dow Jones Averages that it originally created. The Dow Jones Averages are owned by S&amp;P Dow Jones Indices LLC, a joint venture between S&amp;P Global and the CME Group.<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_18-0"></div> <span class="heading-toc" id="toc-the-dow-jones-industrial-average-djia"></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 Dow Jones Industrial Average (DJIA) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> It is easy to confuse Dow Jones with the Dow Jones Industrial Average (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp">DJIA</a>). Often referred to as "the Dow," the DJIA is one of the most-watched stock indexes in the world, containing companies such as Apple, Boeing, Microsoft, and Coca-Cola.<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_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The DJIA initially launched with just 12 companies based mostly in the industrial sectors. However, it later grew to include 30 firms. The original companies operated in railroads, cotton, gas, sugar, tobacco, and oil. Industrial companies' performance is often seen as synonymous with that of the overall economy, making the DJIA a key measure of broader economic health.<span class="ql-inline-citation" data-cite="24"></span> Although the economy's health is now tied to many other sectors, the DJIA is still seen as a vital indicator of the U.S. economy's well-being. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Although the Dow Jones Industrial Average rarely changes, there are occasional additions and deletions. These changes often come in batches and always keep total membership at 30 companies.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Dow Jones &amp; Company owned the DJIA as well as many other indexes that represent different sectors of the economy. They included the oldest index, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djta.asp">Dow Jones Transportation Average</a>, which tracks 20 transportation companies, such as airlines and delivery services.<span class="ql-inline-citation" data-cite="13"></span> Another major index is the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djua.asp">Dow Jones Utility Average</a>, which tracks 15 U.S. utility stocks.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> In 2012, S&amp;P Dow Jones Indices LLC bought the Dow Jones Indexes. S&amp;P Dow Jones Indices LLC is a joint venture between controlling member S&amp;P Global and the CME Group.<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_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> In the world of finance, you'll often hear people ask, "How did New York do today?" or "How did the market perform today?" In both cases, these people are likely referring to the DJIA, as it is the most widely-used index. It is more popular than both the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500 Index</a>, which tracks 500 stocks, and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq Composite Index</a>, which includes more than 2,500 U.S. and international equities.<span class="ql-inline-citation" data-cite="16"></span><span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <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-exactly-is-the-dow-jones"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Exactly Is the Dow Jones?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Dow Jones Industrial Average groups together the prices of 30 of the most traded stocks on 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> and the Nasdaq. It is an index that helps investors determine the overall direction of stock prices.</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-why-is-it-called-dow-jones"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is It Called Dow Jones?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Dow Jones Industrial Average is called the Dow Jones because it was developed by Charles Dow and Edward Jones at Dow Jones &amp; Company.</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-meaning-of-dow-in-the-stock-market"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Meaning of Dow in the Stock Market?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Dow Jones Industrial Average, or the Dow for short, is one way of measuring the stock market's overall direction. It includes the prices of 30 of the most actively traded stocks. When the Dow goes up, it is considered <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bull.asp">bullish</a>, and most stocks usually do well. When the Dow falls, it is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/insights/digging-deeper-bull-and-bear-markets/">bearish</a>, and most stocks typically lose money.</p></div> </div> <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"> What Companies Are in the Dow Jones? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The table below alphabetically lists the companies included in the DJIA as of March 2024.<span class="ql-inline-citation" data-cite="23"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <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=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style="width: 107px;"></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">Dow Jones Industrial Average Components</th> </tr> <tr> <th>Company</th> <th>Symbol</th> <th>Year Added</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Amazon</td> <td>AMZN</td> <td>2024</td> </tr> <tr> <td>American Express Co</td> <td>AXP</td> <td>1982</td> </tr> <tr> <td>Amgen</td> <td>AMGN</td> <td>2020</td> </tr> <tr> <td>Apple Inc</td> <td>AAPL</td> <td>2015</td> </tr> <tr> <td>Boeing Co</td> <td>BA</td> <td>1987</td> </tr> <tr> <td>Caterpillar Inc</td> <td>CAT</td> <td>1991</td> </tr> <tr> <td>Cisco Systems</td> <td>CSCO</td> <td>2009</td> </tr> <tr> <td>Chevron Corp</td> <td>CVX</td> <td>2008</td> </tr> <tr> <td>Goldman Sachs Group</td> <td>GS</td> <td>2013</td> </tr> <tr> <td>Home Depot Inc</td> <td>HD</td> <td>1999</td> </tr> <tr> <td>Honeywell International Inc</td> <td>HON</td> <td>2020</td> </tr> <tr> <td>International Business Machines Corp</td> <td>IBM</td> <td>1979</td> </tr> <tr> <td>Intel Corp</td> <td>INTC</td> <td>1999</td> </tr> <tr> <td>Johnson &amp; Johnson</td> <td>JNJ</td> <td>1997</td> </tr> <tr> <td>Coca-Cola Co</td> <td>KO</td> <td>1987</td> </tr> <tr> <td>JP Morgan Chase &amp; Co</td> <td>JPM</td> <td>1991</td> </tr> <tr> <td>McDonald's Corp</td> <td>MCD</td> <td>1985</td> </tr> <tr> <td>3M Co</td> <td>MMM</td> <td>1976</td> </tr> <tr> <td>Merck &amp; Co Inc</td> <td>MRK</td> <td>1979</td> </tr> <tr> <td>Microsoft Corp</td> <td>MSFT</td> <td>1999</td> </tr> <tr> <td>Nike Inc</td> <td>NKE</td> <td>2013</td> </tr> <tr> <td>Procter &amp; Gamble Co</td> <td>PG</td> <td>1932</td> </tr> <tr> <td>Travelers Companies Inc</td> <td>TRV</td> <td>2009</td> </tr> <tr> <td>UnitedHealth Group Inc</td> <td>UNH</td> <td>2012</td> </tr> <tr> <td>Salesforce Inc</td> <td>CRM</td> <td>2020</td> </tr> <tr> <td>Verizon Communications Inc</td> <td>VZ</td> <td>2004</td> </tr> <tr> <td>Visa Inc</td> <td>V</td> <td>2013</td> </tr> <tr> <td>Walmart</td> <td>WMT</td> <td>1997</td> </tr> <tr> <td>Walt Disney Co</td> <td>DIS</td> <td>1991</td> </tr> <tr> <td>Dow Inc</td> <td>DOW</td> <td>2019</td> </tr> </tbody> </table> <figcaption>30 DJIA companies as of March 2024</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_43-0"><span class="heading-toc" id="toc-can-you-buy-shares-in-the-dow-jones-industrial-average"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Buy Shares in the Dow Jones Industrial Average?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/100214/can-you-buy-shares-dow-jones-industrial-average-djia.asp">You can buy shares in the Dow</a> through exchange traded funds (ETFs). However, you cannot invest directly in the Dow Jones Industrial Average because it is just an index.</p></div> </div></div>

Dow Jones, or more precisely, Dow Jones & Company, is one of the world's largest business and financial news companies. [Charles Dow](https://www.investopedia.com/articles/financial-theory/08/charles-dow.asp), Edward Jones, and Charles Bergstresser formed the company in the 19th century. Besides the famous [Dow Jones Industrial Average](https://www.investopedia.com/terms/d/djia.asp), the company also created various other market averages. ### Key Takeaways * Dow Jones & Company is one of the largest business and financial news companies in the world. * Dow Jones & Company was founded in 1882 by Charles Dow, Edward Jones, and Charles Bergstresser. * Dow Jones started the Dow Jones Industrial Average (DJIA), as well as many other indexes. * The DJIA tracks publicly-owned corporations and is one of the most-watched stock indexes in the world. * Dow Jones sold the DJIA and its other indexes to S&P Dow Jones Indices LLC, a joint venture between S&P Global and the CME Group. ## Who Is Dow Jones? Dow Jones was not a single person, but two of the three people who founded Dow Jones & Company in 1882. Charles Dow was the Dow in Dow Jones, Edward Jones was the Jones, and Charles Bergstresser was the company's third founder. In 1889, they went on to found The Wall Street Journal, which remains one of the world's most influential financial publications. Dow was known for his ability to explain complicated financial news to the public. He believed that investors needed a simple [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) to indicate whether the stock market was rising or declining. Dow chose several industrial-based stocks for the first index, and the first reported average was 40.94. Charles Dow also believed it was possible to predict stock market movements based on the price movements of different types of stocks. According to [Dow Theory](https://www.investopedia.com/terms/d/dowtheory.asp), an upward trend in industrial stocks should be confirmed by a similar move up in transportation stocks. Charles Dow created various market averages to more accurately define which way " industrial stocks" or " transportation stocks" were headed. ## What Is Dow Jones? Dow Jones & Company is the firm founded by Charles Dow, Edward Jones, and Charles Bergstresser in 1882, not the people themselves. Charles Dow and Edward Jones ran the company themselves in the early years and built a reputation for integrity. When Dow died in 1902, Clarence Barron and Jessie Waldron bought the company, and control eventually passed to the Bancroft family. In 2007, [News Corp. purchased Dow Jones](https://www.investopedia.com/ask/answers/100214/who-owns-dow-jones-company.asp) & Company from the Bancrofts. As of 2024, Dow Jones & Company continued to be a major source of financial news. Its publications included MarketWatch, Barron's, and, of course, The Wall Street Journal. What is more, these financial news outlets maintained considerable independence from News Corp. On the other hand, Dow Jones & Company no longer directly controls the Dow Jones Averages that it originally created. The Dow Jones Averages are owned by S&P Dow Jones Indices LLC, a joint venture between S&P Global and the CME Group. ## The Dow Jones Industrial Average (DJIA) It is easy to confuse Dow Jones with the Dow Jones Industrial Average ([DJIA](https://www.investopedia.com/terms/d/djia.asp)). Often referred to as "the Dow," the DJIA is one of the most-watched stock indexes in the world, containing companies such as Apple, Boeing, Microsoft, and Coca-Cola. The DJIA initially launched with just 12 companies based mostly in the industrial sectors. However, it later grew to include 30 firms. The original companies operated in railroads, cotton, gas, sugar, tobacco, and oil. Industrial companies' performance is often seen as synonymous with that of the overall economy, making the DJIA a key measure of broader economic health. Although the economy's health is now tied to many other sectors, the DJIA is still seen as a vital indicator of the U.S. economy's well-being. ### Although the Dow Jones Industrial Average rarely changes, there are occasional additions and deletions. These changes often come in batches and always keep total membership at 30 companies. Dow Jones & Company owned the DJIA as well as many other indexes that represent different sectors of the economy. They included the oldest index, the [Dow Jones Transportation Average](https://www.investopedia.com/terms/d/djta.asp), which tracks 20 transportation companies, such as airlines and delivery services. Another major index is the [Dow Jones Utility Average](https://www.investopedia.com/terms/d/djua.asp), which tracks 15 U.S. utility stocks. In 2012, S&P Dow Jones Indices LLC bought the Dow Jones Indexes. S&P Dow Jones Indices LLC is a joint venture between controlling member S&P Global and the CME Group. In the world of finance, you'll often hear people ask, "How did New York do today?" or "How did the market perform today?" In both cases, these people are likely referring to the DJIA, as it is the most widely-used index. It is more popular than both the [S&P 500 Index](https://www.investopedia.com/terms/s/sp500.asp), which tracks 500 stocks, and the [Nasdaq Composite Index](https://www.investopedia.com/terms/n/nasdaq.asp), which includes more than 2,500 U.S. and international equities. ## What Exactly Is the Dow Jones? The Dow Jones Industrial Average groups together the prices of 30 of the most traded stocks on the [New York Stock Exchange (NYSE)](https://www.investopedia.com/terms/n/nyse.asp) and the Nasdaq. It is an index that helps investors determine the overall direction of stock prices. ## Why Is It Called Dow Jones? The Dow Jones Industrial Average is called the Dow Jones because it was developed by Charles Dow and Edward Jones at Dow Jones & Company. ## What Is the Meaning of Dow in the Stock Market? The Dow Jones Industrial Average, or the Dow for short, is one way of measuring the stock market's overall direction. It includes the prices of 30 of the most actively traded stocks. When the Dow goes up, it is considered [bullish](https://www.investopedia.com/terms/b/bull.asp), and most stocks usually do well. When the Dow falls, it is [bearish](https://www.investopedia.com/insights/digging-deeper-bull-and-bear-markets/), and most stocks typically lose money. ### What Companies Are in the Dow Jones? The table below alphabetically lists the companies included in the DJIA as of March 2024. | Dow Jones Industrial Average Components | | | | --- | --- | --- | | Company | Symbol | Year Added | | Amazon | AMZN | 2024 | | American Express Co | AXP | 1982 | | Amgen | AMGN | 2020 | | Apple Inc | AAPL | 2015 | | Boeing Co | BA | 1987 | | Caterpillar Inc | CAT | 1991 | | Cisco Systems | CSCO | 2009 | | Chevron Corp | CVX | 2008 | | Goldman Sachs Group | GS | 2013 | | Home Depot Inc | HD | 1999 | | Honeywell International Inc | HON | 2020 | | International Business Machines Corp | IBM | 1979 | | Intel Corp | INTC | 1999 | | Johnson & Johnson | JNJ | 1997 | | Coca-Cola Co | KO | 1987 | | JP Morgan Chase & Co | JPM | 1991 | | McDonald's Corp | MCD | 1985 | | 3M Co | MMM | 1976 | | Merck & Co Inc | MRK | 1979 | | Microsoft Corp | MSFT | 1999 | | Nike Inc | NKE | 2013 | | Procter & Gamble Co | PG | 1932 | | Travelers Companies Inc | TRV | 2009 | | UnitedHealth Group Inc | UNH | 2012 | | Salesforce Inc | CRM | 2020 | | Verizon Communications Inc | VZ | 2004 | | Visa Inc | V | 2013 | | Walmart | WMT | 1997 | | Walt Disney Co | DIS | 1991 | | Dow Inc | DOW | 2019 | 30 DJIA companies as of March 2024 ## Can You Buy Shares in the Dow Jones Industrial Average? [You can buy shares in the Dow](https://www.investopedia.com/ask/answers/100214/can-you-buy-shares-dow-jones-industrial-average-djia.asp) through exchange traded funds (ETFs). However, you cannot invest directly in the Dow Jones Industrial Average because it is just an index.

Dow Jones, or more precisely, Dow Jones & Company, is one of the world's largest business and financial news companies. Charles Dow, Edward Jones, and Charles Bergstresser formed the company in the 19th century. Besides the famous Dow Jones Industrial Average, the company also created various other market averages. Key Takeaways Dow Jones & Company is one of the largest business and financial news companies in the world.Dow Jones & Company was founded in 1882 by Charles Dow, Edward Jones, and Charles Bergstresser.Dow Jones started the Dow Jones Industrial Average (DJIA), as well as many other indexes.The DJIA tracks publicly-owned corporations and is one of the most-watched stock indexes in the world.Dow Jones sold the DJIA and its other indexes to S&P Dow Jones Indices LLC, a joint venture between S&P Global and the CME Group. Who Is Dow Jones? Dow Jones was not a single person, but two of the three people who founded Dow Jones & Company in 1882. Charles Dow was the Dow in Dow Jones, Edward Jones was the Jones, and Charles Bergstresser was the company's third founder. In 1889, they went on to found The Wall Street Journal, which remains one of the world's most influential financial publications. Dow was known for his ability to explain complicated financial news to the public. He believed that investors needed a simple benchmark to indicate whether the stock market was rising or declining. Dow chose several industrial-based stocks for the first index, and the first reported average was 40.94. Charles Dow also believed it was possible to predict stock market movements based on the price movements of different types of stocks. According to Dow Theory, an upward trend in industrial stocks should be confirmed by a similar move up in transportation stocks. Charles Dow created various market averages to more accurately define which way " industrial stocks" or " transportation stocks" were headed. What Is Dow Jones? Dow Jones & Company is the firm founded by Charles Dow, Edward Jones, and Charles Bergstresser in 1882, not the people themselves. Charles Dow and Edward Jones ran the company themselves in the early years and built a reputation for integrity. When Dow died in 1902, Clarence Barron and Jessie Waldron bought the company, and control eventually passed to the Bancroft family. In 2007, News Corp. purchased Dow Jones & Company from the Bancrofts. As of 2024, Dow Jones & Company continued to be a major source of financial news. Its publications included MarketWatch, Barron's, and, of course, The Wall Street Journal. What is more, these financial news outlets maintained considerable independence from News Corp. On the other hand, Dow Jones & Company no longer directly controls the Dow Jones Averages that it originally created. The Dow Jones Averages are owned by S&P Dow Jones Indices LLC, a joint venture between S&P Global and the CME Group. The Dow Jones Industrial Average (DJIA) It is easy to confuse Dow Jones with the Dow Jones Industrial Average (DJIA). Often referred to as "the Dow," the DJIA is one of the most-watched stock indexes in the world, containing companies such as Apple, Boeing, Microsoft, and Coca-Cola. The DJIA initially launched with just 12 companies based mostly in the industrial sectors. However, it later grew to include 30 firms. The original companies operated in railroads, cotton, gas, sugar, tobacco, and oil. Industrial companies' performance is often seen as synonymous with that of the overall economy, making the DJIA a key measure of broader economic health. Although the economy's health is now tied to many other sectors, the DJIA is still seen as a vital indicator of the U.S. economy's well-being. Although the Dow Jones Industrial Average rarely changes, there are occasional additions and deletions. These changes often come in batches and always keep total membership at 30 companies. Dow Jones & Company owned the DJIA as well as many other indexes that represent different sectors of the economy. They included the oldest index, the Dow Jones Transportation Average, which tracks 20 transportation companies, such as airlines and delivery services. Another major index is the Dow Jones Utility Average, which tracks 15 U.S. utility stocks. In 2012, S&P Dow Jones Indices LLC bought the Dow Jones Indexes. S&P Dow Jones Indices LLC is a joint venture between controlling member S&P Global and the CME Group. In the world of finance, you'll often hear people ask, "How did New York do today?" or "How did the market perform today?" In both cases, these people are likely referring to the DJIA, as it is the most widely-used index. It is more popular than both the S&P 500 Index, which tracks 500 stocks, and the Nasdaq Composite Index, which includes more than 2,500 U.S. and international equities. What Exactly Is the Dow Jones? The Dow Jones Industrial Average groups together the prices of 30 of the most traded stocks on the New York Stock Exchange (NYSE) and the Nasdaq. It is an index that helps investors determine the overall direction of stock prices. Why Is It Called Dow Jones? The Dow Jones Industrial Average is called the Dow Jones because it was developed by Charles Dow and Edward Jones at Dow Jones & Company. What Is the Meaning of Dow in the Stock Market? The Dow Jones Industrial Average, or the Dow for short, is one way of measuring the stock market's overall direction. It includes the prices of 30 of the most actively traded stocks. When the Dow goes up, it is considered bullish, and most stocks usually do well. When the Dow falls, it is bearish, and most stocks typically lose money. What Companies Are in the Dow Jones? The table below alphabetically lists the companies included in the DJIA as of March 2024. Dow Jones Industrial Average Components Company Symbol Year Added Amazon AMZN 2024 American Express Co AXP 1982 Amgen AMGN 2020 Apple Inc AAPL 2015 Boeing Co BA 1987 Caterpillar Inc CAT 1991 Cisco Systems CSCO 2009 Chevron Corp CVX 2008 Goldman Sachs Group GS 2013 Home Depot Inc HD 1999 Honeywell International Inc HON 2020 International Business Machines Corp IBM 1979 Intel Corp INTC 1999 Johnson & Johnson JNJ 1997 Coca-Cola Co KO 1987 JP Morgan Chase & Co JPM 1991 McDonald's Corp MCD 1985 3M Co MMM 1976 Merck & Co Inc MRK 1979 Microsoft Corp MSFT 1999 Nike Inc NKE 2013 Procter & Gamble Co PG 1932 Travelers Companies Inc TRV 2009 UnitedHealth Group Inc UNH 2012 Salesforce Inc CRM 2020 Verizon Communications Inc VZ 2004 Visa Inc V 2013 Walmart WMT 1997 Walt Disney Co DIS 1991 Dow Inc DOW 2019 30 DJIA companies as of March 2024 Can You Buy Shares in the Dow Jones Industrial Average? You can buy shares in the Dow through exchange traded funds (ETFs). However, you cannot invest directly in the Dow Jones Industrial Average because it is just an index.

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

Stretch Loan: Meaning, Pros and Cons, 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-stretch-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Stretch Loan? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A stretch loan is a form of financing for an individual or business that can be used to cover a short-term gap. In effect, the loan "stretches" over that gap, so that the borrower can meet financial obligations until more money comes in and the loan can be repaid. When offered by a federal credit union they may be called Payday Alternative Loans (PALs).<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_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 stretch loan is a form of financing that allows an individual or business to cover a short-term gap until money comes in and the loan can be repaid.</li><li>For an individual, a stretch loan is similar to payday loan, though considerably cheaper when it comes to interest rates and other fees.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="7"></span></li><li>A business with insufficient working capital might consider a stretch loan to finance an inventory purchase.</li><li>Though stretch loans offer convenience, interest rates and application fees are likely to be higher compared to traditional loan programs.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-stretch-loan-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> How a Stretch Loan Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Borrowers typically obtain stretch loans from financial institutions where they already have a relationship and are in good standing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> For an individual, a stretch loan works much like the more familiar <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payday-loans.asp">payday loan</a>. With a payday loan, the borrower uses the money to cover basic living expenses or other bills until their next paycheck arrives. At that point, the borrower can, ideally, pay off the loan. Payday loan applications are subject to simple credit checks, and the loans are typically offered by small, but regulated, credit merchants. Payday loans are also notoriously expensive, with annualized interest rates that average 400%, depending on the state.<span class="ql-inline-citation" data-cite="5"></span> Some states have now outlawed payday loans or restricted the amount of interest they may charge.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> A stretch loan—while costlier than some other kinds of personal loans—typically charges a lower rate of interest than a payday loan. A major reason is that a stretch loan is normally available only to existing customers of a bank or credit union who have already demonstrated their ability to repay their debt. A stretch loan for an individual typically lasts for a month but could have a maximum term of six months if necessary.<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"> A business might take out a stretch loan to provide it with working capital for a short period of time. For example, suppose a small company wants to buy fresh inventory to restock its warehouse but has not yet collected a large <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> balance from one of its major retail customers. The company could take out a stretch loan from its bank to finance the inventory purchase. Then, when it collects on the outstanding accounts receivable, it can pay back the stretch loan. </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 maximum loan amount will be limited by the lender and the interest rate will be higher than the rate for a normal working capital loan. A small business might not already have a working capital facility in place because, for example, it lacks sufficient assets to serve as collateral. </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>Stretch loans for individuals can be costly, but they're usually a better deal than payday loans.</p></div></div></div> <span class="heading-toc" id="toc-pros-and-cons-of-a-stretch-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"> Pros and Cons of a Stretch Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Stretch loans provide convenience to the customer in time of need, but they can be much more expensive than traditional personal loans or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/workingcapitalloan.asp">working capital facilities</a>. Interest rates are higher, and there are also likely to be application fees. So before applying for a stretch loan, the would-be borrower should make sure that there aren't more economical options available, possibly from that same lender. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Note that a stretch loan shouldn’t be confused with the similar-sounding <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/senior-stretch-loan.asp">senior stretch loan</a>. That's a type of business loan that combines senior debt and junior (or subordinated) debt into one package and is most commonly used in leveraged buyouts.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_24-0"><span class="heading-toc" id="toc-what-is-a-stretch-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Stretch Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When an individual or business can't make it from one payday to another, a stretch loan is a form of financing that can be used to cover a short-term gap.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_26-0"><span class="heading-toc" id="toc-what-are-interest-rates-for-stretch-loans"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Interest Rates for Stretch Loans?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Stretch loans are convenient, but they are meant to be short-term loans, so they come with high interest rates and fees. However, interest rates for stretch loans are significantly lower than at a storefront payday lender. If you belong to a credit union, payday alternative loans offer application fees that top out at $20.<span class="ql-inline-citation" data-cite="7"></span> Interest rates on PALS can be up to 28%.<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_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-is-a-stretch-loan-the-same-as-a-senior-stretch-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a Stretch Loan the Same as a Senior Stretch Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. They are quite different in that a senior stretch loan is offered primarily to middle-market companies to finance leveraged buyouts.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> A stretch loan provides money to cover a gap that you may have financially. However, it comes with interest rates and fees, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/employee-loan-8413364">so research other options</a>, such as getting a personal loan from a family member or friend, or tapping into a retirement account that might have a lower interest rate, before committing to a stretch loan.<br/> </p></div>

## What Is a Stretch Loan? A stretch loan is a form of financing for an individual or business that can be used to cover a short-term gap. In effect, the loan "stretches" over that gap, so that the borrower can meet financial obligations until more money comes in and the loan can be repaid. When offered by a federal credit union they may be called Payday Alternative Loans (PALs). ### Key Takeaways * A stretch loan is a form of financing that allows an individual or business to cover a short-term gap until money comes in and the loan can be repaid. * For an individual, a stretch loan is similar to payday loan, though considerably cheaper when it comes to interest rates and other fees. * A business with insufficient working capital might consider a stretch loan to finance an inventory purchase. * Though stretch loans offer convenience, interest rates and application fees are likely to be higher compared to traditional loan programs. ## How a Stretch Loan Works Borrowers typically obtain stretch loans from financial institutions where they already have a relationship and are in good standing. For an individual, a stretch loan works much like the more familiar [payday loan](https://www.investopedia.com/terms/p/payday-loans.asp). With a payday loan, the borrower uses the money to cover basic living expenses or other bills until their next paycheck arrives. At that point, the borrower can, ideally, pay off the loan. Payday loan applications are subject to simple credit checks, and the loans are typically offered by small, but regulated, credit merchants. Payday loans are also notoriously expensive, with annualized interest rates that average 400%, depending on the state. Some states have now outlawed payday loans or restricted the amount of interest they may charge. A stretch loan—while costlier than some other kinds of personal loans—typically charges a lower rate of interest than a payday loan. A major reason is that a stretch loan is normally available only to existing customers of a bank or credit union who have already demonstrated their ability to repay their debt. A stretch loan for an individual typically lasts for a month but could have a maximum term of six months if necessary. A business might take out a stretch loan to provide it with working capital for a short period of time. For example, suppose a small company wants to buy fresh inventory to restock its warehouse but has not yet collected a large [accounts receivable](https://www.investopedia.com/terms/a/accountsreceivable.asp) balance from one of its major retail customers. The company could take out a stretch loan from its bank to finance the inventory purchase. Then, when it collects on the outstanding accounts receivable, it can pay back the stretch loan. The maximum loan amount will be limited by the lender and the interest rate will be higher than the rate for a normal working capital loan. A small business might not already have a working capital facility in place because, for example, it lacks sufficient assets to serve as collateral. ### Stretch loans for individuals can be costly, but they're usually a better deal than payday loans. ## Pros and Cons of a Stretch Loan Stretch loans provide convenience to the customer in time of need, but they can be much more expensive than traditional personal loans or [working capital facilities](https://www.investopedia.com/terms/w/workingcapitalloan.asp). Interest rates are higher, and there are also likely to be application fees. So before applying for a stretch loan, the would-be borrower should make sure that there aren't more economical options available, possibly from that same lender. Note that a stretch loan shouldn’t be confused with the similar-sounding [senior stretch loan](https://www.investopedia.com/terms/s/senior-stretch-loan.asp). That's a type of business loan that combines senior debt and junior (or subordinated) debt into one package and is most commonly used in leveraged buyouts. ## What Is a Stretch Loan? When an individual or business can't make it from one payday to another, a stretch loan is a form of financing that can be used to cover a short-term gap. ## What Are Interest Rates for Stretch Loans? Stretch loans are convenient, but they are meant to be short-term loans, so they come with high interest rates and fees. However, interest rates for stretch loans are significantly lower than at a storefront payday lender. If you belong to a credit union, payday alternative loans offer application fees that top out at $20. Interest rates on PALS can be up to 28%. ## Is a Stretch Loan the Same as a Senior Stretch Loan? No. They are quite different in that a senior stretch loan is offered primarily to middle-market companies to finance leveraged buyouts. ## The Bottom Line A stretch loan provides money to cover a gap that you may have financially. However, it comes with interest rates and fees, [so research other options](https://www.investopedia.com/employee-loan-8413364), such as getting a personal loan from a family member or friend, or tapping into a retirement account that might have a lower interest rate, before committing to a stretch loan.

What Is a Stretch Loan? A stretch loan is a form of financing for an individual or business that can be used to cover a short-term gap. In effect, the loan "stretches" over that gap, so that the borrower can meet financial obligations until more money comes in and the loan can be repaid. When offered by a federal credit union they may be called Payday Alternative Loans (PALs). Key Takeaways A stretch loan is a form of financing that allows an individual or business to cover a short-term gap until money comes in and the loan can be repaid.For an individual, a stretch loan is similar to payday loan, though considerably cheaper when it comes to interest rates and other fees.A business with insufficient working capital might consider a stretch loan to finance an inventory purchase.Though stretch loans offer convenience, interest rates and application fees are likely to be higher compared to traditional loan programs. How a Stretch Loan Works Borrowers typically obtain stretch loans from financial institutions where they already have a relationship and are in good standing. For an individual, a stretch loan works much like the more familiar payday loan. With a payday loan, the borrower uses the money to cover basic living expenses or other bills until their next paycheck arrives. At that point, the borrower can, ideally, pay off the loan. Payday loan applications are subject to simple credit checks, and the loans are typically offered by small, but regulated, credit merchants. Payday loans are also notoriously expensive, with annualized interest rates that average 400%, depending on the state. Some states have now outlawed payday loans or restricted the amount of interest they may charge. A stretch loan—while costlier than some other kinds of personal loans—typically charges a lower rate of interest than a payday loan. A major reason is that a stretch loan is normally available only to existing customers of a bank or credit union who have already demonstrated their ability to repay their debt. A stretch loan for an individual typically lasts for a month but could have a maximum term of six months if necessary. A business might take out a stretch loan to provide it with working capital for a short period of time. For example, suppose a small company wants to buy fresh inventory to restock its warehouse but has not yet collected a large accounts receivable balance from one of its major retail customers. The company could take out a stretch loan from its bank to finance the inventory purchase. Then, when it collects on the outstanding accounts receivable, it can pay back the stretch loan. The maximum loan amount will be limited by the lender and the interest rate will be higher than the rate for a normal working capital loan. A small business might not already have a working capital facility in place because, for example, it lacks sufficient assets to serve as collateral. Stretch loans for individuals can be costly, but they're usually a better deal than payday loans. Pros and Cons of a Stretch Loan Stretch loans provide convenience to the customer in time of need, but they can be much more expensive than traditional personal loans or working capital facilities. Interest rates are higher, and there are also likely to be application fees. So before applying for a stretch loan, the would-be borrower should make sure that there aren't more economical options available, possibly from that same lender. Note that a stretch loan shouldn’t be confused with the similar-sounding senior stretch loan. That's a type of business loan that combines senior debt and junior (or subordinated) debt into one package and is most commonly used in leveraged buyouts. What Is a Stretch Loan? When an individual or business can't make it from one payday to another, a stretch loan is a form of financing that can be used to cover a short-term gap. What Are Interest Rates for Stretch Loans? Stretch loans are convenient, but they are meant to be short-term loans, so they come with high interest rates and fees. However, interest rates for stretch loans are significantly lower than at a storefront payday lender. If you belong to a credit union, payday alternative loans offer application fees that top out at $20. Interest rates on PALS can be up to 28%. Is a Stretch Loan the Same as a Senior Stretch Loan? No. They are quite different in that a senior stretch loan is offered primarily to middle-market companies to finance leveraged buyouts. The Bottom Line A stretch loan provides money to cover a gap that you may have financially. However, it comes with interest rates and fees, so research other options, such as getting a personal loan from a family member or friend, or tapping into a retirement account that might have a lower interest rate, before committing to a stretch loan.

https://www.investopedia.com/articles/investing/051514/preparing-your-portfolio-climate-change.asp

Portfolio Investing for Climate Change

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-climate-investing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Climate Investing? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Rising sea levels, summer heatwaves, widespread droughts, storms, wildfires, and disastrous floods: These are all dramatic effects of human-induced climate change. Some investors may overlook climate change in their portfolios, but for those on top of the world’s environmental changes, green technology and renewable energy may provide profitable investment opportunities. </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"> Climate investments fall within the realm of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-advisor/esg-sri-impact-investing-explaining-difference-clients/">environmental, social, and governance (ESG) investing</a>, a field that seeks to accomplish positive social benefits as well as profits. Institutional asset managers have been carving out a broader niche for investors seeking more ethical ways to grow their wealth in recent years. These activities include investing for the good of the planet. </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"><p><br/></p> <ul> <li>Climate investing supports technologies or companies that are likely to become important as the world transitions away from fossil fuels and carbon-intensive industries.</li> <li>Investing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/biden-s-plan-for-net-zero-greenhouse-gas-emissions-by-2050-5208175">against climate change</a> falls under the category of ESG (environmental, social, and governance) investments.</li> <li>Many funds and companies are investing in alternative energies, such as solar and wind power, that can replace fossil fuels.</li> <li>Another possible investment route is green initiatives, such as carbon offsets or electrical vehicles.</li> <li>Climate investments tend to have lower returns, but some studies suggest that the gap is closing fast.</li> </ul></div></div></div> <span class="heading-toc" id="toc-understanding-climate-change-investments"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Climate Change Investments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Climate change is a complex, multi-dimensional process that will affect the global environment in many ways. Largely driven by carbon dioxide and other greenhouse gases produced by agriculture and industry, it poses an existential threat to human society. Many governments across the globe have announced plans to curb greenhouse gas emissions and reduce their climate footprints. </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 plans provide an economic opportunity for companies that can replace carbon-intensive production processes with those less harmful to the environment. As regulators increase the cost of using fossil fuels, many entrepreneurs are seeking to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing-in-pollution-control-and-waste-reduction-5220620">profit from environmentally-friendly technologies</a>. At the same time, there are many mutual funds and institutional investors seeking to profit from the potential gains in these sectors. </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-the-risks-of-climate-change"></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"> The Risks of Climate Change </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The United Nations is one of the leading providers of climate change research. The 2021 <em>Sixth Assessment Report</em>, published by the UN's Intergovernmental Panel on Climate Change, warned of "irreversible" changes to the ocean and atmosphere due to climate change. Based on the IPCC's forecast, it is a virtual certainty that global temperatures will continue to rise, increasing by at least two degrees Celsius by the year 2100. A more serious climate disaster can only be averted by capping cumulative greenhouse gas emissions as soon as possible.<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_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 United States, the National Climate Assessment, mandated every four years by the Global Change Research Act of 1990, is one of the most authoritative pieces of research. The 2018 report covers the effects of climate change on the economy, predicting severe consequences in areas such as agriculture, water access, infrastructure, and human health.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> While these two research pieces are extensive, they can be great sources of information for those looking to groom a portfolio for climate change. If climate change can be averted, the technology to do so will require great investments of resources, and offer potentially great profits. </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>Get perspective on how to quantify the investing risks of climate change in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-green-investor-podcast-episode-1-5212965">The Green Investor</a> podcast, episode 1.</p></div></div></div> <span class="heading-toc" id="toc-trends-in-climate-change-investing"></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"> Trends in Climate Change Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Investors looking to create a thematic portfolio around climate change have several different options. Two of the most well-known routes include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sustainable-investing-4427774">renewable energy</a> investments and corporations with green initiatives. </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"> Solar, a Top Choice </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Renewable energy is key to eliminating the use of fossil fuels. Natural energy sources such as the wind and sun can provide inexpensive electricity without harmful pollution or carbon dioxide. Many companies are exploring new ways to improve and scale these technologies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> If you’re willing to jump in the market, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/061115/economics-solar-power.asp">solar technology</a> remains an up-and-coming area in the alternative energy sector. Purchasing stocks in solar panel manufacturers is an easy way to invest in renewable energy. In addition to buying individual stocks, the Market Vectors Solar Energy ETF (KWT) and Guggenheim Solar Fund (TAN) are both globally diversified choices in managed funds.<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_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> On the institutional front, there are also several managers taking big bets on the returns of the renewable energy sectors. Many traditional asset managers, including BlackRock and Fidelity, have created funds that target the renewable energy sector. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_32-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_33-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Green companies may receive a boost from the $1.2 trillion <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/infrastructure-investment-jobs-act-5209581">Infrastructure Investment and Jobs Act</a>, signed into law by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/joe-biden-s-economic-plan-save-the-middle-class-4769869">President Joe Biden</a> on Nov. 15, 2021. It earmarks substantial expenditures — in many cases, the largest in U.S. history — on green initiatives such as renewable/alternative energy sources, public transit, and clean water.<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_34-0"> <span class="mntl-sc-block-subheading__text"> Global Opportunities </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Across the globe, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/green_tech.asp">green tech</a> investing has been important for many nations of the world. The Global Trends in Renewable Energy Investment 2020 report, jointly published by the Frankfurt School and the U.N. Environmental Program, lays out investments across the last decade by type of technology and country.<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_36-0"></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_37-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Renewable Energy Investments in $billions" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/HcqrplofU_e1hGu82XK1mBRvmMQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Renewableenergycapacityinvestment2010-19-7889b7878d16417d9c5883ad1e246b1c.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/HcqrplofU_e1hGu82XK1mBRvmMQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Renewableenergycapacityinvestment2010-19-7889b7878d16417d9c5883ad1e246b1c.jpg" data-srcset="https://www.investopedia.com/thmb/LBsI3exwfTJvu1lUpA5hNieXLU4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Renewableenergycapacityinvestment2010-19-7889b7878d16417d9c5883ad1e246b1c.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Renewable Energy Investments in $billions" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/HcqrplofU_e1hGu82XK1mBRvmMQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Renewableenergycapacityinvestment2010-19-7889b7878d16417d9c5883ad1e246b1c.jpg" srcset="https://www.investopedia.com/thmb/LBsI3exwfTJvu1lUpA5hNieXLU4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Renewableenergycapacityinvestment2010-19-7889b7878d16417d9c5883ad1e246b1c.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-text">Renewable Energy Capacity Investment.</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> China has by far outpaced the rest of the world with its renewable energy investments. From 2010 through 2019 China reported $818 billion in renewable energy investments, beating out all of Europe at $719 billion and nearly doubling the United States in the second-place ranking at $392 billion.<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_39-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_40-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Renewable Energy Investments by Country, 2010-19" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/WDHco-GY0mpUHrW-sNT5IombCBg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/RenewableEnergyCapacityinvestment2010-2019-478986e1ee724aecbaf1428a0e55a685.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/WDHco-GY0mpUHrW-sNT5IombCBg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/RenewableEnergyCapacityinvestment2010-2019-478986e1ee724aecbaf1428a0e55a685.jpg" data-srcset="https://www.investopedia.com/thmb/GZkiCoJInZfoY4RDHX42i-18JMk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/RenewableEnergyCapacityinvestment2010-2019-478986e1ee724aecbaf1428a0e55a685.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_2-0" width="1500"/> <noscript> <img alt="Renewable Energy Investments by Country, 2010-19" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/WDHco-GY0mpUHrW-sNT5IombCBg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/RenewableEnergyCapacityinvestment2010-2019-478986e1ee724aecbaf1428a0e55a685.jpg" srcset="https://www.investopedia.com/thmb/GZkiCoJInZfoY4RDHX42i-18JMk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/RenewableEnergyCapacityinvestment2010-2019-478986e1ee724aecbaf1428a0e55a685.jpg 750w" width="1500"/> </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">Renewable Energy Capacity Investment from 2010-2019, Top 20 Markets.</span> </figcaption></figure> <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"> Green Initiatives </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Companies with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/070814/why-you-should-invest-green-energy-right-now.asp">green energy </a>initiatives can also be a great place to invest in for a climate change-targeted portfolio. These are companies with strong investments in carbon offsets, sustainable materials, meat substitutes, electric vehicles, or other low-carbon alternatives to existing technologies. </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"> Investing in green initiatives has long been seen as a risky proposition: The high capital investment and complex infrastructure requirements mean that expenditures often outweigh profits, especially in the short term. However, many companies see long-term benefits to these investments and have taken steps to set themselves and the environment up for a better future. </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 STOXX Global Climate Change Leaders Index was developed to recognize the top global companies on the A-list for green initiatives. Heavyweights in the STOXX Index include Best Buy, Ford Motor Co., Microsoft, and Toyota.<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_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> For many investors, a climate change-focused portfolio can also mean avoiding companies with high levels of emissions—such as oil, gas, and chemical companies that rely on petroleum or other hydrocarbons for their production. </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-returns-from-climate-investments"></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"> Returns From Climate Investments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Broadly, investors in renewables should take a long view and cast a wide net. These investments have a tough yardstick: Returns on green-sector companies have historically often been lower than those in the traditional industries that they seek to replace, largely because of the additional costs of upholding ESG criteria.<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_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> However, more recent research and the development of more data-driven yardsticks indicate the gap is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/data-availability-drives-esg-investing-surge/">closing fast</a>. Still, renewable and green tech investments can take years to pay off, leaving investors to expect long-term rather than immediate results. </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-special-considerations"></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"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Beyond basic portfolio investing, climate-conscious investors should also consider the impact of environmental changes on more traditional assets as well. For example, climate change has already caused significant disruption to real estate and insurance markets due to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/natural-disasters-cost-usd210-billion-worldwide-in-2020-5094629">wildfires and flooding</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Climate-related disasters would likely be accompanied by inflation, shortages, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/when-a-utility-goes-bankrupt-5195318">utility failure</a>, as was the case during <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0311/the-financial-effects-of-a-natural-disaster.aspx">Hurricane Katrina</a>. A cautious investor should consider stockpiling cash and necessities in preparation for this kind of emergency. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_60-0"><span class="heading-toc" id="toc-how-does-climate-change-affect-investing"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does Climate Change Affect Investing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It is hard to predict how climate change will affect a specific investment, but most types of investments are likely to change for the worse. For example, global warming is likely to cause droughts, floods, temperature changes, or changes to growing seasons, that will affect the profitability of most forms of agriculture. These changes will increase the risk of many industries, thereby increasing the overall costs of doing business.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_62-0"><span class="heading-toc" id="toc-what-are-the-best-investments-for-climate-change"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Best Investments for Climate Change?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Although there are no certainties in investing, many experts believe that alternative energy, alternative transportation, and other green initiatives may become more widespread as the effects of climate change are felt. If regulators clamp down on fossil fuels and other highly polluting technologies, clean alternatives may become highly profitable.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_64-0"><span class="heading-toc" id="toc-how-is-climate-change-driving-nuclear-energy-investment"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Is Climate Change Driving Nuclear Energy Investment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many experts have advocated for nuclear energy as a low-carbon alternative to fossil fuels, thereby prompting increased investment in nuclear power plants and research. Although it is more scalable than other alternatives, some environmental scientists contend that there are hidden costs and risks that make nuclear energy less ideal than other forms of renewable energy.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_66-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> There are many factors to consider when preparing a portfolio for climate change. Although the world economy cannot eliminate hydrocarbons overnight, even a partial reduction could pay dividends in the long term. Moreover, the companies that develop these technologies could be highly profitable if they are successful. Investing in green energy and industries could offer high returns while also accomplishing an environmental benefit. </p></div>

## What Is Climate Investing? Rising sea levels, summer heatwaves, widespread droughts, storms, wildfires, and disastrous floods: These are all dramatic effects of human-induced climate change. Some investors may overlook climate change in their portfolios, but for those on top of the world’s environmental changes, green technology and renewable energy may provide profitable investment opportunities. Climate investments fall within the realm of [environmental, social, and governance (ESG) investing](https://www.investopedia.com/financial-advisor/esg-sri-impact-investing-explaining-difference-clients/), a field that seeks to accomplish positive social benefits as well as profits. Institutional asset managers have been carving out a broader niche for investors seeking more ethical ways to grow their wealth in recent years. These activities include investing for the good of the planet. ### Key Takeaways * Climate investing supports technologies or companies that are likely to become important as the world transitions away from fossil fuels and carbon-intensive industries. * Investing [against climate change](https://www.investopedia.com/biden-s-plan-for-net-zero-greenhouse-gas-emissions-by-2050-5208175) falls under the category of ESG (environmental, social, and governance) investments. * Many funds and companies are investing in alternative energies, such as solar and wind power, that can replace fossil fuels. * Another possible investment route is green initiatives, such as carbon offsets or electrical vehicles. * Climate investments tend to have lower returns, but some studies suggest that the gap is closing fast. ## Understanding Climate Change Investments Climate change is a complex, multi-dimensional process that will affect the global environment in many ways. Largely driven by carbon dioxide and other greenhouse gases produced by agriculture and industry, it poses an existential threat to human society. Many governments across the globe have announced plans to curb greenhouse gas emissions and reduce their climate footprints. These plans provide an economic opportunity for companies that can replace carbon-intensive production processes with those less harmful to the environment. As regulators increase the cost of using fossil fuels, many entrepreneurs are seeking to [profit from environmentally-friendly technologies](https://www.investopedia.com/investing-in-pollution-control-and-waste-reduction-5220620). At the same time, there are many mutual funds and institutional investors seeking to profit from the potential gains in these sectors. ## The Risks of Climate Change The United Nations is one of the leading providers of climate change research. The 2021 *Sixth Assessment Report*, published by the UN's Intergovernmental Panel on Climate Change, warned of "irreversible" changes to the ocean and atmosphere due to climate change. Based on the IPCC's forecast, it is a virtual certainty that global temperatures will continue to rise, increasing by at least two degrees Celsius by the year 2100. A more serious climate disaster can only be averted by capping cumulative greenhouse gas emissions as soon as possible. In the United States, the National Climate Assessment, mandated every four years by the Global Change Research Act of 1990, is one of the most authoritative pieces of research. The 2018 report covers the effects of climate change on the economy, predicting severe consequences in areas such as agriculture, water access, infrastructure, and human health. While these two research pieces are extensive, they can be great sources of information for those looking to groom a portfolio for climate change. If climate change can be averted, the technology to do so will require great investments of resources, and offer potentially great profits. ### Get perspective on how to quantify the investing risks of climate change in [The Green Investor](https://www.investopedia.com/the-green-investor-podcast-episode-1-5212965) podcast, episode 1. ## Trends in Climate Change Investing Investors looking to create a thematic portfolio around climate change have several different options. Two of the most well-known routes include [renewable energy](https://www.investopedia.com/sustainable-investing-4427774) investments and corporations with green initiatives. ### Solar, a Top Choice Renewable energy is key to eliminating the use of fossil fuels. Natural energy sources such as the wind and sun can provide inexpensive electricity without harmful pollution or carbon dioxide. Many companies are exploring new ways to improve and scale these technologies. If you’re willing to jump in the market, [solar technology](https://www.investopedia.com/articles/investing/061115/economics-solar-power.asp) remains an up-and-coming area in the alternative energy sector. Purchasing stocks in solar panel manufacturers is an easy way to invest in renewable energy. In addition to buying individual stocks, the Market Vectors Solar Energy ETF (KWT) and Guggenheim Solar Fund (TAN) are both globally diversified choices in managed funds. On the institutional front, there are also several managers taking big bets on the returns of the renewable energy sectors. Many traditional asset managers, including BlackRock and Fidelity, have created funds that target the renewable energy sector. ### Green companies may receive a boost from the $1.2 trillion [Infrastructure Investment and Jobs Act](https://www.investopedia.com/infrastructure-investment-jobs-act-5209581), signed into law by [President Joe Biden](https://www.investopedia.com/joe-biden-s-economic-plan-save-the-middle-class-4769869) on Nov. 15, 2021. It earmarks substantial expenditures — in many cases, the largest in U.S. history — on green initiatives such as renewable/alternative energy sources, public transit, and clean water. ### Global Opportunities Across the globe, [green tech](https://www.investopedia.com/terms/g/green_tech.asp) investing has been important for many nations of the world. The Global Trends in Renewable Energy Investment 2020 report, jointly published by the Frankfurt School and the U.N. Environmental Program, lays out investments across the last decade by type of technology and country. ![Renewable Energy Investments in $billions]() :max_bytes(150000):strip_icc()/Renewableenergycapacityinvestment2010-19-7889b7878d16417d9c5883ad1e246b1c.jpg) Renewable Energy Capacity Investment. China has by far outpaced the rest of the world with its renewable energy investments. From 2010 through 2019 China reported $818 billion in renewable energy investments, beating out all of Europe at $719 billion and nearly doubling the United States in the second-place ranking at $392 billion. ![Renewable Energy Investments by Country, 2010-19]() :max_bytes(150000):strip_icc()/RenewableEnergyCapacityinvestment2010-2019-478986e1ee724aecbaf1428a0e55a685.jpg) Renewable Energy Capacity Investment from 2010-2019, Top 20 Markets. ### Green Initiatives Companies with [green energy](https://www.investopedia.com/articles/markets/070814/why-you-should-invest-green-energy-right-now.asp) initiatives can also be a great place to invest in for a climate change-targeted portfolio. These are companies with strong investments in carbon offsets, sustainable materials, meat substitutes, electric vehicles, or other low-carbon alternatives to existing technologies. Investing in green initiatives has long been seen as a risky proposition: The high capital investment and complex infrastructure requirements mean that expenditures often outweigh profits, especially in the short term. However, many companies see long-term benefits to these investments and have taken steps to set themselves and the environment up for a better future. The STOXX Global Climate Change Leaders Index was developed to recognize the top global companies on the A-list for green initiatives. Heavyweights in the STOXX Index include Best Buy, Ford Motor Co., Microsoft, and Toyota. For many investors, a climate change-focused portfolio can also mean avoiding companies with high levels of emissions—such as oil, gas, and chemical companies that rely on petroleum or other hydrocarbons for their production. ## Returns From Climate Investments Broadly, investors in renewables should take a long view and cast a wide net. These investments have a tough yardstick: Returns on green-sector companies have historically often been lower than those in the traditional industries that they seek to replace, largely because of the additional costs of upholding ESG criteria. However, more recent research and the development of more data-driven yardsticks indicate the gap is [closing fast](https://www.investopedia.com/investing/data-availability-drives-esg-investing-surge/). Still, renewable and green tech investments can take years to pay off, leaving investors to expect long-term rather than immediate results. ## Special Considerations Beyond basic portfolio investing, climate-conscious investors should also consider the impact of environmental changes on more traditional assets as well. For example, climate change has already caused significant disruption to real estate and insurance markets due to [wildfires and flooding](https://www.investopedia.com/natural-disasters-cost-usd210-billion-worldwide-in-2020-5094629). Climate-related disasters would likely be accompanied by inflation, shortages, and [utility failure](https://www.investopedia.com/when-a-utility-goes-bankrupt-5195318), as was the case during [Hurricane Katrina](https://www.investopedia.com/financial-edge/0311/the-financial-effects-of-a-natural-disaster.aspx). A cautious investor should consider stockpiling cash and necessities in preparation for this kind of emergency. ## How Does Climate Change Affect Investing? It is hard to predict how climate change will affect a specific investment, but most types of investments are likely to change for the worse. For example, global warming is likely to cause droughts, floods, temperature changes, or changes to growing seasons, that will affect the profitability of most forms of agriculture. These changes will increase the risk of many industries, thereby increasing the overall costs of doing business. ## What Are the Best Investments for Climate Change? Although there are no certainties in investing, many experts believe that alternative energy, alternative transportation, and other green initiatives may become more widespread as the effects of climate change are felt. If regulators clamp down on fossil fuels and other highly polluting technologies, clean alternatives may become highly profitable. ## How Is Climate Change Driving Nuclear Energy Investment? Many experts have advocated for nuclear energy as a low-carbon alternative to fossil fuels, thereby prompting increased investment in nuclear power plants and research. Although it is more scalable than other alternatives, some environmental scientists contend that there are hidden costs and risks that make nuclear energy less ideal than other forms of renewable energy. ## The Bottom Line There are many factors to consider when preparing a portfolio for climate change. Although the world economy cannot eliminate hydrocarbons overnight, even a partial reduction could pay dividends in the long term. Moreover, the companies that develop these technologies could be highly profitable if they are successful. Investing in green energy and industries could offer high returns while also accomplishing an environmental benefit.

What Is Climate Investing? Rising sea levels, summer heatwaves, widespread droughts, storms, wildfires, and disastrous floods: These are all dramatic effects of human-induced climate change. Some investors may overlook climate change in their portfolios, but for those on top of the world’s environmental changes, green technology and renewable energy may provide profitable investment opportunities. Climate investments fall within the realm of environmental, social, and governance (ESG) investing, a field that seeks to accomplish positive social benefits as well as profits. Institutional asset managers have been carving out a broader niche for investors seeking more ethical ways to grow their wealth in recent years. These activities include investing for the good of the planet. Key Takeaways Climate investing supports technologies or companies that are likely to become important as the world transitions away from fossil fuels and carbon-intensive industries. Investing against climate change falls under the category of ESG (environmental, social, and governance) investments. Many funds and companies are investing in alternative energies, such as solar and wind power, that can replace fossil fuels. Another possible investment route is green initiatives, such as carbon offsets or electrical vehicles. Climate investments tend to have lower returns, but some studies suggest that the gap is closing fast. Understanding Climate Change Investments Climate change is a complex, multi-dimensional process that will affect the global environment in many ways. Largely driven by carbon dioxide and other greenhouse gases produced by agriculture and industry, it poses an existential threat to human society. Many governments across the globe have announced plans to curb greenhouse gas emissions and reduce their climate footprints. These plans provide an economic opportunity for companies that can replace carbon-intensive production processes with those less harmful to the environment. As regulators increase the cost of using fossil fuels, many entrepreneurs are seeking to profit from environmentally-friendly technologies. At the same time, there are many mutual funds and institutional investors seeking to profit from the potential gains in these sectors. The Risks of Climate Change The United Nations is one of the leading providers of climate change research. The 2021 Sixth Assessment Report, published by the UN's Intergovernmental Panel on Climate Change, warned of "irreversible" changes to the ocean and atmosphere due to climate change. Based on the IPCC's forecast, it is a virtual certainty that global temperatures will continue to rise, increasing by at least two degrees Celsius by the year 2100. A more serious climate disaster can only be averted by capping cumulative greenhouse gas emissions as soon as possible. In the United States, the National Climate Assessment, mandated every four years by the Global Change Research Act of 1990, is one of the most authoritative pieces of research. The 2018 report covers the effects of climate change on the economy, predicting severe consequences in areas such as agriculture, water access, infrastructure, and human health. While these two research pieces are extensive, they can be great sources of information for those looking to groom a portfolio for climate change. If climate change can be averted, the technology to do so will require great investments of resources, and offer potentially great profits. Get perspective on how to quantify the investing risks of climate change in The Green Investor podcast, episode 1. Trends in Climate Change Investing Investors looking to create a thematic portfolio around climate change have several different options. Two of the most well-known routes include renewable energy investments and corporations with green initiatives. Solar, a Top Choice Renewable energy is key to eliminating the use of fossil fuels. Natural energy sources such as the wind and sun can provide inexpensive electricity without harmful pollution or carbon dioxide. Many companies are exploring new ways to improve and scale these technologies. If you’re willing to jump in the market, solar technology remains an up-and-coming area in the alternative energy sector. Purchasing stocks in solar panel manufacturers is an easy way to invest in renewable energy. In addition to buying individual stocks, the Market Vectors Solar Energy ETF (KWT) and Guggenheim Solar Fund (TAN) are both globally diversified choices in managed funds. On the institutional front, there are also several managers taking big bets on the returns of the renewable energy sectors. Many traditional asset managers, including BlackRock and Fidelity, have created funds that target the renewable energy sector. Green companies may receive a boost from the $1.2 trillion Infrastructure Investment and Jobs Act, signed into law by President Joe Biden on Nov. 15, 2021. It earmarks substantial expenditures — in many cases, the largest in U.S. history — on green initiatives such as renewable/alternative energy sources, public transit, and clean water. Global Opportunities Across the globe, green tech investing has been important for many nations of the world. The Global Trends in Renewable Energy Investment 2020 report, jointly published by the Frankfurt School and the U.N. Environmental Program, lays out investments across the last decade by type of technology and country. Renewable Energy Capacity Investment. China has by far outpaced the rest of the world with its renewable energy investments. From 2010 through 2019 China reported $818 billion in renewable energy investments, beating out all of Europe at $719 billion and nearly doubling the United States in the second-place ranking at $392 billion. Renewable Energy Capacity Investment from 2010-2019, Top 20 Markets. Green Initiatives Companies with green energy initiatives can also be a great place to invest in for a climate change-targeted portfolio. These are companies with strong investments in carbon offsets, sustainable materials, meat substitutes, electric vehicles, or other low-carbon alternatives to existing technologies. Investing in green initiatives has long been seen as a risky proposition: The high capital investment and complex infrastructure requirements mean that expenditures often outweigh profits, especially in the short term. However, many companies see long-term benefits to these investments and have taken steps to set themselves and the environment up for a better future. The STOXX Global Climate Change Leaders Index was developed to recognize the top global companies on the A-list for green initiatives. Heavyweights in the STOXX Index include Best Buy, Ford Motor Co., Microsoft, and Toyota. For many investors, a climate change-focused portfolio can also mean avoiding companies with high levels of emissions—such as oil, gas, and chemical companies that rely on petroleum or other hydrocarbons for their production. Returns From Climate Investments Broadly, investors in renewables should take a long view and cast a wide net. These investments have a tough yardstick: Returns on green-sector companies have historically often been lower than those in the traditional industries that they seek to replace, largely because of the additional costs of upholding ESG criteria. However, more recent research and the development of more data-driven yardsticks indicate the gap is closing fast. Still, renewable and green tech investments can take years to pay off, leaving investors to expect long-term rather than immediate results. Special Considerations Beyond basic portfolio investing, climate-conscious investors should also consider the impact of environmental changes on more traditional assets as well. For example, climate change has already caused significant disruption to real estate and insurance markets due to wildfires and flooding. Climate-related disasters would likely be accompanied by inflation, shortages, and utility failure, as was the case during Hurricane Katrina. A cautious investor should consider stockpiling cash and necessities in preparation for this kind of emergency. How Does Climate Change Affect Investing? It is hard to predict how climate change will affect a specific investment, but most types of investments are likely to change for the worse. For example, global warming is likely to cause droughts, floods, temperature changes, or changes to growing seasons, that will affect the profitability of most forms of agriculture. These changes will increase the risk of many industries, thereby increasing the overall costs of doing business. What Are the Best Investments for Climate Change? Although there are no certainties in investing, many experts believe that alternative energy, alternative transportation, and other green initiatives may become more widespread as the effects of climate change are felt. If regulators clamp down on fossil fuels and other highly polluting technologies, clean alternatives may become highly profitable. How Is Climate Change Driving Nuclear Energy Investment? Many experts have advocated for nuclear energy as a low-carbon alternative to fossil fuels, thereby prompting increased investment in nuclear power plants and research. Although it is more scalable than other alternatives, some environmental scientists contend that there are hidden costs and risks that make nuclear energy less ideal than other forms of renewable energy. The Bottom Line There are many factors to consider when preparing a portfolio for climate change. Although the world economy cannot eliminate hydrocarbons overnight, even a partial reduction could pay dividends in the long term. Moreover, the companies that develop these technologies could be highly profitable if they are successful. Investing in green energy and industries could offer high returns while also accomplishing an environmental benefit.

https://www.investopedia.com/ask/answers/081716/how-long-does-it-take-check-clear.asp

How Long Does It Take a Check To Clear?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Once you receive a check, you may not have immediate access to the full amount when you deposit into your bank account. Usually, it takes up to two business days for a deposited check to fully clear. This may be true even if your stated balance indicates otherwise. </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"> Typically, a bank will provide the first $225 within one business day and the remaining amount of the deposit within two business days. But a bank can hold a check longer for several reasons, such as if the amount is significantly large.<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"> If you try to use the funds immediately, the check may <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 you may face bank fees. To understand when to safely use money from a check, you’ll want to learn more about how hold times work, what affects them, and how to avoid fees.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <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>Banks usually hold the first $225 of a deposit for one business day and any remaining amount for two business days.</li><li>Financial institutions provide their hold policies when you open a bank account.</li><li>The check amount and your relationship with the bank are among the factors that can affect how long it takes a check to clear.</li><li>Your deposit receipt will typically tell you when the funds will become available.</li></ul></div></div></div> <span class="heading-toc" id="toc-check-hold-times"></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"> Check Hold Times </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> When you open a bank account, your bank provides its policies about deposits, including hold times for check deposits. Banks place holds on checks to ensure that the funds are available in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payer.asp">payer</a>’s account before they provide access to the cash. This gives the bank time to validate the check, which also helps you avoid fees if you use the funds but then the check is later returned unpaid.<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"> It usually takes one to two business days for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/082216/when-do-checks-expire.asp">deposited check</a> to fully clear. However, a bank can hold a check longer for several reasons. How long it takes for a check to clear can depend on the amount of the check, your relationship with the bank, and the standing of the payer’s account.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> A bank may hold a check longer if it’s an unusual deposit, such as if you’ve never deposited a check from that payer before. A check may take also longer to clear if it’s for a larger amount or is from an international bank. Checks from foreign banks usually require longer hold times because they <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/positive-pay.asp">take longer to verify</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Hold times vary by financial institution, so check with your bank or credit union about the specific policies.</p></div></div></div> <span class="heading-toc" id="toc-why-your-check-is-on-hold"></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"> Why Your Check Is on Hold </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> There are several reasons why banks hold checks. Your bank may hold a deposited check if there are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nsf.asp">insufficient funds</a> in the payer’s account or if the payer’s account is closed or blocked for some reason. Banks usually resend checks with problems back to the paying institution, which delays when the funds will be available for the depositor.<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"> Some<strong> </strong>banks also place holds on deposits into new accounts. Accounts that have little or no history may automatically qualify for holds on all check deposits until the account holder has an established history with the bank. Accounts that have negative history—that is, accounts that frequently bounce payments or go into <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/overdraft.asp">overdraft</a>—also may have checks held longer. </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 bank also can factor in who the payer is when it determines hold times. If you’ve never deposited a check from that person before—and the check is for a significant amount—your bank may hold it until it clears. </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"> Finally, some banks may hold checks that are deposited through mobile banking apps or through an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/atm.asp">automated teller machine (ATM)</a>. These deposits typically have to be verified and cross-checked before the bank can release the funds. </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-your-deposit-receipt"></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"> Your Deposit Receipt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> When you deposit a check, you typically get a receipt that specifies when the funds will be available. The funds-availability date on the receipt can tell you when it may be time to contact the bank regarding hold inquiries. If you don’t receive a receipt, however, consider contacting your bank. </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"> Sometimes, a bank can override the hold for you. Those situations include: in an emergency, when a long hold time has been placed on the check, and when you’re a customer with an established good history. A bank may also override a hold if it verifies the check at the time of the deposit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_32-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_33-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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>To get a bank to override a hold, you typically must visit a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/branch-banking.asp">branch</a>. Although it will cost you some time, it may be worth it if you need the funds immediately.</p></div></div></div> <span class="heading-toc" id="toc-funds-availability"></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"> Funds Availability </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Depending on the amount of the check, you may have access to the full amount within two business days. Some banks make a portion of the check available immediately or within one business day. Banks typically must make the first $225 available the next business day and the balance of the check available in two business days. </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 bank may be likely to clear checks right away if you have a consistent history with a certain payer. For example, say you’re a freelancer and receive regular paychecks. The bank may hold the initial check to make sure it clears. Then, the bank may release the funds to you for subsequent deposits after a pattern is established. </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:67.5%;"> <img alt="How Long Does It Take a Check To Clear?" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/MSDfeZlNjWa1CkjQDItZ_H8fATc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/how-long-does-it-take-check-clear.asp-v2-ae6ff904ef464b8f937280165cf0b4ee.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/MSDfeZlNjWa1CkjQDItZ_H8fATc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/how-long-does-it-take-check-clear.asp-v2-ae6ff904ef464b8f937280165cf0b4ee.png" data-srcset="https://www.investopedia.com/thmb/RFSQfEuTGPEQ0Tozykgn9lZ5zXI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/how-long-does-it-take-check-clear.asp-v2-ae6ff904ef464b8f937280165cf0b4ee.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="How Long Does It Take a Check To Clear?" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/MSDfeZlNjWa1CkjQDItZ_H8fATc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/how-long-does-it-take-check-clear.asp-v2-ae6ff904ef464b8f937280165cf0b4ee.png" srcset="https://www.investopedia.com/thmb/RFSQfEuTGPEQ0Tozykgn9lZ5zXI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/how-long-does-it-take-check-clear.asp-v2-ae6ff904ef464b8f937280165cf0b4ee.png 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Joules Garcia</p></span> </figcaption></figure> <span class="heading-toc" id="toc-large-deposits"></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"> Large Deposits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Again, large deposits may come with longer hold times. A bank can hold a check longer than two business days (up to five business days) if the total amount is up to $5,525, but it can only extend a hold for the amount greater than that.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> The number of business days that the bank holds these checks can depend on your relationship with the institution. You’re more likely to get the money immediately—or within fewer than five business days—if you have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/banking-and-securities-industry-committee-basic.asp">healthy account balance</a> and no history of overdrafts. A history of overdrafts and low account balances may mean that you’ll have to wait the full five business days to receive the money.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <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-which-types-of-checks-clear-immediately"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Types of Checks Clear Immediately?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some banks may make different types of checks available immediately. However, banks are required to make funds available within one or two business days, including cashier’s checks. If any type of check is for an amount over $5,525, the bank can hold the amount of funds above that sum for up to five business days.<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_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-whats-the-longest-that-a-check-can-take-to-clear"></span> <h2 class="mntl-sc-block-questionandanswer__question">What’s the Longest That a Check Can Take To Clear?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The first $225 of a check typically must clear within one business day, with the remainder clearing within two business days. However, a bank may extend its holds, usually for up to five business days, for several reasons, such as if it’s a new account, if it was a returned check being redeposited, or if the amount is greater than $5,525.<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_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-how-long-are-checks-good-for"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Are Checks Good For?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most checks, including personal and business checks, are good for at least six months, or 180 days. After that, banks aren't legally obligated to honor them. However, many banks and credit unions may choose to honor checks that are more than six months old.<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_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 amount of time it takes a check deposited in an account to clear differs depending on a variety of factors. These include the amount of the check, the identity of the payer, the history of the account, and how old the account is. In emergencies, you may be able to get the bank to release the funds sooner. Generally, the whole check should clear within two business days, except for amounts larger than $5,525.<br/> </p></div>

Once you receive a check, you may not have immediate access to the full amount when you deposit into your bank account. Usually, it takes up to two business days for a deposited check to fully clear. This may be true even if your stated balance indicates otherwise. Typically, a bank will provide the first $225 within one business day and the remaining amount of the deposit within two business days. But a bank can hold a check longer for several reasons, such as if the amount is significantly large. If you try to use the funds immediately, the check may [bounce](https://www.investopedia.com/terms/b/bouncedcheck.asp) and you may face bank fees. To understand when to safely use money from a check, you’ll want to learn more about how hold times work, what affects them, and how to avoid fees. ### Key Takeaways * Banks usually hold the first $225 of a deposit for one business day and any remaining amount for two business days. * Financial institutions provide their hold policies when you open a bank account. * The check amount and your relationship with the bank are among the factors that can affect how long it takes a check to clear. * Your deposit receipt will typically tell you when the funds will become available. ## Check Hold Times When you open a bank account, your bank provides its policies about deposits, including hold times for check deposits. Banks place holds on checks to ensure that the funds are available in the [payer](https://www.investopedia.com/terms/p/payer.asp)’s account before they provide access to the cash. This gives the bank time to validate the check, which also helps you avoid fees if you use the funds but then the check is later returned unpaid. It usually takes one to two business days for a [deposited check](https://www.investopedia.com/ask/answers/082216/when-do-checks-expire.asp) to fully clear. However, a bank can hold a check longer for several reasons. How long it takes for a check to clear can depend on the amount of the check, your relationship with the bank, and the standing of the payer’s account. A bank may hold a check longer if it’s an unusual deposit, such as if you’ve never deposited a check from that payer before. A check may take also longer to clear if it’s for a larger amount or is from an international bank. Checks from foreign banks usually require longer hold times because they [take longer to verify](https://www.investopedia.com/terms/p/positive-pay.asp). ### Hold times vary by financial institution, so check with your bank or credit union about the specific policies. ## Why Your Check Is on Hold There are several reasons why banks hold checks. Your bank may hold a deposited check if there are [insufficient funds](https://www.investopedia.com/terms/n/nsf.asp) in the payer’s account or if the payer’s account is closed or blocked for some reason. Banks usually resend checks with problems back to the paying institution, which delays when the funds will be available for the depositor. Somebanks also place holds on deposits into new accounts. Accounts that have little or no history may automatically qualify for holds on all check deposits until the account holder has an established history with the bank. Accounts that have negative history—that is, accounts that frequently bounce payments or go into [overdraft](https://www.investopedia.com/terms/o/overdraft.asp)—also may have checks held longer. The bank also can factor in who the payer is when it determines hold times. If you’ve never deposited a check from that person before—and the check is for a significant amount—your bank may hold it until it clears. Finally, some banks may hold checks that are deposited through mobile banking apps or through an [automated teller machine (ATM)](https://www.investopedia.com/terms/a/atm.asp). These deposits typically have to be verified and cross-checked before the bank can release the funds. ## Your Deposit Receipt When you deposit a check, you typically get a receipt that specifies when the funds will be available. The funds-availability date on the receipt can tell you when it may be time to contact the bank regarding hold inquiries. If you don’t receive a receipt, however, consider contacting your bank. Sometimes, a bank can override the hold for you. Those situations include: in an emergency, when a long hold time has been placed on the check, and when you’re a customer with an established good history. A bank may also override a hold if it verifies the check at the time of the deposit. ### To get a bank to override a hold, you typically must visit a [branch](https://www.investopedia.com/terms/b/branch-banking.asp). Although it will cost you some time, it may be worth it if you need the funds immediately. ## Funds Availability Depending on the amount of the check, you may have access to the full amount within two business days. Some banks make a portion of the check available immediately or within one business day. Banks typically must make the first $225 available the next business day and the balance of the check available in two business days. The bank may be likely to clear checks right away if you have a consistent history with a certain payer. For example, say you’re a freelancer and receive regular paychecks. The bank may hold the initial check to make sure it clears. Then, the bank may release the funds to you for subsequent deposits after a pattern is established. ![How Long Does It Take a Check To Clear?]() :max_bytes(150000):strip_icc()/how-long-does-it-take-check-clear.asp-v2-ae6ff904ef464b8f937280165cf0b4ee.png) Investopedia / Joules Garcia ## Large Deposits Again, large deposits may come with longer hold times. A bank can hold a check longer than two business days (up to five business days) if the total amount is up to $5,525, but it can only extend a hold for the amount greater than that. The number of business days that the bank holds these checks can depend on your relationship with the institution. You’re more likely to get the money immediately—or within fewer than five business days—if you have a [healthy account balance](https://www.investopedia.com/terms/b/banking-and-securities-industry-committee-basic.asp) and no history of overdrafts. A history of overdrafts and low account balances may mean that you’ll have to wait the full five business days to receive the money. ## Which Types of Checks Clear Immediately? Some banks may make different types of checks available immediately. However, banks are required to make funds available within one or two business days, including cashier’s checks. If any type of check is for an amount over $5,525, the bank can hold the amount of funds above that sum for up to five business days. ## What’s the Longest That a Check Can Take To Clear? The first $225 of a check typically must clear within one business day, with the remainder clearing within two business days. However, a bank may extend its holds, usually for up to five business days, for several reasons, such as if it’s a new account, if it was a returned check being redeposited, or if the amount is greater than $5,525. ## How Long Are Checks Good For? Most checks, including personal and business checks, are good for at least six months, or 180 days. After that, banks aren't legally obligated to honor them. However, many banks and credit unions may choose to honor checks that are more than six months old. ## The Bottom Line The amount of time it takes a check deposited in an account to clear differs depending on a variety of factors. These include the amount of the check, the identity of the payer, the history of the account, and how old the account is. In emergencies, you may be able to get the bank to release the funds sooner. Generally, the whole check should clear within two business days, except for amounts larger than $5,525.

Once you receive a check, you may not have immediate access to the full amount when you deposit into your bank account. Usually, it takes up to two business days for a deposited check to fully clear. This may be true even if your stated balance indicates otherwise. Typically, a bank will provide the first $225 within one business day and the remaining amount of the deposit within two business days. But a bank can hold a check longer for several reasons, such as if the amount is significantly large. If you try to use the funds immediately, the check may bounce and you may face bank fees. To understand when to safely use money from a check, you’ll want to learn more about how hold times work, what affects them, and how to avoid fees. Key Takeaways Banks usually hold the first $225 of a deposit for one business day and any remaining amount for two business days.Financial institutions provide their hold policies when you open a bank account.The check amount and your relationship with the bank are among the factors that can affect how long it takes a check to clear.Your deposit receipt will typically tell you when the funds will become available. Check Hold Times When you open a bank account, your bank provides its policies about deposits, including hold times for check deposits. Banks place holds on checks to ensure that the funds are available in the payer’s account before they provide access to the cash. This gives the bank time to validate the check, which also helps you avoid fees if you use the funds but then the check is later returned unpaid. It usually takes one to two business days for a deposited check to fully clear. However, a bank can hold a check longer for several reasons. How long it takes for a check to clear can depend on the amount of the check, your relationship with the bank, and the standing of the payer’s account. A bank may hold a check longer if it’s an unusual deposit, such as if you’ve never deposited a check from that payer before. A check may take also longer to clear if it’s for a larger amount or is from an international bank. Checks from foreign banks usually require longer hold times because they take longer to verify. Hold times vary by financial institution, so check with your bank or credit union about the specific policies. Why Your Check Is on Hold There are several reasons why banks hold checks. Your bank may hold a deposited check if there are insufficient funds in the payer’s account or if the payer’s account is closed or blocked for some reason. Banks usually resend checks with problems back to the paying institution, which delays when the funds will be available for the depositor. Some banks also place holds on deposits into new accounts. Accounts that have little or no history may automatically qualify for holds on all check deposits until the account holder has an established history with the bank. Accounts that have negative history—that is, accounts that frequently bounce payments or go into overdraft—also may have checks held longer. The bank also can factor in who the payer is when it determines hold times. If you’ve never deposited a check from that person before—and the check is for a significant amount—your bank may hold it until it clears. Finally, some banks may hold checks that are deposited through mobile banking apps or through an automated teller machine (ATM). These deposits typically have to be verified and cross-checked before the bank can release the funds. Your Deposit Receipt When you deposit a check, you typically get a receipt that specifies when the funds will be available. The funds-availability date on the receipt can tell you when it may be time to contact the bank regarding hold inquiries. If you don’t receive a receipt, however, consider contacting your bank. Sometimes, a bank can override the hold for you. Those situations include: in an emergency, when a long hold time has been placed on the check, and when you’re a customer with an established good history. A bank may also override a hold if it verifies the check at the time of the deposit. To get a bank to override a hold, you typically must visit a branch. Although it will cost you some time, it may be worth it if you need the funds immediately. Funds Availability Depending on the amount of the check, you may have access to the full amount within two business days. Some banks make a portion of the check available immediately or within one business day. Banks typically must make the first $225 available the next business day and the balance of the check available in two business days. The bank may be likely to clear checks right away if you have a consistent history with a certain payer. For example, say you’re a freelancer and receive regular paychecks. The bank may hold the initial check to make sure it clears. Then, the bank may release the funds to you for subsequent deposits after a pattern is established. Investopedia / Joules Garcia Large Deposits Again, large deposits may come with longer hold times. A bank can hold a check longer than two business days (up to five business days) if the total amount is up to $5,525, but it can only extend a hold for the amount greater than that. The number of business days that the bank holds these checks can depend on your relationship with the institution. You’re more likely to get the money immediately—or within fewer than five business days—if you have a healthy account balance and no history of overdrafts. A history of overdrafts and low account balances may mean that you’ll have to wait the full five business days to receive the money. Which Types of Checks Clear Immediately? Some banks may make different types of checks available immediately. However, banks are required to make funds available within one or two business days, including cashier’s checks. If any type of check is for an amount over $5,525, the bank can hold the amount of funds above that sum for up to five business days. What’s the Longest That a Check Can Take To Clear? The first $225 of a check typically must clear within one business day, with the remainder clearing within two business days. However, a bank may extend its holds, usually for up to five business days, for several reasons, such as if it’s a new account, if it was a returned check being redeposited, or if the amount is greater than $5,525. How Long Are Checks Good For? Most checks, including personal and business checks, are good for at least six months, or 180 days. After that, banks aren't legally obligated to honor them. However, many banks and credit unions may choose to honor checks that are more than six months old. The Bottom Line The amount of time it takes a check deposited in an account to clear differs depending on a variety of factors. These include the amount of the check, the identity of the payer, the history of the account, and how old the account is. In emergencies, you may be able to get the bank to release the funds sooner. Generally, the whole check should clear within two business days, except for amounts larger than $5,525.

https://www.investopedia.com/visa-crypto-cards-hit-usd2-5-billion-in-volume-in-the-first-fiscal-quarter-of-2022-5217567

Visa Crypto Cards Hit $2.5 Billion in Volume in the First Fiscal Quarter of 2022

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Visa (V) announced that cryptocurrency-linked card usage hit $2.5 billion in its first fiscal quarter of 2022. The payments company has made a significant push to support widespread digital currency adoption. </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>Visa announced in its recent earnings call that its crypto-linked card usage hit $2.5 billion in volume in the first fiscal quarter of 2022.</li><li>Visa handles payments for several crypto-linked debit and credit cards.</li><li>The payment processing company doesn't hold cryptocurrency on its balance sheet but invests in digital currencies in other ways.</li></ul></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-subheading__text"> Visa Shows That Crypto Adoption Is Increasing Despite Recent Volatility </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Visa's announcement that its crypto-linked card usage hit $2.5 billion in its most recent quarter is significant. That figure is 70% of the company's crypto volume for the entire fiscal year 2021, which means that the adoption of crypto-backed cards is increasing significantly. </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"> Visa has provided a platform for crypto-linked debit cards for some time, but it's also the processing company for new credit cards like the BlockFi Rewards Credit Card.<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"> Visa CFO Vasant Prabhu noted in an interview with CNBC that card users are treating their crypto-linked cards as general-purpose accounts, using them to make everyday purchases. "To us, this signals that consumers see utility in having a Visa card linked to an account at a crypto platform. There’s value in being able to access that liquidity, to fund purchases and manage expenses, and to do so instantly and seamlessly,” he added.<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"> Prabhu noted that this increase in volume has occurred during a time of volatility in the crypto market. </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 accelerated adoption in recent months is a testament to Visa's intentional investments in digital currencies. While the company doesn't maintain any cryptocurrencies on its balance sheet, it has created a crypto consulting service and invested in crypto platforms. The company has recently added Coinbase, BlockFi and Circle to its network of crypto wallet partners, increasing the total number of partners from 54 to more than 65. </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>

Visa (V) announced that cryptocurrency-linked card usage hit $2.5 billion in its first fiscal quarter of 2022. The payments company has made a significant push to support widespread digital currency adoption. ### Key Takeaways * Visa announced in its recent earnings call that its crypto-linked card usage hit $2.5 billion in volume in the first fiscal quarter of 2022. * Visa handles payments for several crypto-linked debit and credit cards. * The payment processing company doesn't hold cryptocurrency on its balance sheet but invests in digital currencies in other ways. ### Visa Shows That Crypto Adoption Is Increasing Despite Recent Volatility Visa's announcement that its crypto-linked card usage hit $2.5 billion in its most recent quarter is significant. That figure is 70% of the company's crypto volume for the entire fiscal year 2021, which means that the adoption of crypto-backed cards is increasing significantly. Visa has provided a platform for crypto-linked debit cards for some time, but it's also the processing company for new credit cards like the BlockFi Rewards Credit Card. Visa CFO Vasant Prabhu noted in an interview with CNBC that card users are treating their crypto-linked cards as general-purpose accounts, using them to make everyday purchases. "To us, this signals that consumers see utility in having a Visa card linked to an account at a crypto platform. There’s value in being able to access that liquidity, to fund purchases and manage expenses, and to do so instantly and seamlessly,” he added. Prabhu noted that this increase in volume has occurred during a time of volatility in the crypto market. The accelerated adoption in recent months is a testament to Visa's intentional investments in digital currencies. While the company doesn't maintain any cryptocurrencies on its balance sheet, it has created a crypto consulting service and invested in crypto platforms. The company has recently added Coinbase, BlockFi and Circle to its network of crypto wallet partners, increasing the total number of partners from 54 to more than 65. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Visa (V) announced that cryptocurrency-linked card usage hit $2.5 billion in its first fiscal quarter of 2022. The payments company has made a significant push to support widespread digital currency adoption. Key Takeaways Visa announced in its recent earnings call that its crypto-linked card usage hit $2.5 billion in volume in the first fiscal quarter of 2022.Visa handles payments for several crypto-linked debit and credit cards.The payment processing company doesn't hold cryptocurrency on its balance sheet but invests in digital currencies in other ways. Visa Shows That Crypto Adoption Is Increasing Despite Recent Volatility Visa's announcement that its crypto-linked card usage hit $2.5 billion in its most recent quarter is significant. That figure is 70% of the company's crypto volume for the entire fiscal year 2021, which means that the adoption of crypto-backed cards is increasing significantly. Visa has provided a platform for crypto-linked debit cards for some time, but it's also the processing company for new credit cards like the BlockFi Rewards Credit Card. Visa CFO Vasant Prabhu noted in an interview with CNBC that card users are treating their crypto-linked cards as general-purpose accounts, using them to make everyday purchases. "To us, this signals that consumers see utility in having a Visa card linked to an account at a crypto platform. There’s value in being able to access that liquidity, to fund purchases and manage expenses, and to do so instantly and seamlessly,” he added. Prabhu noted that this increase in volume has occurred during a time of volatility in the crypto market. The accelerated adoption in recent months is a testament to Visa's intentional investments in digital currencies. While the company doesn't maintain any cryptocurrencies on its balance sheet, it has created a crypto consulting service and invested in crypto platforms. The company has recently added Coinbase, BlockFi and Circle to its network of crypto wallet partners, increasing the total number of partners from 54 to more than 65. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Pre-Approval: Definition, Meaning, 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-pre-approval"></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 Pre-Approval? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A pre-approval is a preliminary evaluation of a potential borrower by a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lender</a> to determine whether they are likely to be approved for a loan or credit card. Though a pre-approval isn't a guarantee that your loan application will be approved, it's the closest you can get without actually applying. </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"> You can be pre-approved for nearly any type of loan, including a mortgage, auto loan, personal loan, or credit card. However, the process for each type of loan varies significantly, as does the impact on your credit. </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 pre-approval is a first-look evaluation of a potential borrower by a lender, indicating whether they are likely to be approved for a loan.<br/></li><li>Lenders use pre-approval letters for credit cards and other financial products as a marketing tool.</li><li>Mortgage pre-approval requires a more in-depth process than pre-approval for other loan types, including a hard inquiry of your credit report.</li><li>Mortgage pre-approvals are often different than a final offer on a mortgage due to the in-depth underwriting process.</li><li>A pre-approval letter does not guarantee that you'll be approved for a loan or will qualify for a specific loan amount or interest rate.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-does-pre-approval-qualification-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 Does Pre-Approval Qualification Work? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> During the pre-approval process, a lender does a surface-level assessment of a borrower's financial situation to determine whether they're a good candidate for a loan or credit card. Depending on the type of loan, pre-approval could result in either a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soft-inquiry.asp">soft inquiry</a> or a hard inquiry to your credit report. </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, you may be pre-approved for a credit card—possibly without even applying—without it impacting your credit. However, pre-approval for a mortgage generally requires a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-inquiry.asp">hard inquiry</a> into your credit, which will likely impact your credit score.<span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Pre-approval generally includes a few specific features, including an estimated interest rate offer and a maximum principal amount.<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"> Once pre-approved for a loan or credit card, you'll complete the official <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-application.asp">credit application</a>. At that time, the lender will make a hard inquiry of your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a> (if they haven't before) and assess your employment history, debt-to-income ratio, and other aspects of your finances to determine whether you qualify. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> A pre-approval doesn't guarantee you'll ultimately be approved for the loan, partly because the process doesn't require a deep dive into your finances. Information not found during the pre-approval process could arise during the approval process and disqualify you from getting a loan. Additionally, your pre-approval offer could include a different maximum loan amount or interest rate than your final approval. </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"> Pre-approved <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">mortgages</a> will often have the greatest variation between a pre-approved offer and a final offer since mortgage loans are obtained with secured capital. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/securednote.asp">Secured capital</a> increases the number of variables that must be considered in the underwriting process. </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"> Underwriting for a mortgage loan typically requires a borrower’s credit score and two qualifying ratios: debt-to-income and a housing expense ratio. In a mortgage loan, the secured capital may also need a current appraisal, which usually affects the total principal offered.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="12"></span><br/><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-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>Receiving a pre-approval offer does not guarantee that a borrower will qualify for the offered <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loan.asp">loan</a>.<span class="ql-inline-citation" data-cite="2"></span></p></div></div></div> <span class="heading-toc" id="toc-types-of-pre-approval-offers"></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"> Types of Pre-Approval Offers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> There are many different types of pre-approval offers you can receive. First, many lenders send high volumes of pre-approval qualifications for credit cards, auto insurance, or private loans, for example, each year through both direct mail and electronic mail. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> These pre-approval offers are marketing material for credit card companies and other lenders. They are usually based on a soft inquiry of your credit profile, meaning you don't have to go through a hard credit check.<span class="ql-inline-citation" data-cite="8"></span> In fact, you may not have even applied for or expressed interest in being pre-approved. You may notice these pre-approval offers increase as your credit score improves. </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"> These pre-approval offers usually come with a special code and an expiration date. Using the special code provided by the lender can help to differentiate a borrower’s credit application and give the borrower some higher priority within the lending process. </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"> There are other types of pre-approval offers that you must seek out rather than getting a marketing letter in the mail. For example, if you are in the market for an auto loan or a personal loan, you could get pre-approved with several lenders to find the best fit. Depending on the lender, this process may or may not require a hard inquiry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-how-mortgage-pre-approval-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> How Mortgage Pre-Approval Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-preapproval-4776405">Mortgage pre-approval</a> is a more in-depth process than pre-approval for other types of loans. First, mortgage pre-approval usually requires a hard inquiry in your credit report, meaning it may temporarily impact your credit score.<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_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">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>If you're shopping around for a mortgage, don't worry about the impact of getting pre-approved with multiple lenders. When you have multiple hard inquiries of the same type within a short period, credit bureaus usually count them as a single inquiry, meaning the impact on your credit score is minimal.<span class="ql-inline-citation" data-cite="13"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> In addition to going to a hard inquiry, pre-approval will also require a basic review of your overall financial situation. You must provide information about your employment, income, assets, liabilities, and more to help the lender determine whether you're a good candidate for a loan. </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"> Once pre-approved, you'll receive a pre-approval letter that lays out the amount you've been pre-approved for, an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">estimated interest rate</a> you may qualify for, and the expiration date of the pre-approval. If you're still shopping for a home when the pre-approval expires, you may need to get pre-approved again. </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-qualifications-for-pre-approval-offers"></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"> Qualifications for Pre-Approval Offers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> The most important factor in getting pre-approved for any loan is your credit score. Each lender will have a minimum credit score you'll need to qualify for the loan. For example, the minimum credit score to qualify for a conventional mortgage loan is 620.<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_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> In addition to your credit score, lenders will look at other aspects of your credit report. If you have delinquent accounts or frequent late or missed payments, you may be unlikely to be pre-approved. </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"> Other factors lenders consider when pre-approving you for a loan are your employment status, income, and debt-to-income ratio. While each lender and loan type may have its own requirements, a good rule of thumb is to have a debt-to-income ratio of 36% or less.<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_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-how-long-does-it-take-to-get-pre-approved-for-a-mortgage"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does It Take To Get Pre-Approved For a Mortgage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It can take anywhere from minutes to upwards of a week to get pre-approved for a mortgage. The amount of time it takes depends on your lender and your financial situation. If you have good credit and work with an online lender, you may be able to get pre-approved in just a few minutes online. However, some lenders may require that you work with a loan officer to get pre-approved. If that's the case, or if your financial situation isn't as straightforward, the process could take several days or up to a week.</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-far-in-advance-should-i-get-pre-approved-for-a-mortgage"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Far in Advance Should I Get Pre-Approved for a Mortgage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It's generally recommended that you get pre-approved for a mortgage before you make an offer on a home. First, it's helpful to know before you make an offer on a home how much you're likely to be approved for from a lender. Additionally, a seller may be more likely to accept an offer from a borrower who has already been pre-approved.</p><p>However, you also don't want to get pre-approved too early. Pre-approvals expire after a few months, and if you go through the process too early, you may have to get pre-approved again when you're ready to make an offer, and this could impact your credit score.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-how-long-is-a-pre-approved-home-loan-good-for"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Is a Pre-Approved Home Loan Good For?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A mortgage pre-approval is usually good for anywhere from 30 to 90 days, depending on your lender. When you get a pre-approval letter, it will include an expiration date, so it's clear how long it's good for. Because someone's financial situation can change significantly in just a few months, it's uncommon for a pre-approval to last more than 90 days.<span class="ql-inline-citation" data-cite="15"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Pre-approval is an important first step in qualifying for any type of loan or credit, including mortgages, auto loans, personal loans, credit cards, and more. Getting pre-approved can help you learn whether you'll be approved for a loan, as well as the maximum loan and interest rate you may be approved for. Of course, a pre-approval doesn't guarantee anything—it doesn't guarantee you'll be approved, nor does it guarantee the loan amount or interest rate you've been pre-approved for. </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"> Pre-approval is most helpful when you're shopping around for a lender. You can use this step in the process to identify the lender that can offer you the best loan terms or interest rate, or provide the size of loan you need. </p></div>

## What Is a Pre-Approval? A pre-approval is a preliminary evaluation of a potential borrower by a [lender](https://www.investopedia.com/terms/l/lender.asp) to determine whether they are likely to be approved for a loan or credit card. Though a pre-approval isn't a guarantee that your loan application will be approved, it's the closest you can get without actually applying. You can be pre-approved for nearly any type of loan, including a mortgage, auto loan, personal loan, or credit card. However, the process for each type of loan varies significantly, as does the impact on your credit. ### Key Takeaways * A pre-approval is a first-look evaluation of a potential borrower by a lender, indicating whether they are likely to be approved for a loan. * Lenders use pre-approval letters for credit cards and other financial products as a marketing tool. * Mortgage pre-approval requires a more in-depth process than pre-approval for other loan types, including a hard inquiry of your credit report. * Mortgage pre-approvals are often different than a final offer on a mortgage due to the in-depth underwriting process. * A pre-approval letter does not guarantee that you'll be approved for a loan or will qualify for a specific loan amount or interest rate. ## How Does Pre-Approval Qualification Work? During the pre-approval process, a lender does a surface-level assessment of a borrower's financial situation to determine whether they're a good candidate for a loan or credit card. Depending on the type of loan, pre-approval could result in either a [soft inquiry](https://www.investopedia.com/terms/s/soft-inquiry.asp) or a hard inquiry to your credit report. For example, you may be pre-approved for a credit card—possibly without even applying—without it impacting your credit. However, pre-approval for a mortgage generally requires a [hard inquiry](https://www.investopedia.com/terms/h/hard-inquiry.asp) into your credit, which will likely impact your credit score. Pre-approval generally includes a few specific features, including an estimated interest rate offer and a maximum principal amount. Once pre-approved for a loan or credit card, you'll complete the official [credit application](https://www.investopedia.com/terms/c/credit-application.asp). At that time, the lender will make a hard inquiry of your [credit report](https://www.investopedia.com/terms/c/creditreport.asp) (if they haven't before) and assess your employment history, debt-to-income ratio, and other aspects of your finances to determine whether you qualify. A pre-approval doesn't guarantee you'll ultimately be approved for the loan, partly because the process doesn't require a deep dive into your finances. Information not found during the pre-approval process could arise during the approval process and disqualify you from getting a loan. Additionally, your pre-approval offer could include a different maximum loan amount or interest rate than your final approval. Pre-approved [mortgages](https://www.investopedia.com/terms/m/mortgage.asp) will often have the greatest variation between a pre-approved offer and a final offer since mortgage loans are obtained with secured capital. [Secured capital](https://www.investopedia.com/terms/s/securednote.asp) increases the number of variables that must be considered in the underwriting process. Underwriting for a mortgage loan typically requires a borrower’s credit score and two qualifying ratios: debt-to-income and a housing expense ratio. In a mortgage loan, the secured capital may also need a current appraisal, which usually affects the total principal offered. ### Receiving a pre-approval offer does not guarantee that a borrower will qualify for the offered [loan](https://www.investopedia.com/terms/l/loan.asp). ## Types of Pre-Approval Offers There are many different types of pre-approval offers you can receive. First, many lenders send high volumes of pre-approval qualifications for credit cards, auto insurance, or private loans, for example, each year through both direct mail and electronic mail. These pre-approval offers are marketing material for credit card companies and other lenders. They are usually based on a soft inquiry of your credit profile, meaning you don't have to go through a hard credit check. In fact, you may not have even applied for or expressed interest in being pre-approved. You may notice these pre-approval offers increase as your credit score improves. These pre-approval offers usually come with a special code and an expiration date. Using the special code provided by the lender can help to differentiate a borrower’s credit application and give the borrower some higher priority within the lending process. There are other types of pre-approval offers that you must seek out rather than getting a marketing letter in the mail. For example, if you are in the market for an auto loan or a personal loan, you could get pre-approved with several lenders to find the best fit. Depending on the lender, this process may or may not require a hard inquiry. ## How Mortgage Pre-Approval Works [Mortgage pre-approval](https://www.investopedia.com/mortgage-preapproval-4776405) is a more in-depth process than pre-approval for other types of loans. First, mortgage pre-approval usually requires a hard inquiry in your credit report, meaning it may temporarily impact your credit score. ### Tip If you're shopping around for a mortgage, don't worry about the impact of getting pre-approved with multiple lenders. When you have multiple hard inquiries of the same type within a short period, credit bureaus usually count them as a single inquiry, meaning the impact on your credit score is minimal. In addition to going to a hard inquiry, pre-approval will also require a basic review of your overall financial situation. You must provide information about your employment, income, assets, liabilities, and more to help the lender determine whether you're a good candidate for a loan. Once pre-approved, you'll receive a pre-approval letter that lays out the amount you've been pre-approved for, an [estimated interest rate](https://www.investopedia.com/mortgage-rates-5094943) you may qualify for, and the expiration date of the pre-approval. If you're still shopping for a home when the pre-approval expires, you may need to get pre-approved again. ## Qualifications for Pre-Approval Offers The most important factor in getting pre-approved for any loan is your credit score. Each lender will have a minimum credit score you'll need to qualify for the loan. For example, the minimum credit score to qualify for a conventional mortgage loan is 620. In addition to your credit score, lenders will look at other aspects of your credit report. If you have delinquent accounts or frequent late or missed payments, you may be unlikely to be pre-approved. Other factors lenders consider when pre-approving you for a loan are your employment status, income, and debt-to-income ratio. While each lender and loan type may have its own requirements, a good rule of thumb is to have a debt-to-income ratio of 36% or less. ## How Long Does It Take To Get Pre-Approved For a Mortgage? It can take anywhere from minutes to upwards of a week to get pre-approved for a mortgage. The amount of time it takes depends on your lender and your financial situation. If you have good credit and work with an online lender, you may be able to get pre-approved in just a few minutes online. However, some lenders may require that you work with a loan officer to get pre-approved. If that's the case, or if your financial situation isn't as straightforward, the process could take several days or up to a week. ## How Far in Advance Should I Get Pre-Approved for a Mortgage? It's generally recommended that you get pre-approved for a mortgage before you make an offer on a home. First, it's helpful to know before you make an offer on a home how much you're likely to be approved for from a lender. Additionally, a seller may be more likely to accept an offer from a borrower who has already been pre-approved. However, you also don't want to get pre-approved too early. Pre-approvals expire after a few months, and if you go through the process too early, you may have to get pre-approved again when you're ready to make an offer, and this could impact your credit score. ## How Long Is a Pre-Approved Home Loan Good For? A mortgage pre-approval is usually good for anywhere from 30 to 90 days, depending on your lender. When you get a pre-approval letter, it will include an expiration date, so it's clear how long it's good for. Because someone's financial situation can change significantly in just a few months, it's uncommon for a pre-approval to last more than 90 days. ## The Bottom Line Pre-approval is an important first step in qualifying for any type of loan or credit, including mortgages, auto loans, personal loans, credit cards, and more. Getting pre-approved can help you learn whether you'll be approved for a loan, as well as the maximum loan and interest rate you may be approved for. Of course, a pre-approval doesn't guarantee anything—it doesn't guarantee you'll be approved, nor does it guarantee the loan amount or interest rate you've been pre-approved for. Pre-approval is most helpful when you're shopping around for a lender. You can use this step in the process to identify the lender that can offer you the best loan terms or interest rate, or provide the size of loan you need.

What Is a Pre-Approval? A pre-approval is a preliminary evaluation of a potential borrower by a lender to determine whether they are likely to be approved for a loan or credit card. Though a pre-approval isn't a guarantee that your loan application will be approved, it's the closest you can get without actually applying. You can be pre-approved for nearly any type of loan, including a mortgage, auto loan, personal loan, or credit card. However, the process for each type of loan varies significantly, as does the impact on your credit. Key Takeaways A pre-approval is a first-look evaluation of a potential borrower by a lender, indicating whether they are likely to be approved for a loan.Lenders use pre-approval letters for credit cards and other financial products as a marketing tool.Mortgage pre-approval requires a more in-depth process than pre-approval for other loan types, including a hard inquiry of your credit report.Mortgage pre-approvals are often different than a final offer on a mortgage due to the in-depth underwriting process.A pre-approval letter does not guarantee that you'll be approved for a loan or will qualify for a specific loan amount or interest rate. How Does Pre-Approval Qualification Work? During the pre-approval process, a lender does a surface-level assessment of a borrower's financial situation to determine whether they're a good candidate for a loan or credit card. Depending on the type of loan, pre-approval could result in either a soft inquiry or a hard inquiry to your credit report. For example, you may be pre-approved for a credit card—possibly without even applying—without it impacting your credit. However, pre-approval for a mortgage generally requires a hard inquiry into your credit, which will likely impact your credit score. Pre-approval generally includes a few specific features, including an estimated interest rate offer and a maximum principal amount. Once pre-approved for a loan or credit card, you'll complete the official credit application. At that time, the lender will make a hard inquiry of your credit report (if they haven't before) and assess your employment history, debt-to-income ratio, and other aspects of your finances to determine whether you qualify. A pre-approval doesn't guarantee you'll ultimately be approved for the loan, partly because the process doesn't require a deep dive into your finances. Information not found during the pre-approval process could arise during the approval process and disqualify you from getting a loan. Additionally, your pre-approval offer could include a different maximum loan amount or interest rate than your final approval. Pre-approved mortgages will often have the greatest variation between a pre-approved offer and a final offer since mortgage loans are obtained with secured capital. Secured capital increases the number of variables that must be considered in the underwriting process. Underwriting for a mortgage loan typically requires a borrower’s credit score and two qualifying ratios: debt-to-income and a housing expense ratio. In a mortgage loan, the secured capital may also need a current appraisal, which usually affects the total principal offered. Receiving a pre-approval offer does not guarantee that a borrower will qualify for the offered loan. Types of Pre-Approval Offers There are many different types of pre-approval offers you can receive. First, many lenders send high volumes of pre-approval qualifications for credit cards, auto insurance, or private loans, for example, each year through both direct mail and electronic mail. These pre-approval offers are marketing material for credit card companies and other lenders. They are usually based on a soft inquiry of your credit profile, meaning you don't have to go through a hard credit check. In fact, you may not have even applied for or expressed interest in being pre-approved. You may notice these pre-approval offers increase as your credit score improves. These pre-approval offers usually come with a special code and an expiration date. Using the special code provided by the lender can help to differentiate a borrower’s credit application and give the borrower some higher priority within the lending process. There are other types of pre-approval offers that you must seek out rather than getting a marketing letter in the mail. For example, if you are in the market for an auto loan or a personal loan, you could get pre-approved with several lenders to find the best fit. Depending on the lender, this process may or may not require a hard inquiry. How Mortgage Pre-Approval Works Mortgage pre-approval is a more in-depth process than pre-approval for other types of loans. First, mortgage pre-approval usually requires a hard inquiry in your credit report, meaning it may temporarily impact your credit score. Tip If you're shopping around for a mortgage, don't worry about the impact of getting pre-approved with multiple lenders. When you have multiple hard inquiries of the same type within a short period, credit bureaus usually count them as a single inquiry, meaning the impact on your credit score is minimal. In addition to going to a hard inquiry, pre-approval will also require a basic review of your overall financial situation. You must provide information about your employment, income, assets, liabilities, and more to help the lender determine whether you're a good candidate for a loan. Once pre-approved, you'll receive a pre-approval letter that lays out the amount you've been pre-approved for, an estimated interest rate you may qualify for, and the expiration date of the pre-approval. If you're still shopping for a home when the pre-approval expires, you may need to get pre-approved again. Qualifications for Pre-Approval Offers The most important factor in getting pre-approved for any loan is your credit score. Each lender will have a minimum credit score you'll need to qualify for the loan. For example, the minimum credit score to qualify for a conventional mortgage loan is 620. In addition to your credit score, lenders will look at other aspects of your credit report. If you have delinquent accounts or frequent late or missed payments, you may be unlikely to be pre-approved. Other factors lenders consider when pre-approving you for a loan are your employment status, income, and debt-to-income ratio. While each lender and loan type may have its own requirements, a good rule of thumb is to have a debt-to-income ratio of 36% or less. How Long Does It Take To Get Pre-Approved For a Mortgage? It can take anywhere from minutes to upwards of a week to get pre-approved for a mortgage. The amount of time it takes depends on your lender and your financial situation. If you have good credit and work with an online lender, you may be able to get pre-approved in just a few minutes online. However, some lenders may require that you work with a loan officer to get pre-approved. If that's the case, or if your financial situation isn't as straightforward, the process could take several days or up to a week. How Far in Advance Should I Get Pre-Approved for a Mortgage? It's generally recommended that you get pre-approved for a mortgage before you make an offer on a home. First, it's helpful to know before you make an offer on a home how much you're likely to be approved for from a lender. Additionally, a seller may be more likely to accept an offer from a borrower who has already been pre-approved.However, you also don't want to get pre-approved too early. Pre-approvals expire after a few months, and if you go through the process too early, you may have to get pre-approved again when you're ready to make an offer, and this could impact your credit score. How Long Is a Pre-Approved Home Loan Good For? A mortgage pre-approval is usually good for anywhere from 30 to 90 days, depending on your lender. When you get a pre-approval letter, it will include an expiration date, so it's clear how long it's good for. Because someone's financial situation can change significantly in just a few months, it's uncommon for a pre-approval to last more than 90 days. The Bottom Line Pre-approval is an important first step in qualifying for any type of loan or credit, including mortgages, auto loans, personal loans, credit cards, and more. Getting pre-approved can help you learn whether you'll be approved for a loan, as well as the maximum loan and interest rate you may be approved for. Of course, a pre-approval doesn't guarantee anything—it doesn't guarantee you'll be approved, nor does it guarantee the loan amount or interest rate you've been pre-approved for. Pre-approval is most helpful when you're shopping around for a lender. You can use this step in the process to identify the lender that can offer you the best loan terms or interest rate, or provide the size of loan you need.

https://www.investopedia.com/monday-com-and-krispy-kreme-ipos-what-you-need-to-know-5193320

monday.com and Krispy Kreme IPOs: 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"> monday.com Ltd. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MNDY">MNDY</a>), a maker of workplace software, went public on June 10, 2021, to raise <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/workingcapital.asp">working capital</a> for operational expenses, including advertising and marketing as well as technology development. One percent of the proceeds from the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering</a> (IPO) were also set aside for the monday.com foundation, a charitable initiative started by its founders.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> monday.com calls its product a workplace operating system (OS) that provides the building blocks for organizations to incorporate new functionality, from project management to department processes, into their business.<span class="ql-inline-citation" data-cite="11"></span> The distinguishing feature of monday.com's software is the simple interface, which requires minimal knowledge of coding.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> During the IPO, monday.com offered 13.7 million shares to the public, priced at $155 apiece, above the price range of $125 to $140. The stock opened for trading at $173.5 on NASDAQ and rose to a high of $182 during the course of the day. At the end of the first day of trading, monday.com had raised $574 million and had a market valuation of $7.5 billion.<span class="ql-inline-citation" data-cite="1"></span> Since their debut, monday.com shares reached a peak of $233.25 on June 23 and are trading at $198.27, as of July 20.<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_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Krispy Kreme, Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DNUT">DNUT</a>), a maker of doughnuts and other sweet treats, offered 29.4 million shares priced at $17, below the previously announced range of between $21 and $24, on July 1. The company was expecting to raise approximately $4 billion from the markets.<span class="ql-inline-citation" data-cite="14"></span> By the end of their first day of trading on NASDAQ, Krispy Kreme's shares were trading at a price of $21. It had raised $500 million from the markets for a valuation of $2.7 billion.<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_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Krispy Kreme shares have been on a downward slide, never reaching their debut high, since the IPO.<span class="ql-inline-citation" data-cite="20"></span> As of July 20, they are changing hands at $16.27.  In its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec-form-s-1.asp">S-1 filing</a>, Krispy Kreme stated that it planned to use proceeds from the public offering to pay down its considerable debt of more than $1 billion and for general business expenses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>monday.com is a maker of workplace software, and Krispy Kreme is a doughnut and sweet treats company.</li><li>monday.com went public on June 10 under the ticker of MNDY, and Krispy Kreme went public on July 1 under the ticker of DNUT.</li><li>monday.com generated $161 million in sales last year and losses of $152 million. Krispy Kreme had revenues of $1.1 billion and losses of $60.9 million.</li><li>Both companies have received different responses from investors. While monday.com has received a positive coverage and valuation from investors and analysts, Krispy Kreme has had to contend with a mixed response and a relatively lukewarm reception in public markets.</li></ul></div></div></div> <span class="heading-toc" id="toc-mondaycom-founding-and-history"></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"> monday.com Founding and History </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> monday.com was founded in 2012 by Roy Mann and Evan Zymann. Both founders had started companies for brief periods of time prior to coming together to work at monday.com. Mann was a senior executive at Wix.com, a no-code website building company, when he developed the first iteration of monday.com to solve project management problems at his company. He brought on Zymann, who was working at a mobile technology company, to help scale the solution. They launched a working product in 2014. In its earlier avatar, monday.com was known as dapulse, and it was renamed after it began expanding internationally in 2017.<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> monday.com is part of a growing suite of applications that require zero to minimal knowledge of coding skills for implementation and operation. Such products encompass a wide variety of industries, from website company Wordpress to project management tool asana. Research firm Gartner has stated that 65% of application development will be no- to low-code by 2024.<span class="ql-inline-citation" data-cite="15"></span> While monday.com started as a project management solution, it has pivoted to becoming an all-encompassing solution that integrates multiple functions related to running a business, such as human resources and finance. </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-krispy-kreme-founding-and-history"></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"> Krispy Kreme Founding and History </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Krispy Kreme has a much more storied history. The chain was founded in 1937 and is considered a "national treasure."<span class="ql-inline-citation" data-cite="21"></span> This is the company's second innings in public markets. It went public during the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dotcom-bubble.asp">dotcom bubble</a> of 2000, when its shares popped by 76% on the first day of trading.<span class="ql-inline-citation" data-cite="6"></span> An investigation by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission</a> (SEC) in 2004 for accounting irregularities tanked its stock price to $1, however.<span class="ql-inline-citation" data-cite="17"></span> Management issues and a subsequent societal shift away from sugary foods toward health-conscious alternatives also roiled its business. Krispy Kreme went private in 2016 after being purchased by a subsidiary of German investment firm <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/what-jab-holdings/">JAB Holdings Company</a> for $1.35 billion.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> During its time away from the public markets, Krispy Kreme has focused on expanding its retail presence, offline and online, and reinventing its brand. It also acquired a majority stake in Insomnia Cookies, a millennial-focused cookie maker, and opened more locations abroad.<span class="ql-inline-citation" data-cite="8"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> According to its S-1 filing, Krispy Kreme boosted its physical presence from 5,842 locations in March 2020 to 9,077 by April 2021. These locations are spread across 30 countries. The company has transitioned away from its earlier franchise model and now directly owns 86% of its total store count.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Last year, Krispy Kreme launched a 24-hour flagship store in New York City's Times Square, featuring a glazed waterfall that enables customers to watch preparation of its original glazed donuts at scale in real time. The store is meant to capitalize on the craze for experiences via social media.<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_26-0"></div> <span class="heading-toc" id="toc-mondaycom-key-financials"></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"> monday.com Key Financials </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> monday.com had annual revenue of $161.1 million in 2020, up 106% from 2019. In 2018, the company was estimated to have $50 million in revenue.<span class="ql-inline-citation" data-cite="18"></span> The COVID-19 pandemic's enforced remote work policies have become an accelerant for the company's business. In addition to an increase in revenue, the number of customers at monday.com surged. </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"> At the end of 2020, monday.com had 113,888 customers, up by 151% from Jan 1, 2019. A Forbes profile of the Israeli company states that it had 120,000 customers in June 2021.<span class="ql-inline-citation" data-cite="5"></span> Since monday.com's revenue depends on recurring billing, an increase in the number of customers is a good sign. The company's customers are spread over 200 industries and 190 countries, with 52% of monday.com’s revenue for 2020 coming from customers located outside the United States. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The jump in monday.com's revenue has come alongside steepened losses, which multiplied from $91.6 million in 2019 to $152.2 million in 2020. Those figures are mainly the result of increased spend on operating expenses. For example, its marketing expenses increased by 61.4% to $191,353, and administrative expenses jumped by 251.5% to $54,339 between 2019 and 2020.  The emphasis on spending for operations and to acquire new customers means that the company has a negative <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/operatingmargin.asp">operating margin</a> of -93.43% as of this writing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> But the company's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grossmargin.asp">gross margin</a> is positive. It was 89.2% during the first quarter of 2021. At the end of 2020, monday.com had cash and cash equivalents of $40.6 million, a slight increase from the $38.4 million on its books in 2019.  </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"> Like most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/software-as-a-service-saas.asp">Software-as-a-Service</a> (SaaS) companies, monday.com relies on <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deferredrevenue.asp">deferred revenue</a> as an accounting tool on its balance sheet. Deferred revenue refers to the revenue that will be recognized in the next 12 months based on monthly subscription contracts. As of Dec. 31, 2020, monday.com had deferred revenue of $70.7 million, up from $$40.9 million a year ago. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_38-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">monday.com Key Financials</th> </tr> </thead> <tbody data-check="-1"> <tr> <td> </td> <td> FY 2019</td> <td> FY 2020</td> </tr> <tr> <td>Revenue ($M)</td> <td> 78</td> <td> 161.1</td> </tr> <tr> <td>Net Losses ($M)</td> <td> 91.6</td> <td> 152.2</td> </tr> <tr> <td>Deferred Revenue ($M)</td> <td>40.9</td> <td>70.7</td> </tr> </tbody> </table> <figcaption>Source: monday.com S-1</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-krispy-kreme-key-financials"></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"> <strong></strong>Krispy Kreme Key Financials          </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Krispy Kreme had revenue of $1.1 billion in 2020, an increase of 17% from 2019 figures. That figure was a slowdown from the previous year, when it recorded a 22% increase in $959.4 million annual revenue. For its most recent quarter ending in April, the company reported a revenue jump of 23.1% from 2020 figures to $321.8 million. One-third of Krispy Kreme's sales came from outside the United States in 2020, and e-commerce accounted for one-fifth of all sales. </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 North Carolina company's spending has kept pace with the increase in its revenue. For example, its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sga.asp">selling, general &amp; administrative</a> (SGA) expenses and operating expenses shot up by 34.4% and 65%, respectively, between 2019 and 2020. Those skyrocketing expenses resulted in a net loss of $60.9 million. In its latest quarter, the company reported net losses of $0.3 million, down from $11 million last year, mainly on the back of income tax benefits. </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"> Krispy Kreme had debt of $1.2 billion in April this year. It used 4.3% of its total revenue for the quarter to pay interest on that debt. Last year, interest expense on debt amounted to 5.1% of annual revenue figures, according to the company's S-1 filing. Krispy Kreme had cash and cash equivalents of $50.6 million during its latest April quarter, up from $37.4 million in January. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_47-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style="width: 104px;"></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">Krispy Kreme Key Financials </th> </tr> </thead> <tbody data-check="-1"> <tr> <td> </td> <td> Q1 FY 2020</td> <td>Q1 FY 2021</td> </tr> <tr> <td> Revenue ($M)</td> <td> $261.2</td> <td> $321.8</td> </tr> <tr> <td> Net Loss ($M)</td> <td> $10.9</td> <td> $0.3</td> </tr> </tbody> </table> <figcaption>Source: Krispy Kreme S-1 </figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <span class="heading-toc" id="toc-how-much-is-mondaycom-worth"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-heading__text"> How Much Is monday.com Worth?  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> According to Crunchbase, monday.com raised a total of $234.1 million over six funding rounds in private markets.<span class="ql-inline-citation" data-cite="3"></span> Prominent investors in the company included London-based Entree Capital and Hamilton Lane. In 2018, it was valued at $550 million. By July 2019, when it raised $150 million in a Series D round from investors, monday.com was worth $1.9 billion.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Just before monday.com went public, cloud <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/customer_relation_management.asp">customer relationship management</a> (CRM) company salesforce.com, inc.'s (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CRM">CRM</a>) venture arm and video conferencing company Zoom Video Communication, Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=zm">ZM</a>) purchased $75 million worth of shares in the company at its public offering price, according to a regulatory filing.<span class="ql-inline-citation" data-cite="2"></span> The frenetic increase in monday.com's valuation has continued in public markets. At the end of its first day of trading, monday.com was worth $7.5 billion. By the close of trading on July 19, 2021, the same company's valuation had risen to $9.2 billion in the market's estimation.   </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"> Like most tech entrepreneurs who have publicly listed companies, the monday.com co-founders have retained veto power for business matters related to the company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <span class="heading-toc" id="toc-how-much-is-krispy-kreme-worth"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-heading__text"> How Much Is Krispy Kreme Worth?  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Krispy Kreme was taken private by JAB Holdings in 2016 in a $1.35 billion deal that valued its shares at $21 apiece. The company was hoping for a $4 billion valuation upon its return to the stock market, but response by analysts and investment firms was largely unenthusiastic, and it ended the first day of trading at a valuation of $2.6 billion. At the close of trading on July 19, the company had a valuation of $2.77 billion. </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"> Analysts and commentators argue that the company's mounting losses – $12.4 million in 2018, $34 million in 2019, and $60.9 million in 2020 – are proof that its revenue bump has occurred at the expense of net profit.<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_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Since the IPO, JAB Holdings has retained its position as the company's biggest shareholder. A subsidiary of JAB Holdings paid $94.3 million on July 6 for 5.9 million shares, bringing the total number of shares it held to 68 million.<span class="ql-inline-citation" data-cite="24"></span> The investment firm also holds voting power for Krispy Kreme's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commonstock.asp">common stock</a>, meaning that it will have the decisive say in matters that come up for stockholder votes. The firm will also be able to influence management strategy and board of directors composition from this perch. </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-mondaycom-key-competitors"></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"> monday.com Key Competitors<strong> </strong> </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> monday.com claims to have created a new product category called Workplace Operating System. This operating system includes and integrates applications across multiple departments in an organization. As such, the list of competitors is a long one and includes cloud applications for various departments. </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"> For example, privately held asana is a project management tool that has a similar target market and interface as monday.com. Investor salesforce.com can also be considered a competitor because it offers customer relationship software functionality, also offered by monday.com, in its product suite. Other companies listed in the company's S-1 filings as competitors are remote desktop company Citrix Systems, Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CTXS">CTXS</a>) and Atlassian Corporation Plc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TEAM">TEAM</a>), which makes project management software. </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-krispy-kreme-key-competitors"></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"> Krispy Kreme Key Competitors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> Competition for Krispy Kreme comes in the form of other doughnut vendors and coffee shops or chains that sell products similar to Krispy Kreme's portfolio. Included in this list are large publicly listed multinational chains like Starbucks Corporation (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SBUX">SBUX</a>) and local doughnut shops that have a strong regional presence. An example of the latter is Portland, Oregon-based Voodoo Doughnuts, which is expanding its locations across the United States and took an investment from Fundamental Capital, a San Francisco-based private equity firm, in 2017.<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_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"> <strong></strong>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"> <br/>monday.com, a maker of workplace software, and doughnut maker Krispy Kreme went public in June and July, respectively. Both IPOs received dramatically different responses from investors. monday.com witnessed a bump in its offering price and valuation. Krispy Kreme's public offering experience was not as sweet. The doughnut maker's shares were priced below the expected range, and its valuation has not moved much, as compared to monday.com, since its IPO. </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>

monday.com Ltd. ([MNDY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MNDY)), a maker of workplace software, went public on June 10, 2021, to raise [working capital](https://www.investopedia.com/terms/w/workingcapital.asp) for operational expenses, including advertising and marketing as well as technology development. One percent of the proceeds from the [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO) were also set aside for the monday.com foundation, a charitable initiative started by its founders. monday.com calls its product a workplace operating system (OS) that provides the building blocks for organizations to incorporate new functionality, from project management to department processes, into their business. The distinguishing feature of monday.com's software is the simple interface, which requires minimal knowledge of coding.  During the IPO, monday.com offered 13.7 million shares to the public, priced at $155 apiece, above the price range of $125 to $140. The stock opened for trading at $173.5 on NASDAQ and rose to a high of $182 during the course of the day. At the end of the first day of trading, monday.com had raised $574 million and had a market valuation of $7.5 billion. Since their debut, monday.com shares reached a peak of $233.25 on June 23 and are trading at $198.27, as of July 20.  Krispy Kreme, Inc. ([DNUT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DNUT)), a maker of doughnuts and other sweet treats, offered 29.4 million shares priced at $17, below the previously announced range of between $21 and $24, on July 1. The company was expecting to raise approximately $4 billion from the markets. By the end of their first day of trading on NASDAQ, Krispy Kreme's shares were trading at a price of $21. It had raised $500 million from the markets for a valuation of $2.7 billion. Krispy Kreme shares have been on a downward slide, never reaching their debut high, since the IPO. As of July 20, they are changing hands at $16.27.  In its [S-1 filing](https://www.investopedia.com/terms/s/sec-form-s-1.asp), Krispy Kreme stated that it planned to use proceeds from the public offering to pay down its considerable debt of more than $1 billion and for general business expenses. ### Key Takeaways * monday.com is a maker of workplace software, and Krispy Kreme is a doughnut and sweet treats company. * monday.com went public on June 10 under the ticker of MNDY, and Krispy Kreme went public on July 1 under the ticker of DNUT. * monday.com generated $161 million in sales last year and losses of $152 million. Krispy Kreme had revenues of $1.1 billion and losses of $60.9 million. * Both companies have received different responses from investors. While monday.com has received a positive coverage and valuation from investors and analysts, Krispy Kreme has had to contend with a mixed response and a relatively lukewarm reception in public markets. ## monday.com Founding and History monday.com was founded in 2012 by Roy Mann and Evan Zymann. Both founders had started companies for brief periods of time prior to coming together to work at monday.com. Mann was a senior executive at Wix.com, a no-code website building company, when he developed the first iteration of monday.com to solve project management problems at his company. He brought on Zymann, who was working at a mobile technology company, to help scale the solution. They launched a working product in 2014. In its earlier avatar, monday.com was known as dapulse, and it was renamed after it began expanding internationally in 2017. monday.com is part of a growing suite of applications that require zero to minimal knowledge of coding skills for implementation and operation. Such products encompass a wide variety of industries, from website company Wordpress to project management tool asana. Research firm Gartner has stated that 65% of application development will be no- to low-code by 2024. While monday.com started as a project management solution, it has pivoted to becoming an all-encompassing solution that integrates multiple functions related to running a business, such as human resources and finance. ## Krispy Kreme Founding and History Krispy Kreme has a much more storied history. The chain was founded in 1937 and is considered a "national treasure." This is the company's second innings in public markets. It went public during the [dotcom bubble](https://www.investopedia.com/terms/d/dotcom-bubble.asp) of 2000, when its shares popped by 76% on the first day of trading. An investigation by the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) in 2004 for accounting irregularities tanked its stock price to $1, however. Management issues and a subsequent societal shift away from sugary foods toward health-conscious alternatives also roiled its business. Krispy Kreme went private in 2016 after being purchased by a subsidiary of German investment firm [JAB Holdings Company](https://www.investopedia.com/news/what-jab-holdings/) for $1.35 billion. During its time away from the public markets, Krispy Kreme has focused on expanding its retail presence, offline and online, and reinventing its brand. It also acquired a majority stake in Insomnia Cookies, a millennial-focused cookie maker, and opened more locations abroad.  According to its S-1 filing, Krispy Kreme boosted its physical presence from 5,842 locations in March 2020 to 9,077 by April 2021. These locations are spread across 30 countries. The company has transitioned away from its earlier franchise model and now directly owns 86% of its total store count. Last year, Krispy Kreme launched a 24-hour flagship store in New York City's Times Square, featuring a glazed waterfall that enables customers to watch preparation of its original glazed donuts at scale in real time. The store is meant to capitalize on the craze for experiences via social media. ## monday.com Key Financials monday.com had annual revenue of $161.1 million in 2020, up 106% from 2019. In 2018, the company was estimated to have $50 million in revenue. The COVID-19 pandemic's enforced remote work policies have become an accelerant for the company's business. In addition to an increase in revenue, the number of customers at monday.com surged. At the end of 2020, monday.com had 113,888 customers, up by 151% from Jan 1, 2019. A Forbes profile of the Israeli company states that it had 120,000 customers in June 2021. Since monday.com's revenue depends on recurring billing, an increase in the number of customers is a good sign. The company's customers are spread over 200 industries and 190 countries, with 52% of monday.com’s revenue for 2020 coming from customers located outside the United States. The jump in monday.com's revenue has come alongside steepened losses, which multiplied from $91.6 million in 2019 to $152.2 million in 2020. Those figures are mainly the result of increased spend on operating expenses. For example, its marketing expenses increased by 61.4% to $191,353, and administrative expenses jumped by 251.5% to $54,339 between 2019 and 2020.  The emphasis on spending for operations and to acquire new customers means that the company has a negative [operating margin](https://www.investopedia.com/terms/o/operatingmargin.asp) of -93.43% as of this writing. But the company's [gross margin](https://www.investopedia.com/terms/g/grossmargin.asp) is positive. It was 89.2% during the first quarter of 2021. At the end of 2020, monday.com had cash and cash equivalents of $40.6 million, a slight increase from the $38.4 million on its books in 2019.  Like most [Software-as-a-Service](https://www.investopedia.com/terms/s/software-as-a-service-saas.asp) (SaaS) companies, monday.com relies on [deferred revenue](https://www.investopedia.com/terms/d/deferredrevenue.asp) as an accounting tool on its balance sheet. Deferred revenue refers to the revenue that will be recognized in the next 12 months based on monthly subscription contracts. As of Dec. 31, 2020, monday.com had deferred revenue of $70.7 million, up from $$40.9 million a year ago. | monday.com Key Financials | | | | --- | --- | --- | | | FY 2019 | FY 2020 | | Revenue ($M) | 78 | 161.1 | | Net Losses ($M) | 91.6 | 152.2 | | Deferred Revenue ($M) | 40.9 | 70.7 | Source: monday.com S-1 ## Krispy Kreme Key Financials Krispy Kreme had revenue of $1.1 billion in 2020, an increase of 17% from 2019 figures. That figure was a slowdown from the previous year, when it recorded a 22% increase in $959.4 million annual revenue. For its most recent quarter ending in April, the company reported a revenue jump of 23.1% from 2020 figures to $321.8 million. One-third of Krispy Kreme's sales came from outside the United States in 2020, and e-commerce accounted for one-fifth of all sales. The North Carolina company's spending has kept pace with the increase in its revenue. For example, its [selling, general & administrative](https://www.investopedia.com/terms/s/sga.asp) (SGA) expenses and operating expenses shot up by 34.4% and 65%, respectively, between 2019 and 2020. Those skyrocketing expenses resulted in a net loss of $60.9 million. In its latest quarter, the company reported net losses of $0.3 million, down from $11 million last year, mainly on the back of income tax benefits. Krispy Kreme had debt of $1.2 billion in April this year. It used 4.3% of its total revenue for the quarter to pay interest on that debt. Last year, interest expense on debt amounted to 5.1% of annual revenue figures, according to the company's S-1 filing. Krispy Kreme had cash and cash equivalents of $50.6 million during its latest April quarter, up from $37.4 million in January. | Krispy Kreme Key Financials | | | | --- | --- | --- | | | Q1 FY 2020 | Q1 FY 2021 | | Revenue ($M) | $261.2 | $321.8 | | Net Loss ($M) | $10.9 | $0.3 | Source: Krispy Kreme S-1 ## How Much Is monday.com Worth? According to Crunchbase, monday.com raised a total of $234.1 million over six funding rounds in private markets. Prominent investors in the company included London-based Entree Capital and Hamilton Lane. In 2018, it was valued at $550 million. By July 2019, when it raised $150 million in a Series D round from investors, monday.com was worth $1.9 billion. Just before monday.com went public, cloud [customer relationship management](https://www.investopedia.com/terms/c/customer_relation_management.asp) (CRM) company salesforce.com, inc.'s ([CRM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CRM)) venture arm and video conferencing company Zoom Video Communication, Inc. ([ZM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=zm)) purchased $75 million worth of shares in the company at its public offering price, according to a regulatory filing. The frenetic increase in monday.com's valuation has continued in public markets. At the end of its first day of trading, monday.com was worth $7.5 billion. By the close of trading on July 19, 2021, the same company's valuation had risen to $9.2 billion in the market's estimation.   Like most tech entrepreneurs who have publicly listed companies, the monday.com co-founders have retained veto power for business matters related to the company. ## How Much Is Krispy Kreme Worth? Krispy Kreme was taken private by JAB Holdings in 2016 in a $1.35 billion deal that valued its shares at $21 apiece. The company was hoping for a $4 billion valuation upon its return to the stock market, but response by analysts and investment firms was largely unenthusiastic, and it ended the first day of trading at a valuation of $2.6 billion. At the close of trading on July 19, the company had a valuation of $2.77 billion. Analysts and commentators argue that the company's mounting losses – $12.4 million in 2018, $34 million in 2019, and $60.9 million in 2020 – are proof that its revenue bump has occurred at the expense of net profit. Since the IPO, JAB Holdings has retained its position as the company's biggest shareholder. A subsidiary of JAB Holdings paid $94.3 million on July 6 for 5.9 million shares, bringing the total number of shares it held to 68 million. The investment firm also holds voting power for Krispy Kreme's [common stock](https://www.investopedia.com/terms/c/commonstock.asp), meaning that it will have the decisive say in matters that come up for stockholder votes. The firm will also be able to influence management strategy and board of directors composition from this perch. ## monday.com Key Competitors monday.com claims to have created a new product category called Workplace Operating System. This operating system includes and integrates applications across multiple departments in an organization. As such, the list of competitors is a long one and includes cloud applications for various departments. For example, privately held asana is a project management tool that has a similar target market and interface as monday.com. Investor salesforce.com can also be considered a competitor because it offers customer relationship software functionality, also offered by monday.com, in its product suite. Other companies listed in the company's S-1 filings as competitors are remote desktop company Citrix Systems, Inc. ([CTXS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CTXS)) and Atlassian Corporation Plc. ([TEAM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TEAM)), which makes project management software. ## Krispy Kreme Key Competitors Competition for Krispy Kreme comes in the form of other doughnut vendors and coffee shops or chains that sell products similar to Krispy Kreme's portfolio. Included in this list are large publicly listed multinational chains like Starbucks Corporation ([SBUX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SBUX)) and local doughnut shops that have a strong regional presence. An example of the latter is Portland, Oregon-based Voodoo Doughnuts, which is expanding its locations across the United States and took an investment from Fundamental Capital, a San Francisco-based private equity firm, in 2017. ## The Bottom Line monday.com, a maker of workplace software, and doughnut maker Krispy Kreme went public in June and July, respectively. Both IPOs received dramatically different responses from investors. monday.com witnessed a bump in its offering price and valuation. Krispy Kreme's public offering experience was not as sweet. The doughnut maker's shares were priced below the expected range, and its valuation has not moved much, as compared to monday.com, since its IPO. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

monday.com Ltd. (MNDY), a maker of workplace software, went public on June 10, 2021, to raise working capital for operational expenses, including advertising and marketing as well as technology development. One percent of the proceeds from the initial public offering (IPO) were also set aside for the monday.com foundation, a charitable initiative started by its founders. monday.com calls its product a workplace operating system (OS) that provides the building blocks for organizations to incorporate new functionality, from project management to department processes, into their business. The distinguishing feature of monday.com's software is the simple interface, which requires minimal knowledge of coding.  During the IPO, monday.com offered 13.7 million shares to the public, priced at $155 apiece, above the price range of $125 to $140. The stock opened for trading at $173.5 on NASDAQ and rose to a high of $182 during the course of the day. At the end of the first day of trading, monday.com had raised $574 million and had a market valuation of $7.5 billion. Since their debut, monday.com shares reached a peak of $233.25 on June 23 and are trading at $198.27, as of July 20.  Krispy Kreme, Inc. (DNUT), a maker of doughnuts and other sweet treats, offered 29.4 million shares priced at $17, below the previously announced range of between $21 and $24, on July 1. The company was expecting to raise approximately $4 billion from the markets. By the end of their first day of trading on NASDAQ, Krispy Kreme's shares were trading at a price of $21. It had raised $500 million from the markets for a valuation of $2.7 billion. Krispy Kreme shares have been on a downward slide, never reaching their debut high, since the IPO. As of July 20, they are changing hands at $16.27.  In its S-1 filing, Krispy Kreme stated that it planned to use proceeds from the public offering to pay down its considerable debt of more than $1 billion and for general business expenses. Key Takeaways monday.com is a maker of workplace software, and Krispy Kreme is a doughnut and sweet treats company.monday.com went public on June 10 under the ticker of MNDY, and Krispy Kreme went public on July 1 under the ticker of DNUT.monday.com generated $161 million in sales last year and losses of $152 million. Krispy Kreme had revenues of $1.1 billion and losses of $60.9 million.Both companies have received different responses from investors. While monday.com has received a positive coverage and valuation from investors and analysts, Krispy Kreme has had to contend with a mixed response and a relatively lukewarm reception in public markets. monday.com Founding and History monday.com was founded in 2012 by Roy Mann and Evan Zymann. Both founders had started companies for brief periods of time prior to coming together to work at monday.com. Mann was a senior executive at Wix.com, a no-code website building company, when he developed the first iteration of monday.com to solve project management problems at his company. He brought on Zymann, who was working at a mobile technology company, to help scale the solution. They launched a working product in 2014. In its earlier avatar, monday.com was known as dapulse, and it was renamed after it began expanding internationally in 2017. monday.com is part of a growing suite of applications that require zero to minimal knowledge of coding skills for implementation and operation. Such products encompass a wide variety of industries, from website company Wordpress to project management tool asana. Research firm Gartner has stated that 65% of application development will be no- to low-code by 2024. While monday.com started as a project management solution, it has pivoted to becoming an all-encompassing solution that integrates multiple functions related to running a business, such as human resources and finance. Krispy Kreme Founding and History Krispy Kreme has a much more storied history. The chain was founded in 1937 and is considered a "national treasure." This is the company's second innings in public markets. It went public during the dotcom bubble of 2000, when its shares popped by 76% on the first day of trading. An investigation by the Securities and Exchange Commission (SEC) in 2004 for accounting irregularities tanked its stock price to $1, however. Management issues and a subsequent societal shift away from sugary foods toward health-conscious alternatives also roiled its business. Krispy Kreme went private in 2016 after being purchased by a subsidiary of German investment firm JAB Holdings Company for $1.35 billion. During its time away from the public markets, Krispy Kreme has focused on expanding its retail presence, offline and online, and reinventing its brand. It also acquired a majority stake in Insomnia Cookies, a millennial-focused cookie maker, and opened more locations abroad.  According to its S-1 filing, Krispy Kreme boosted its physical presence from 5,842 locations in March 2020 to 9,077 by April 2021. These locations are spread across 30 countries. The company has transitioned away from its earlier franchise model and now directly owns 86% of its total store count. Last year, Krispy Kreme launched a 24-hour flagship store in New York City's Times Square, featuring a glazed waterfall that enables customers to watch preparation of its original glazed donuts at scale in real time. The store is meant to capitalize on the craze for experiences via social media. monday.com Key Financials monday.com had annual revenue of $161.1 million in 2020, up 106% from 2019. In 2018, the company was estimated to have $50 million in revenue. The COVID-19 pandemic's enforced remote work policies have become an accelerant for the company's business. In addition to an increase in revenue, the number of customers at monday.com surged. At the end of 2020, monday.com had 113,888 customers, up by 151% from Jan 1, 2019. A Forbes profile of the Israeli company states that it had 120,000 customers in June 2021. Since monday.com's revenue depends on recurring billing, an increase in the number of customers is a good sign. The company's customers are spread over 200 industries and 190 countries, with 52% of monday.com’s revenue for 2020 coming from customers located outside the United States. The jump in monday.com's revenue has come alongside steepened losses, which multiplied from $91.6 million in 2019 to $152.2 million in 2020. Those figures are mainly the result of increased spend on operating expenses. For example, its marketing expenses increased by 61.4% to $191,353, and administrative expenses jumped by 251.5% to $54,339 between 2019 and 2020.  The emphasis on spending for operations and to acquire new customers means that the company has a negative operating margin of -93.43% as of this writing. But the company's gross margin is positive. It was 89.2% during the first quarter of 2021. At the end of 2020, monday.com had cash and cash equivalents of $40.6 million, a slight increase from the $38.4 million on its books in 2019.  Like most Software-as-a-Service (SaaS) companies, monday.com relies on deferred revenue as an accounting tool on its balance sheet. Deferred revenue refers to the revenue that will be recognized in the next 12 months based on monthly subscription contracts. As of Dec. 31, 2020, monday.com had deferred revenue of $70.7 million, up from $$40.9 million a year ago. monday.com Key Financials    FY 2019  FY 2020 Revenue ($M)  78  161.1 Net Losses ($M)  91.6  152.2 Deferred Revenue ($M) 40.9 70.7 Source: monday.com S-1 Krispy Kreme Key Financials          Krispy Kreme had revenue of $1.1 billion in 2020, an increase of 17% from 2019 figures. That figure was a slowdown from the previous year, when it recorded a 22% increase in $959.4 million annual revenue. For its most recent quarter ending in April, the company reported a revenue jump of 23.1% from 2020 figures to $321.8 million. One-third of Krispy Kreme's sales came from outside the United States in 2020, and e-commerce accounted for one-fifth of all sales. The North Carolina company's spending has kept pace with the increase in its revenue. For example, its selling, general & administrative (SGA) expenses and operating expenses shot up by 34.4% and 65%, respectively, between 2019 and 2020. Those skyrocketing expenses resulted in a net loss of $60.9 million. In its latest quarter, the company reported net losses of $0.3 million, down from $11 million last year, mainly on the back of income tax benefits. Krispy Kreme had debt of $1.2 billion in April this year. It used 4.3% of its total revenue for the quarter to pay interest on that debt. Last year, interest expense on debt amounted to 5.1% of annual revenue figures, according to the company's S-1 filing. Krispy Kreme had cash and cash equivalents of $50.6 million during its latest April quarter, up from $37.4 million in January. Krispy Kreme Key Financials    Q1 FY 2020 Q1 FY 2021  Revenue ($M)  $261.2  $321.8  Net Loss ($M)  $10.9  $0.3 Source: Krispy Kreme S-1 How Much Is monday.com Worth?  According to Crunchbase, monday.com raised a total of $234.1 million over six funding rounds in private markets. Prominent investors in the company included London-based Entree Capital and Hamilton Lane. In 2018, it was valued at $550 million. By July 2019, when it raised $150 million in a Series D round from investors, monday.com was worth $1.9 billion. Just before monday.com went public, cloud customer relationship management (CRM) company salesforce.com, inc.'s (CRM) venture arm and video conferencing company Zoom Video Communication, Inc. (ZM) purchased $75 million worth of shares in the company at its public offering price, according to a regulatory filing. The frenetic increase in monday.com's valuation has continued in public markets. At the end of its first day of trading, monday.com was worth $7.5 billion. By the close of trading on July 19, 2021, the same company's valuation had risen to $9.2 billion in the market's estimation.   Like most tech entrepreneurs who have publicly listed companies, the monday.com co-founders have retained veto power for business matters related to the company. How Much Is Krispy Kreme Worth?  Krispy Kreme was taken private by JAB Holdings in 2016 in a $1.35 billion deal that valued its shares at $21 apiece. The company was hoping for a $4 billion valuation upon its return to the stock market, but response by analysts and investment firms was largely unenthusiastic, and it ended the first day of trading at a valuation of $2.6 billion. At the close of trading on July 19, the company had a valuation of $2.77 billion. Analysts and commentators argue that the company's mounting losses – $12.4 million in 2018, $34 million in 2019, and $60.9 million in 2020 – are proof that its revenue bump has occurred at the expense of net profit. Since the IPO, JAB Holdings has retained its position as the company's biggest shareholder. A subsidiary of JAB Holdings paid $94.3 million on July 6 for 5.9 million shares, bringing the total number of shares it held to 68 million. The investment firm also holds voting power for Krispy Kreme's common stock, meaning that it will have the decisive say in matters that come up for stockholder votes. The firm will also be able to influence management strategy and board of directors composition from this perch. monday.com Key Competitors  monday.com claims to have created a new product category called Workplace Operating System. This operating system includes and integrates applications across multiple departments in an organization. As such, the list of competitors is a long one and includes cloud applications for various departments. For example, privately held asana is a project management tool that has a similar target market and interface as monday.com. Investor salesforce.com can also be considered a competitor because it offers customer relationship software functionality, also offered by monday.com, in its product suite. Other companies listed in the company's S-1 filings as competitors are remote desktop company Citrix Systems, Inc. (CTXS) and Atlassian Corporation Plc. (TEAM), which makes project management software. Krispy Kreme Key Competitors Competition for Krispy Kreme comes in the form of other doughnut vendors and coffee shops or chains that sell products similar to Krispy Kreme's portfolio. Included in this list are large publicly listed multinational chains like Starbucks Corporation (SBUX) and local doughnut shops that have a strong regional presence. An example of the latter is Portland, Oregon-based Voodoo Doughnuts, which is expanding its locations across the United States and took an investment from Fundamental Capital, a San Francisco-based private equity firm, in 2017. The Bottom Line  monday.com, a maker of workplace software, and doughnut maker Krispy Kreme went public in June and July, respectively. Both IPOs received dramatically different responses from investors. monday.com witnessed a bump in its offering price and valuation. Krispy Kreme's public offering experience was not as sweet. The doughnut maker's shares were priced below the expected range, and its valuation has not moved much, as compared to monday.com, since its IPO. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/articles/optioninvestor/07/structured_products.asp

An Introduction to Structured Products

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Once upon a time, the retail investment world was a quiet, rather pleasant place where a small, distinguished group of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustee.asp">trustees</a> and asset managers devised prudent portfolios for their well-heeled clients within a narrowly defined range of high-quality debt and equity instruments. Financial innovation and the rise of the investor class changed all that. </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"> One innovation that has gained traction as a supplement to traditional retail and institutional portfolios is the investment class broadly known as structured products. Structured products offer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retailinvestor.asp">retail investors</a> easy access to derivatives. This article provides an introduction to structured products, with a particular focus on their applicability in diversified retail portfolios. </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>Structured products are pre-packaged investments that normally include assets linked to interest plus one or more derivatives.</li><li>These products may take traditional securities such as an investment-grade bond and replace the usual payment features with non-traditional payoffs.</li><li>Structured products can be principal-guaranteed that issue returns on the maturity date.</li><li>The risks associated with structured products can be fairly complex—they may not be insured by the FDIC and they tend to lack liquidity.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-are-structured-products"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> What Are Structured Products? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Structured products are pre-packaged investments that normally include assets linked to interest plus one or more derivatives. They are generally tied to an index or basket of securities and are designed to facilitate highly customized risk-return objectives. This is accomplished by taking a traditional security such as a conventional <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentgrade.asp">investment-grade</a> bond and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/bonds/08/reverse-convertible-note.asp">replacing the usual payment features</a>—periodic coupons and final principal—with non-traditional payoffs derived from the performance of one or more underlying assets rather than the issuer's own <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp">cash flow</a>.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Origins </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> One of the main drivers behind the creation of structured products was the need for companies to issue cheap debt. They originally became popular in Europe and have gained currency in the United States, where they are frequently offered as SEC-registered products, which means they are accessible to retail investors in the same way as stocks, bonds, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange traded funds</a> (ETFs), and mutual funds. Their ability to offer customized exposure to otherwise hard-to-reach <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assetclasses.asp">asset classes</a> and subclasses make structured products useful as a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/corporate-finance-4689819">complement</a> to traditional components of diversified portfolios. </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"> Returns </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Issuers normally pay returns on structured products once it reaches maturity.<span class="ql-inline-citation" data-cite="1"></span> Payoffs or returns from these performance outcomes are contingent in the sense that, if the underlying assets return "x," then the structured product pays out "y." This means that structured products are closely related to traditional models of options pricing, although they may also contain other derivative categories such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swap.asp">swaps</a>, forwards, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a>, as well as embedded features that include leveraged upside participation or downside buffers. </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-looking-under-the-hood"></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"> Looking Under the Hood </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Consider that a well-known bank issues <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/bonds/10/structured-notes.asp">structured products in the form of notes</a>—each with a notional face value of $1,000. Each note is actually a package that consists of two components: A <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/z/zero-couponbond.asp">zero-coupon bond</a> and a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/calloption.asp">call option</a> on an underlying equity instrument such as <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commonstock.asp">common stock</a> or an ETF that mimics a popular index like the S&amp;P 500. The maturity is three years. </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 figure below represents what happens between issue and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp">maturity date</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_21-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:63.3%;"> <img alt="Image 1" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/bzQV-ALwKARFZw-fpFdGBUB0O1U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts1-1a2eea05ef064d3fae32c8e1de618eaa.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/bzQV-ALwKARFZw-fpFdGBUB0O1U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts1-1a2eea05ef064d3fae32c8e1de618eaa.png" data-srcset="https://www.investopedia.com/thmb/EU1ijsjiR65-1r8J_NUp34u02qI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts1-1a2eea05ef064d3fae32c8e1de618eaa.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_1-0" width="6251"/> <noscript> <img alt="Image 1" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/bzQV-ALwKARFZw-fpFdGBUB0O1U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts1-1a2eea05ef064d3fae32c8e1de618eaa.png" srcset="https://www.investopedia.com/thmb/EU1ijsjiR65-1r8J_NUp34u02qI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts1-1a2eea05ef064d3fae32c8e1de618eaa.png 750w" width="6251"/> </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 2019</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Although the pricing mechanisms that drive these values are complex, the underlying principle is fairly simple. On the issue date, you pay the face amount of $1,000. This note is fully principal-protected, meaning you will get your $1,000 back at maturity no matter what happens to the underlying asset. This is accomplished via the zero-coupon bond accreting from its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/oid.asp">original issue discount</a> to face value.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> For the performance component, the underlying asset is priced as a European call option and will have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intrinsicvalue.asp">intrinsic value</a> at maturity if its value on that date is higher than its value <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wi.asp">when issued</a>. If applicable, you earn that return on a one-for-one basis. If not, the option expires worthless and you get nothing in excess of your $1,000 return of principal. </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-custom-sizing"></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"> Custom Sizing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Principal protection offers a key benefit in the above example but an investor may be willing to trade off some or all protection in favor of more attractive performance potential. Let's look at another example in which the investor gives up principal protection for a combination of more potent performance features. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> If the return on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underlying-asset.asp">underlying asset</a> (R <em>asset</em>) is positive—between zero and 7.5%—the investor earns double the return. So in this case, the investor earns 15% if the asset returns 7.5%. If R <em>asset</em> is greater than 7.5%, the investor's return will be capped at 15%. If the asset's return is negative, the investor participates one-for-one on the downside, so there is no negative leverage. In this case, there is no principal protection. </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 figure below shows the payoff curve for this scenario: </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="Image 2" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/1UqMLpPaEewqOfR8bI7UHHBWgp8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts2_2-b3abfeca58ef4448afebb90e3e6e3d1a.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/1UqMLpPaEewqOfR8bI7UHHBWgp8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts2_2-b3abfeca58ef4448afebb90e3e6e3d1a.png" data-srcset="https://www.investopedia.com/thmb/bqHuXZuv-tzH4bxcZQ8IMXP-yHI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts2_2-b3abfeca58ef4448afebb90e3e6e3d1a.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_2-0" width="6251"/> <noscript> <img alt="Image 2" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/1UqMLpPaEewqOfR8bI7UHHBWgp8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts2_2-b3abfeca58ef4448afebb90e3e6e3d1a.png" srcset="https://www.investopedia.com/thmb/bqHuXZuv-tzH4bxcZQ8IMXP-yHI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts2_2-b3abfeca58ef4448afebb90e3e6e3d1a.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 2019</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> This strategy would be consistent with the view of a mildly bullish investor—one who expects positive but generally weak performance, and is looking for an enhanced return above what they think the market will produce. </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-the-rainbow-note"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> The Rainbow Note </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> One of the principal attractions of structured products for retail investors is the ability to customize a variety of assumptions into one instrument. As an example, a rainbow note is a structured product that offers exposure to more than one underlying asset. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The lookback product is another popular feature. In a lookback instrument, the value of the underlying asset is based not on its final value at expiration, but on an average of values taken over the note's term. This may be monthly or quarterly. In the options world, this is also called an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asianoption.asp">Asian option</a>—distinguishing the instrument from a European or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/americanoption.asp">American option</a>. Combining these types of features can provide attractive <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a> properties. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_41-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_42-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The value of the underlying asset in a lookback feature is based on an average of values taken over the note's term.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> A rainbow note could derive performance value from three relatively low-correlated assets like the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell_3000.asp">Russell 3000 Index</a> of U.S. stocks, the MSCI Pacific Ex-Japan Index, and the Dow-AIG Commodity Futures Index. Attaching a lookback feature to this structured product could further lower volatility<strong> </strong>by smoothing returns over time. When there are wild swings in prices, it can affect an investor's portfolio. Smoothing happens as investors try to reach stable returns as well as some predictability in their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolios</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-what-about-liquidity"></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"> What About Liquidity? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> One common risk associated with structured products is a relative lack of liquidity that comes with the highly customized nature of the investment. Moreover, the full extent of returns from complex performance features is often not realized until maturity. For this reason, structured products tend to be more of a buy-and-hold investment decision rather than a means of getting <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inandout.asp">in and out</a> of a position with speed and efficiency.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> A significant innovation to improve liquidity in certain types of structured products comes in the form of exchange-traded notes (ETNs), a product originally introduced by Barclays Bank in 2006.<span class="ql-inline-citation" data-cite="5"></span> These are structured to resemble ETFs, which are fungible instruments traded like a common stock on a securities exchange. However, ETNs are different from ETFs because they consist of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtinstrument.asp">debt instrument</a> with cash flows derived from the performance of an underlying asset. ETNs also provide an alternative to harder-to-access exposures such as commodity futures or the Indian <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockmarket.asp">stock market</a>. <strong> </strong> </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-other-risks-and-considerations"></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"> Other Risks and Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> One of the most important things to understand about these types of investments is their complex nature—something that the lay investor may not necessarily understand. In addition to liquidity, another risk associated with structured products is the issuer's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditquality.asp">credit quality</a>. Although cash flows are derived from other sources, the products themselves are considered to be the issuing financial institution's liabilities. For example, they are typically not issued through bankruptcy-remote third-party vehicles in the way that <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset-backedsecurity.asp">asset-backed securities</a> are. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> The vast majority of structured products are offered by high investment-grade issuers—mostly large global financial institutions that include Barclays, Deutsche Bank or JP Morgan Chase. But during a financial crisis, structured products have the potential of losing principal, similar to the risks involved with options. Products not necessarily be insured by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corporation</a> (FDIC), but by the issuer itself. If the company goes has problems with liquidity or goes bankrupt, investors may lose their initial investments.<span class="ql-inline-citation" data-cite="7"></span> 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</a> (FINRA) suggests that firms consider whether purchasers of some or all structured products be required to go through a vetting process similar to options traders.<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_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Another consideration is pricing transparency. There is no uniform pricing standard, making it harder to compare the net-of-pricing attractiveness of alternative structured product offerings than it is, for example, to compare the net <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> of different mutual funds or commissions among <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker-dealer.asp">broker-dealers</a>. Many structured product issuers work the pricing into their option models to avoid an explicit fee or other expense to the investor. On the flip side, this means the investor can't know for sure the true value of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/implicitcost.asp">implicit costs.</a> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-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"> The complexity of derivative securities has long kept them out of meaningful representation in traditional retail and many institutional investment portfolios. Structured products can bring many derivative benefits to investors who otherwise would not have access to them. As a complement to traditional investment vehicles, structured products have a useful role to play in modern <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>. </p></div>

Once upon a time, the retail investment world was a quiet, rather pleasant place where a small, distinguished group of [trustees](https://www.investopedia.com/terms/t/trustee.asp) and asset managers devised prudent portfolios for their well-heeled clients within a narrowly defined range of high-quality debt and equity instruments. Financial innovation and the rise of the investor class changed all that. One innovation that has gained traction as a supplement to traditional retail and institutional portfolios is the investment class broadly known as structured products. Structured products offer [retail investors](https://www.investopedia.com/terms/r/retailinvestor.asp) easy access to derivatives. This article provides an introduction to structured products, with a particular focus on their applicability in diversified retail portfolios. ### Key Takeaways * Structured products are pre-packaged investments that normally include assets linked to interest plus one or more derivatives. * These products may take traditional securities such as an investment-grade bond and replace the usual payment features with non-traditional payoffs. * Structured products can be principal-guaranteed that issue returns on the maturity date. * The risks associated with structured products can be fairly complex—they may not be insured by the FDIC and they tend to lack liquidity. ## What Are Structured Products? Structured products are pre-packaged investments that normally include assets linked to interest plus one or more derivatives. They are generally tied to an index or basket of securities and are designed to facilitate highly customized risk-return objectives. This is accomplished by taking a traditional security such as a conventional [investment-grade](https://www.investopedia.com/terms/i/investmentgrade.asp) bond and [replacing the usual payment features](https://www.investopedia.com/articles/bonds/08/reverse-convertible-note.asp)—periodic coupons and final principal—with non-traditional payoffs derived from the performance of one or more underlying assets rather than the issuer's own [cash flow](https://www.investopedia.com/terms/c/cashflow.asp). ### Origins One of the main drivers behind the creation of structured products was the need for companies to issue cheap debt. They originally became popular in Europe and have gained currency in the United States, where they are frequently offered as SEC-registered products, which means they are accessible to retail investors in the same way as stocks, bonds, [exchange traded funds](https://www.investopedia.com/terms/e/etf.asp) (ETFs), and mutual funds. Their ability to offer customized exposure to otherwise hard-to-reach [asset classes](https://www.investopedia.com/terms/a/assetclasses.asp) and subclasses make structured products useful as a [complement](https://www.investopedia.com/corporate-finance-4689819) to traditional components of diversified portfolios. ### Returns Issuers normally pay returns on structured products once it reaches maturity. Payoffs or returns from these performance outcomes are contingent in the sense that, if the underlying assets return "x," then the structured product pays out "y." This means that structured products are closely related to traditional models of options pricing, although they may also contain other derivative categories such as [swaps](https://www.investopedia.com/terms/s/swap.asp), forwards, and [futures](https://www.investopedia.com/terms/f/futures.asp), as well as embedded features that include leveraged upside participation or downside buffers. ## Looking Under the Hood Consider that a well-known bank issues [structured products in the form of notes](https://www.investopedia.com/articles/bonds/10/structured-notes.asp)—each with a notional face value of $1,000. Each note is actually a package that consists of two components: A [zero-coupon bond](https://www.investopedia.com/terms/z/zero-couponbond.asp) and a [call option](https://www.investopedia.com/terms/c/calloption.asp) on an underlying equity instrument such as [common stock](https://www.investopedia.com/terms/c/commonstock.asp) or an ETF that mimics a popular index like the S&P 500. The maturity is three years. The figure below represents what happens between issue and [maturity date](https://www.investopedia.com/terms/m/maturitydate.asp). ![Image 1]() :max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts1-1a2eea05ef064d3fae32c8e1de618eaa.png) Image by Julie Bang © Investopedia 2019 Although the pricing mechanisms that drive these values are complex, the underlying principle is fairly simple. On the issue date, you pay the face amount of $1,000. This note is fully principal-protected, meaning you will get your $1,000 back at maturity no matter what happens to the underlying asset. This is accomplished via the zero-coupon bond accreting from its [original issue discount](https://www.investopedia.com/terms/o/oid.asp) to face value. For the performance component, the underlying asset is priced as a European call option and will have [intrinsic value](https://www.investopedia.com/terms/i/intrinsicvalue.asp) at maturity if its value on that date is higher than its value [when issued](https://www.investopedia.com/terms/w/wi.asp). If applicable, you earn that return on a one-for-one basis. If not, the option expires worthless and you get nothing in excess of your $1,000 return of principal. ## Custom Sizing Principal protection offers a key benefit in the above example but an investor may be willing to trade off some or all protection in favor of more attractive performance potential. Let's look at another example in which the investor gives up principal protection for a combination of more potent performance features. If the return on the [underlying asset](https://www.investopedia.com/terms/u/underlying-asset.asp) (R *asset*) is positive—between zero and 7.5%—the investor earns double the return. So in this case, the investor earns 15% if the asset returns 7.5%. If R *asset* is greater than 7.5%, the investor's return will be capped at 15%. If the asset's return is negative, the investor participates one-for-one on the downside, so there is no negative leverage. In this case, there is no principal protection. The figure below shows the payoff curve for this scenario: ![Image 2]() :max_bytes(150000):strip_icc()/AnIntroductiontoStructuredProducts2_2-b3abfeca58ef4448afebb90e3e6e3d1a.png) Image by Julie Bang © Investopedia 2019 This strategy would be consistent with the view of a mildly bullish investor—one who expects positive but generally weak performance, and is looking for an enhanced return above what they think the market will produce. ## The Rainbow Note One of the principal attractions of structured products for retail investors is the ability to customize a variety of assumptions into one instrument. As an example, a rainbow note is a structured product that offers exposure to more than one underlying asset. The lookback product is another popular feature. In a lookback instrument, the value of the underlying asset is based not on its final value at expiration, but on an average of values taken over the note's term. This may be monthly or quarterly. In the options world, this is also called an [Asian option](https://www.investopedia.com/terms/a/asianoption.asp)—distinguishing the instrument from a European or [American option](https://www.investopedia.com/terms/a/americanoption.asp). Combining these types of features can provide attractive [diversification](https://www.investopedia.com/terms/d/diversification.asp) properties. ### The value of the underlying asset in a lookback feature is based on an average of values taken over the note's term. A rainbow note could derive performance value from three relatively low-correlated assets like the [Russell 3000 Index](https://www.investopedia.com/terms/r/russell_3000.asp) of U.S. stocks, the MSCI Pacific Ex-Japan Index, and the Dow-AIG Commodity Futures Index. Attaching a lookback feature to this structured product could further lower volatilityby smoothing returns over time. When there are wild swings in prices, it can affect an investor's portfolio. Smoothing happens as investors try to reach stable returns as well as some predictability in their [portfolios](https://www.investopedia.com/terms/p/portfolio.asp). ## What About Liquidity? One common risk associated with structured products is a relative lack of liquidity that comes with the highly customized nature of the investment. Moreover, the full extent of returns from complex performance features is often not realized until maturity. For this reason, structured products tend to be more of a buy-and-hold investment decision rather than a means of getting [in and out](https://www.investopedia.com/terms/i/inandout.asp) of a position with speed and efficiency. A significant innovation to improve liquidity in certain types of structured products comes in the form of exchange-traded notes (ETNs), a product originally introduced by Barclays Bank in 2006. These are structured to resemble ETFs, which are fungible instruments traded like a common stock on a securities exchange. However, ETNs are different from ETFs because they consist of a [debt instrument](https://www.investopedia.com/terms/d/debtinstrument.asp) with cash flows derived from the performance of an underlying asset. ETNs also provide an alternative to harder-to-access exposures such as commodity futures or the Indian [stock market](https://www.investopedia.com/terms/s/stockmarket.asp). ## Other Risks and Considerations One of the most important things to understand about these types of investments is their complex nature—something that the lay investor may not necessarily understand. In addition to liquidity, another risk associated with structured products is the issuer's [credit quality](https://www.investopedia.com/terms/c/creditquality.asp). Although cash flows are derived from other sources, the products themselves are considered to be the issuing financial institution's liabilities. For example, they are typically not issued through bankruptcy-remote third-party vehicles in the way that [asset-backed securities](https://www.investopedia.com/terms/a/asset-backedsecurity.asp) are. The vast majority of structured products are offered by high investment-grade issuers—mostly large global financial institutions that include Barclays, Deutsche Bank or JP Morgan Chase. But during a financial crisis, structured products have the potential of losing principal, similar to the risks involved with options. Products not necessarily be insured by the [Federal Deposit Insurance Corporation](https://www.investopedia.com/terms/f/fdic.asp) (FDIC), but by the issuer itself. If the company goes has problems with liquidity or goes bankrupt, investors may lose their initial investments. The [Financial Industry Regulatory Authority](https://www.investopedia.com/terms/f/finra.asp) (FINRA) suggests that firms consider whether purchasers of some or all structured products be required to go through a vetting process similar to options traders. Another consideration is pricing transparency. There is no uniform pricing standard, making it harder to compare the net-of-pricing attractiveness of alternative structured product offerings than it is, for example, to compare the net [expense ratios](https://www.investopedia.com/terms/e/expenseratio.asp) of different mutual funds or commissions among [broker-dealers](https://www.investopedia.com/terms/b/broker-dealer.asp). Many structured product issuers work the pricing into their option models to avoid an explicit fee or other expense to the investor. On the flip side, this means the investor can't know for sure the true value of [implicit costs.](https://www.investopedia.com/terms/i/implicitcost.asp) ## The Bottom Line The complexity of derivative securities has long kept them out of meaningful representation in traditional retail and many institutional investment portfolios. Structured products can bring many derivative benefits to investors who otherwise would not have access to them. As a complement to traditional investment vehicles, structured products have a useful role to play in modern [portfolio management](https://www.investopedia.com/terms/p/portfoliomanagement.asp).

Once upon a time, the retail investment world was a quiet, rather pleasant place where a small, distinguished group of trustees and asset managers devised prudent portfolios for their well-heeled clients within a narrowly defined range of high-quality debt and equity instruments. Financial innovation and the rise of the investor class changed all that. One innovation that has gained traction as a supplement to traditional retail and institutional portfolios is the investment class broadly known as structured products. Structured products offer retail investors easy access to derivatives. This article provides an introduction to structured products, with a particular focus on their applicability in diversified retail portfolios. Key Takeaways Structured products are pre-packaged investments that normally include assets linked to interest plus one or more derivatives.These products may take traditional securities such as an investment-grade bond and replace the usual payment features with non-traditional payoffs.Structured products can be principal-guaranteed that issue returns on the maturity date.The risks associated with structured products can be fairly complex—they may not be insured by the FDIC and they tend to lack liquidity. What Are Structured Products? Structured products are pre-packaged investments that normally include assets linked to interest plus one or more derivatives. They are generally tied to an index or basket of securities and are designed to facilitate highly customized risk-return objectives. This is accomplished by taking a traditional security such as a conventional investment-grade bond and replacing the usual payment features—periodic coupons and final principal—with non-traditional payoffs derived from the performance of one or more underlying assets rather than the issuer's own cash flow. Origins One of the main drivers behind the creation of structured products was the need for companies to issue cheap debt. They originally became popular in Europe and have gained currency in the United States, where they are frequently offered as SEC-registered products, which means they are accessible to retail investors in the same way as stocks, bonds, exchange traded funds (ETFs), and mutual funds. Their ability to offer customized exposure to otherwise hard-to-reach asset classes and subclasses make structured products useful as a complement to traditional components of diversified portfolios. Returns Issuers normally pay returns on structured products once it reaches maturity. Payoffs or returns from these performance outcomes are contingent in the sense that, if the underlying assets return "x," then the structured product pays out "y." This means that structured products are closely related to traditional models of options pricing, although they may also contain other derivative categories such as swaps, forwards, and futures, as well as embedded features that include leveraged upside participation or downside buffers. Looking Under the Hood Consider that a well-known bank issues structured products in the form of notes—each with a notional face value of $1,000. Each note is actually a package that consists of two components: A zero-coupon bond and a call option on an underlying equity instrument such as common stock or an ETF that mimics a popular index like the S&P 500. The maturity is three years. The figure below represents what happens between issue and maturity date. Image by Julie Bang © Investopedia 2019 Although the pricing mechanisms that drive these values are complex, the underlying principle is fairly simple. On the issue date, you pay the face amount of $1,000. This note is fully principal-protected, meaning you will get your $1,000 back at maturity no matter what happens to the underlying asset. This is accomplished via the zero-coupon bond accreting from its original issue discount to face value. For the performance component, the underlying asset is priced as a European call option and will have intrinsic value at maturity if its value on that date is higher than its value when issued. If applicable, you earn that return on a one-for-one basis. If not, the option expires worthless and you get nothing in excess of your $1,000 return of principal. Custom Sizing Principal protection offers a key benefit in the above example but an investor may be willing to trade off some or all protection in favor of more attractive performance potential. Let's look at another example in which the investor gives up principal protection for a combination of more potent performance features. If the return on the underlying asset (R asset) is positive—between zero and 7.5%—the investor earns double the return. So in this case, the investor earns 15% if the asset returns 7.5%. If R asset is greater than 7.5%, the investor's return will be capped at 15%. If the asset's return is negative, the investor participates one-for-one on the downside, so there is no negative leverage. In this case, there is no principal protection. The figure below shows the payoff curve for this scenario: Image by Julie Bang © Investopedia 2019 This strategy would be consistent with the view of a mildly bullish investor—one who expects positive but generally weak performance, and is looking for an enhanced return above what they think the market will produce. The Rainbow Note One of the principal attractions of structured products for retail investors is the ability to customize a variety of assumptions into one instrument. As an example, a rainbow note is a structured product that offers exposure to more than one underlying asset. The lookback product is another popular feature. In a lookback instrument, the value of the underlying asset is based not on its final value at expiration, but on an average of values taken over the note's term. This may be monthly or quarterly. In the options world, this is also called an Asian option—distinguishing the instrument from a European or American option. Combining these types of features can provide attractive diversification properties. The value of the underlying asset in a lookback feature is based on an average of values taken over the note's term. A rainbow note could derive performance value from three relatively low-correlated assets like the Russell 3000 Index of U.S. stocks, the MSCI Pacific Ex-Japan Index, and the Dow-AIG Commodity Futures Index. Attaching a lookback feature to this structured product could further lower volatility by smoothing returns over time. When there are wild swings in prices, it can affect an investor's portfolio. Smoothing happens as investors try to reach stable returns as well as some predictability in their portfolios. What About Liquidity? One common risk associated with structured products is a relative lack of liquidity that comes with the highly customized nature of the investment. Moreover, the full extent of returns from complex performance features is often not realized until maturity. For this reason, structured products tend to be more of a buy-and-hold investment decision rather than a means of getting in and out of a position with speed and efficiency. A significant innovation to improve liquidity in certain types of structured products comes in the form of exchange-traded notes (ETNs), a product originally introduced by Barclays Bank in 2006. These are structured to resemble ETFs, which are fungible instruments traded like a common stock on a securities exchange. However, ETNs are different from ETFs because they consist of a debt instrument with cash flows derived from the performance of an underlying asset. ETNs also provide an alternative to harder-to-access exposures such as commodity futures or the Indian stock market. Other Risks and Considerations One of the most important things to understand about these types of investments is their complex nature—something that the lay investor may not necessarily understand. In addition to liquidity, another risk associated with structured products is the issuer's credit quality. Although cash flows are derived from other sources, the products themselves are considered to be the issuing financial institution's liabilities. For example, they are typically not issued through bankruptcy-remote third-party vehicles in the way that asset-backed securities are. The vast majority of structured products are offered by high investment-grade issuers—mostly large global financial institutions that include Barclays, Deutsche Bank or JP Morgan Chase. But during a financial crisis, structured products have the potential of losing principal, similar to the risks involved with options. Products not necessarily be insured by the Federal Deposit Insurance Corporation (FDIC), but by the issuer itself. If the company goes has problems with liquidity or goes bankrupt, investors may lose their initial investments. The Financial Industry Regulatory Authority (FINRA) suggests that firms consider whether purchasers of some or all structured products be required to go through a vetting process similar to options traders. Another consideration is pricing transparency. There is no uniform pricing standard, making it harder to compare the net-of-pricing attractiveness of alternative structured product offerings than it is, for example, to compare the net expense ratios of different mutual funds or commissions among broker-dealers. Many structured product issuers work the pricing into their option models to avoid an explicit fee or other expense to the investor. On the flip side, this means the investor can't know for sure the true value of implicit costs. The Bottom Line The complexity of derivative securities has long kept them out of meaningful representation in traditional retail and many institutional investment portfolios. Structured products can bring many derivative benefits to investors who otherwise would not have access to them. As a complement to traditional investment vehicles, structured products have a useful role to play in modern portfolio management.

https://www.investopedia.com/salesforce-job-cuts-7091251

Salesforce to Axe 10% of Workers

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Salesforce Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CRM">CRM</a>) will cut 10% of its workforce and shutter some offices as the customer relationship management software company shrinks after a pandemic hiring boom.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Cloud software company Salesforce will reduce employee headcount by 10% and downsize office space, according to an SEC filing.</li><li>Restructuring charges are expected to be as high as $2.1 billion, with about half incurred in the current quarter.</li><li>Tech firms including Meta Platforms, Amazon, and Twitter have announced layoffs in recent months as the industry cuts costs following rapid expansion early in the pandemic.</li><li>Inflation and interest rate hikes have weakened revenue growth across the tech industry.</li></ul></div></div></div> <span class="heading-toc" id="toc-first-tech-layoffs-of-2023"></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 Tech Layoffs of 2023 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The firm disclosed its plans Wednesday in an SEC filing, saying it expects the restructuring to incur charges of up to $2.1 billion and that $800 million to $1 billion of those costs will be recorded in the current quarter.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Up to $650 million of the restructuring charges will be the result of office space reductions. Salesforce said that it will close offices and exit real estate positions in certain markets but didn't provide details.<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"> Salesforce's employee headcount was almost 74,000 as of January 2022, nearly a third larger than in 2021. The company is the latest in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/biggest-layoffs-2022-6826521">growing list of tech firms to announce layoffs</a>, including Meta Platforms Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>), Snap Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SNAP">SNAP</a>), and Twitter. Many of these companies aggressively increased their workforces during the pandemic and have now trimmed costs amid high inflation and a series of interest rate hikes.<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"> Salesforce has reported decelerating revenue growth in the last year as customers reduce spending and become less reliant on cloud-based software than they were during COVID-related lockdowns. Revenue increased 14% year-over-year for the latest quarter reported, the slowest growth in several quarters.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-major-layoffs-of-2022"></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"> Major Layoffs of 2022 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Salesforce follows in the footsteps of several other tech companies, once buoyed by pandemic restrictions and supportive monetary policy, adjusting to a tougher economic environment. Below are the five companies that executed the biggest job cuts in 2022: </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>On Nov. 9, Mark Zuckerberg told employees that Meta would be reducing its staff by around 13%, or approximately 11,000 employees. The company also implemented a hiring freeze that it is extending through Q1 2023.<span class="ql-inline-citation" data-cite="5"></span></li><li>Peleton executed four rounds of layoffs last year. In total, the company lost 4,600 employees.</li><li>On Nov. 4, a week after Elon Musk completed his purchase of Twitter, the social networking company announced it would be cutting 50% of its staff, or 3,700 workers.</li><li>On Oct. 26, Seagate Technology announced a restructuring plan that would include slashing its workforce by approximately 8%, or 3,000 people.</li><li>On May 10, Carvana cut 12% of its workforce, or 2,500 employees.</li> </ul></div>

Salesforce Inc. ([CRM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CRM)) will cut 10% of its workforce and shutter some offices as the customer relationship management software company shrinks after a pandemic hiring boom. ### Key Takeaways * Cloud software company Salesforce will reduce employee headcount by 10% and downsize office space, according to an SEC filing. * Restructuring charges are expected to be as high as $2.1 billion, with about half incurred in the current quarter. * Tech firms including Meta Platforms, Amazon, and Twitter have announced layoffs in recent months as the industry cuts costs following rapid expansion early in the pandemic. * Inflation and interest rate hikes have weakened revenue growth across the tech industry. ## First Tech Layoffs of 2023 The firm disclosed its plans Wednesday in an SEC filing, saying it expects the restructuring to incur charges of up to $2.1 billion and that $800 million to $1 billion of those costs will be recorded in the current quarter. Up to $650 million of the restructuring charges will be the result of office space reductions. Salesforce said that it will close offices and exit real estate positions in certain markets but didn't provide details. Salesforce's employee headcount was almost 74,000 as of January 2022, nearly a third larger than in 2021. The company is the latest in a [growing list of tech firms to announce layoffs](https://www.investopedia.com/biggest-layoffs-2022-6826521), including Meta Platforms Inc. ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)), Snap Inc. ([SNAP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SNAP)), and Twitter. Many of these companies aggressively increased their workforces during the pandemic and have now trimmed costs amid high inflation and a series of interest rate hikes. Salesforce has reported decelerating revenue growth in the last year as customers reduce spending and become less reliant on cloud-based software than they were during COVID-related lockdowns. Revenue increased 14% year-over-year for the latest quarter reported, the slowest growth in several quarters. ## Major Layoffs of 2022 Salesforce follows in the footsteps of several other tech companies, once buoyed by pandemic restrictions and supportive monetary policy, adjusting to a tougher economic environment. Below are the five companies that executed the biggest job cuts in 2022: * On Nov. 9, Mark Zuckerberg told employees that Meta would be reducing its staff by around 13%, or approximately 11,000 employees. The company also implemented a hiring freeze that it is extending through Q1 2023. * Peleton executed four rounds of layoffs last year. In total, the company lost 4,600 employees. * On Nov. 4, a week after Elon Musk completed his purchase of Twitter, the social networking company announced it would be cutting 50% of its staff, or 3,700 workers. * On Oct. 26, Seagate Technology announced a restructuring plan that would include slashing its workforce by approximately 8%, or 3,000 people. * On May 10, Carvana cut 12% of its workforce, or 2,500 employees.

Salesforce Inc. (CRM) will cut 10% of its workforce and shutter some offices as the customer relationship management software company shrinks after a pandemic hiring boom. Key Takeaways Cloud software company Salesforce will reduce employee headcount by 10% and downsize office space, according to an SEC filing.Restructuring charges are expected to be as high as $2.1 billion, with about half incurred in the current quarter.Tech firms including Meta Platforms, Amazon, and Twitter have announced layoffs in recent months as the industry cuts costs following rapid expansion early in the pandemic.Inflation and interest rate hikes have weakened revenue growth across the tech industry. First Tech Layoffs of 2023 The firm disclosed its plans Wednesday in an SEC filing, saying it expects the restructuring to incur charges of up to $2.1 billion and that $800 million to $1 billion of those costs will be recorded in the current quarter. Up to $650 million of the restructuring charges will be the result of office space reductions. Salesforce said that it will close offices and exit real estate positions in certain markets but didn't provide details. Salesforce's employee headcount was almost 74,000 as of January 2022, nearly a third larger than in 2021. The company is the latest in a growing list of tech firms to announce layoffs, including Meta Platforms Inc. (META), Snap Inc. (SNAP), and Twitter. Many of these companies aggressively increased their workforces during the pandemic and have now trimmed costs amid high inflation and a series of interest rate hikes. Salesforce has reported decelerating revenue growth in the last year as customers reduce spending and become less reliant on cloud-based software than they were during COVID-related lockdowns. Revenue increased 14% year-over-year for the latest quarter reported, the slowest growth in several quarters. Major Layoffs of 2022 Salesforce follows in the footsteps of several other tech companies, once buoyed by pandemic restrictions and supportive monetary policy, adjusting to a tougher economic environment. Below are the five companies that executed the biggest job cuts in 2022: On Nov. 9, Mark Zuckerberg told employees that Meta would be reducing its staff by around 13%, or approximately 11,000 employees. The company also implemented a hiring freeze that it is extending through Q1 2023.Peleton executed four rounds of layoffs last year. In total, the company lost 4,600 employees.On Nov. 4, a week after Elon Musk completed his purchase of Twitter, the social networking company announced it would be cutting 50% of its staff, or 3,700 workers.On Oct. 26, Seagate Technology announced a restructuring plan that would include slashing its workforce by approximately 8%, or 3,000 people.On May 10, Carvana cut 12% of its workforce, or 2,500 employees.

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

Trading Account: Definition, How to Open, and Margin Requirements

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-trading-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Trading Account? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A trading account can be any investment account containing securities, cash or other holdings. Most commonly, trading account refers to a day trader’s primary account. These investors tend to buy and sell assets frequently, often within the same trading session, and their accounts are subject to special regulation as a result. The assets held in a trading account are separated from others that may be part of a long-term buy and hold strategy. </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 trading account is an investment account. </li><li>Trading accounts typically refer to accounts used to trade securities.</li><li>Trading accounts require personal identification information and have minimum margin requirements set by FINRA.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-trading-account-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> How a Trading Account Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A trading account can hold securities, cash, and other investment vehicles just like any other brokerage account. The term can describe a wide range of accounts, including tax-deferred retirement accounts. In general, however, a trading account is distinguished from other investment accounts by the level of activity, purpose of that activity and the risk it involves. The activity in a trading account typically constitutes <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/daytrader.asp">day trading</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finra.asp">Financial Industry Regulatory Authority</a> (FINRA) defines a day trade as the purchase and sale of a security within the same day in a margin account. FINRA defines <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/patterndaytrader.asp">pattern day traders</a> as investors who satisfy the following two criteria: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <li>Traders who make at least four day trades (either buying and selling a stock or selling a stock short and closing that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/short.asp">short position</a> within the same day) over a five-day week.</li> <li>Traders whose day-trading activity constitutes more than 6% of their total activity during that same week.<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_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Brokerage firms can also identify clients as pattern day traders based on previous business or another reasonable conclusion. These firms will allow clients to open cash or <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>, but day traders typically choose margin for the trading accounts. FINRA enforces special margin requirements for investors it considers to be pattern-day traders. </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"> Opening a trading account requires certain minimum <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/personalinfoandbrokers.asp">personal information</a>, including your Social Security number and contact details. </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>Depending on the jurisdiction and business details, your brokerage firm may have other requirements as well.</p></div></div></div> <span class="heading-toc" id="toc-finra-margin-requirements-for-trading-accounts"></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"> FINRA Margin Requirements for Trading Accounts </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/housemaintenancerequirement.asp">Maintenance requirements</a> for pattern day trading accounts are considerably higher than those of non-pattern trading. The base requirements of all margin investors are outlined by the Federal Reserve Board’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regulationt.asp">Regulation T</a>. FINRA includes additional maintenance requirements for day traders in Rule 4210. </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"> Day traders must maintain a base equity level of $25,000.<span class="ql-inline-citation" data-cite="1"></span> The trader is permitted a purchasing power of up to four times any excess over that minimum requirement. Equity held in non-trading accounts is not eligible for this calculation. A trader who fails to meet these requirements will receive a margin call from their broker and trading will be restricted if the call is not covered within five days.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_24-0"><span class="heading-toc" id="toc-how-do-i-open-a-trading-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Open a Trading Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can open a trading account with your brokerage or investment firm of choice by filling out an application with your personal information and funding the account. If you want margin capabilities for trading, you'll need to complete the margin agreement and submit to initial margin requirements, house margin requirements, and all applicable regulatory policies.<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_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_26-0"><span class="heading-toc" id="toc-what-are-the-disadvantages-of-a-trading-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Disadvantages of a Trading Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>With a trading account, you run some risks you wouldn't encounter with regular brokerage cash accounts. For instance, trading on margin increases your risk of loss because of the leverage used, and you may encounter interest charges on your margin funds as well. Plus, you risk margin calls and securities liquidation as a day trader with a margin account.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-is-it-safe-to-keep-money-in-a-trading-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is It Safe to Keep Money in a Trading Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, it's generally safe to keep money in a trading account. Most reputable brokerages provide Securities Investor Protection Corp. (SIPC) insurance for up to $500,000. This doesn't protect you from investment losses, but rather from the risk of investment firm failure.<span class="ql-inline-citation" data-cite="4"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <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"> A trading account is necessary if you'd like to buy and sell securities. You can open a trading account with your brokerage of choice, but if you'd like a margin account for day trading, you'll have to meet the brokerage's margin requirements. Pattern day traders have additional requirements they must meet, including a base equity level of $25,000 as per FINRA. </p></div>

## What Is a Trading Account? A trading account can be any investment account containing securities, cash or other holdings. Most commonly, trading account refers to a day trader’s primary account. These investors tend to buy and sell assets frequently, often within the same trading session, and their accounts are subject to special regulation as a result. The assets held in a trading account are separated from others that may be part of a long-term buy and hold strategy. ### Key Takeaways * A trading account is an investment account. * Trading accounts typically refer to accounts used to trade securities. * Trading accounts require personal identification information and have minimum margin requirements set by FINRA. ## How a Trading Account Works A trading account can hold securities, cash, and other investment vehicles just like any other brokerage account. The term can describe a wide range of accounts, including tax-deferred retirement accounts. In general, however, a trading account is distinguished from other investment accounts by the level of activity, purpose of that activity and the risk it involves. The activity in a trading account typically constitutes [day trading](https://www.investopedia.com/terms/d/daytrader.asp). The [Financial Industry Regulatory Authority](https://www.investopedia.com/terms/f/finra.asp) (FINRA) defines a day trade as the purchase and sale of a security within the same day in a margin account. FINRA defines [pattern day traders](https://www.investopedia.com/terms/p/patterndaytrader.asp) as investors who satisfy the following two criteria: * Traders who make at least four day trades (either buying and selling a stock or selling a stock short and closing that [short position](https://www.investopedia.com/terms/s/short.asp) within the same day) over a five-day week. * Traders whose day-trading activity constitutes more than 6% of their total activity during that same week. Brokerage firms can also identify clients as pattern day traders based on previous business or another reasonable conclusion. These firms will allow clients to open cash or [margin accounts](https://www.investopedia.com/terms/m/marginaccount.asp), but day traders typically choose margin for the trading accounts. FINRA enforces special margin requirements for investors it considers to be pattern-day traders. Opening a trading account requires certain minimum [personal information](https://www.investopedia.com/ask/answers/06/personalinfoandbrokers.asp), including your Social Security number and contact details. ### Depending on the jurisdiction and business details, your brokerage firm may have other requirements as well. ## FINRA Margin Requirements for Trading Accounts [Maintenance requirements](https://www.investopedia.com/terms/h/housemaintenancerequirement.asp) for pattern day trading accounts are considerably higher than those of non-pattern trading. The base requirements of all margin investors are outlined by the Federal Reserve Board’s [Regulation T](https://www.investopedia.com/terms/r/regulationt.asp). FINRA includes additional maintenance requirements for day traders in Rule 4210. Day traders must maintain a base equity level of $25,000. The trader is permitted a purchasing power of up to four times any excess over that minimum requirement. Equity held in non-trading accounts is not eligible for this calculation. A trader who fails to meet these requirements will receive a margin call from their broker and trading will be restricted if the call is not covered within five days. ## How Do I Open a Trading Account? You can open a trading account with your brokerage or investment firm of choice by filling out an application with your personal information and funding the account. If you want margin capabilities for trading, you'll need to complete the margin agreement and submit to initial margin requirements, house margin requirements, and all applicable regulatory policies. ## What Are the Disadvantages of a Trading Account? With a trading account, you run some risks you wouldn't encounter with regular brokerage cash accounts. For instance, trading on margin increases your risk of loss because of the leverage used, and you may encounter interest charges on your margin funds as well. Plus, you risk margin calls and securities liquidation as a day trader with a margin account. ## Is It Safe to Keep Money in a Trading Account? Yes, it's generally safe to keep money in a trading account. Most reputable brokerages provide Securities Investor Protection Corp. (SIPC) insurance for up to $500,000. This doesn't protect you from investment losses, but rather from the risk of investment firm failure. ## The Bottom Line A trading account is necessary if you'd like to buy and sell securities. You can open a trading account with your brokerage of choice, but if you'd like a margin account for day trading, you'll have to meet the brokerage's margin requirements. Pattern day traders have additional requirements they must meet, including a base equity level of $25,000 as per FINRA.

What Is a Trading Account? A trading account can be any investment account containing securities, cash or other holdings. Most commonly, trading account refers to a day trader’s primary account. These investors tend to buy and sell assets frequently, often within the same trading session, and their accounts are subject to special regulation as a result. The assets held in a trading account are separated from others that may be part of a long-term buy and hold strategy. Key Takeaways A trading account is an investment account. Trading accounts typically refer to accounts used to trade securities.Trading accounts require personal identification information and have minimum margin requirements set by FINRA. How a Trading Account Works A trading account can hold securities, cash, and other investment vehicles just like any other brokerage account. The term can describe a wide range of accounts, including tax-deferred retirement accounts. In general, however, a trading account is distinguished from other investment accounts by the level of activity, purpose of that activity and the risk it involves. The activity in a trading account typically constitutes day trading. The Financial Industry Regulatory Authority (FINRA) defines a day trade as the purchase and sale of a security within the same day in a margin account. FINRA defines pattern day traders as investors who satisfy the following two criteria: Traders who make at least four day trades (either buying and selling a stock or selling a stock short and closing that short position within the same day) over a five-day week. Traders whose day-trading activity constitutes more than 6% of their total activity during that same week. Brokerage firms can also identify clients as pattern day traders based on previous business or another reasonable conclusion. These firms will allow clients to open cash or margin accounts, but day traders typically choose margin for the trading accounts. FINRA enforces special margin requirements for investors it considers to be pattern-day traders. Opening a trading account requires certain minimum personal information, including your Social Security number and contact details. Depending on the jurisdiction and business details, your brokerage firm may have other requirements as well. FINRA Margin Requirements for Trading Accounts Maintenance requirements for pattern day trading accounts are considerably higher than those of non-pattern trading. The base requirements of all margin investors are outlined by the Federal Reserve Board’s Regulation T. FINRA includes additional maintenance requirements for day traders in Rule 4210. Day traders must maintain a base equity level of $25,000. The trader is permitted a purchasing power of up to four times any excess over that minimum requirement. Equity held in non-trading accounts is not eligible for this calculation. A trader who fails to meet these requirements will receive a margin call from their broker and trading will be restricted if the call is not covered within five days. How Do I Open a Trading Account? You can open a trading account with your brokerage or investment firm of choice by filling out an application with your personal information and funding the account. If you want margin capabilities for trading, you'll need to complete the margin agreement and submit to initial margin requirements, house margin requirements, and all applicable regulatory policies. What Are the Disadvantages of a Trading Account? With a trading account, you run some risks you wouldn't encounter with regular brokerage cash accounts. For instance, trading on margin increases your risk of loss because of the leverage used, and you may encounter interest charges on your margin funds as well. Plus, you risk margin calls and securities liquidation as a day trader with a margin account. Is It Safe to Keep Money in a Trading Account? Yes, it's generally safe to keep money in a trading account. Most reputable brokerages provide Securities Investor Protection Corp. (SIPC) insurance for up to $500,000. This doesn't protect you from investment losses, but rather from the risk of investment firm failure. The Bottom Line A trading account is necessary if you'd like to buy and sell securities. You can open a trading account with your brokerage of choice, but if you'd like a margin account for day trading, you'll have to meet the brokerage's margin requirements. Pattern day traders have additional requirements they must meet, including a base equity level of $25,000 as per FINRA.

https://www.investopedia.com/shifting-shopping-trends-could-reset-the-auto-insurance-leaderboard-5115937

Shifting Shopping Trends Could Reset the Auto Insurance Leaderboard

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 nationwide auto insurance shopping frenzy of last year is cooling down, but a more competitive state-by-state race for customers is heating up, suggest findings from a newly launched J.D. Power data tool—detailed this week in Insurance Journal.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A new tracking metric launched by J.D. Power reveals changing market trends and real-time customer shopping patterns for auto insurance, as reported in Insurance Journal.</li><li>Consumers looking for better deals during the pandemic searched or switched carriers more often—driven by savings and convenience.</li><li>As competition intensifies at the state level, a J.D. Power executive predicts a “battle for auto insurance supremacy.”</li></ul><p><br/></p></div></div></div> <span class="heading-toc" id="toc-pandemic-fueled-shopping-surge-normalizes"></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"> Pandemic-Fueled Shopping Surge Normalizes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> For years, consumers have shopped and switched auto insurance brands frequently. J.D. Power’s 2020 U.S. Insurance Shopping Study, in fact, found that 77% of auto insurance customers either actively shopped for a new carrier pre-pandemic or were prompted to comparison-shop because of poor service or rate hikes.<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 pandemic intensified that activity—driven largely by customers looking to trim expenses. In the early part of the pandemic, shopping activity grew about 20%, according to J.D. Power’s Loyalty Indicator and Shopping Trends (LIST). This new shopping tracker gives a competitive view of daily auto insurance shopping activity across the top 25 auto insurance brands at the national and state level. It can gauge, in real time, where companies are winning and losing when it comes to acquiring customers.<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"> "Underlying data for J.D. Power Auto Insurance LIST is drawn from daily surveying of 500-1,000 auto insurance customers sourced by SurveyMonkey’s market-leading platform," J.D. Power explained in a February launch announcement.<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"> Now, as shopping patterns return to more normal levels nationally, acquisition battles will increasingly move to the states, writes Tom Super, head of P&amp;C Insurance with J.D. Power. For insurers, these shifts could shake up the property/casualty leaderboard. And consumers should expect more competition for their business in certain key regions of the country. </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-regions-likely-to-see-the-most-activity"></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"> Regions Likely to See the Most Activity </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Where are the top battlegrounds expected to be? The J.D. Power data on shopping activity by region predicts states in the South and Southwest are poised for change, according to Super’s column. </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"> Almost like a political vote-counting roadmap, the LIST tracker illustrates which carriers are landing the most quotes by state with a daily and monthly tally. In Texas, for example—where top market spots are split by less than two points among the top four auto insurers, Super says—Allstate has moved to the front, capturing nearly 28% of all quote volume during the last three months, as measured by the LIST tracker. And in Georgia, GEICO’s growth captured nearly 25% of all quote volume in the three-month period. </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"> Overall, between November 2020 and February 2021, LIST shows that GEICO captured the most quote activity in 18 states, followed closely by market share leader State Farm with high activity in 16 states, Progressive in seven, and Allstate in three. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> “As national shopping activity stabilizes in 2021, it sets the stage for another big pivot for insurers to local markets in their battle for customer courtship,” Super predicts. “It could make this year a landmark event in the battle for auto insurance supremacy.” </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

The nationwide auto insurance shopping frenzy of last year is cooling down, but a more competitive state-by-state race for customers is heating up, suggest findings from a newly launched J.D. Power data tool—detailed this week in Insurance Journal. ### Key Takeaways * A new tracking metric launched by J.D. Power reveals changing market trends and real-time customer shopping patterns for auto insurance, as reported in Insurance Journal. * Consumers looking for better deals during the pandemic searched or switched carriers more often—driven by savings and convenience. * As competition intensifies at the state level, a J.D. Power executive predicts a “battle for auto insurance supremacy.” ## Pandemic-Fueled Shopping Surge Normalizes For years, consumers have shopped and switched auto insurance brands frequently. J.D. Power’s 2020 U.S. Insurance Shopping Study, in fact, found that 77% of auto insurance customers either actively shopped for a new carrier pre-pandemic or were prompted to comparison-shop because of poor service or rate hikes. The pandemic intensified that activity—driven largely by customers looking to trim expenses. In the early part of the pandemic, shopping activity grew about 20%, according to J.D. Power’s Loyalty Indicator and Shopping Trends (LIST). This new shopping tracker gives a competitive view of daily auto insurance shopping activity across the top 25 auto insurance brands at the national and state level. It can gauge, in real time, where companies are winning and losing when it comes to acquiring customers. "Underlying data for J.D. Power Auto Insurance LIST is drawn from daily surveying of 500-1,000 auto insurance customers sourced by SurveyMonkey’s market-leading platform," J.D. Power explained in a February launch announcement. Now, as shopping patterns return to more normal levels nationally, acquisition battles will increasingly move to the states, writes Tom Super, head of P&C Insurance with J.D. Power. For insurers, these shifts could shake up the property/casualty leaderboard. And consumers should expect more competition for their business in certain key regions of the country. ## Regions Likely to See the Most Activity Where are the top battlegrounds expected to be? The J.D. Power data on shopping activity by region predicts states in the South and Southwest are poised for change, according to Super’s column. Almost like a political vote-counting roadmap, the LIST tracker illustrates which carriers are landing the most quotes by state with a daily and monthly tally. In Texas, for example—where top market spots are split by less than two points among the top four auto insurers, Super says—Allstate has moved to the front, capturing nearly 28% of all quote volume during the last three months, as measured by the LIST tracker. And in Georgia, GEICO’s growth captured nearly 25% of all quote volume in the three-month period. Overall, between November 2020 and February 2021, LIST shows that GEICO captured the most quote activity in 18 states, followed closely by market share leader State Farm with high activity in 16 states, Progressive in seven, and Allstate in three. ## The Bottom Line “As national shopping activity stabilizes in 2021, it sets the stage for another big pivot for insurers to local markets in their battle for customer courtship,” Super predicts. “It could make this year a landmark event in the battle for auto insurance supremacy.” Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

The nationwide auto insurance shopping frenzy of last year is cooling down, but a more competitive state-by-state race for customers is heating up, suggest findings from a newly launched J.D. Power data tool—detailed this week in Insurance Journal. Key Takeaways A new tracking metric launched by J.D. Power reveals changing market trends and real-time customer shopping patterns for auto insurance, as reported in Insurance Journal.Consumers looking for better deals during the pandemic searched or switched carriers more often—driven by savings and convenience.As competition intensifies at the state level, a J.D. Power executive predicts a “battle for auto insurance supremacy.” Pandemic-Fueled Shopping Surge Normalizes For years, consumers have shopped and switched auto insurance brands frequently. J.D. Power’s 2020 U.S. Insurance Shopping Study, in fact, found that 77% of auto insurance customers either actively shopped for a new carrier pre-pandemic or were prompted to comparison-shop because of poor service or rate hikes. The pandemic intensified that activity—driven largely by customers looking to trim expenses. In the early part of the pandemic, shopping activity grew about 20%, according to J.D. Power’s Loyalty Indicator and Shopping Trends (LIST). This new shopping tracker gives a competitive view of daily auto insurance shopping activity across the top 25 auto insurance brands at the national and state level. It can gauge, in real time, where companies are winning and losing when it comes to acquiring customers. "Underlying data for J.D. Power Auto Insurance LIST is drawn from daily surveying of 500-1,000 auto insurance customers sourced by SurveyMonkey’s market-leading platform," J.D. Power explained in a February launch announcement. Now, as shopping patterns return to more normal levels nationally, acquisition battles will increasingly move to the states, writes Tom Super, head of P&C Insurance with J.D. Power. For insurers, these shifts could shake up the property/casualty leaderboard. And consumers should expect more competition for their business in certain key regions of the country. Regions Likely to See the Most Activity Where are the top battlegrounds expected to be? The J.D. Power data on shopping activity by region predicts states in the South and Southwest are poised for change, according to Super’s column. Almost like a political vote-counting roadmap, the LIST tracker illustrates which carriers are landing the most quotes by state with a daily and monthly tally. In Texas, for example—where top market spots are split by less than two points among the top four auto insurers, Super says—Allstate has moved to the front, capturing nearly 28% of all quote volume during the last three months, as measured by the LIST tracker. And in Georgia, GEICO’s growth captured nearly 25% of all quote volume in the three-month period. Overall, between November 2020 and February 2021, LIST shows that GEICO captured the most quote activity in 18 states, followed closely by market share leader State Farm with high activity in 16 states, Progressive in seven, and Allstate in three. The Bottom Line “As national shopping activity stabilizes in 2021, it sets the stage for another big pivot for insurers to local markets in their battle for customer courtship,” Super predicts. “It could make this year a landmark event in the battle for auto insurance supremacy.” Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/how-amazon-entreprise-ai-assistant-amazon-q-could-heat-up-big-tech-ai-race-8640995

How Amazon's New Entreprise AI Assistant Amazon Q Could Heat Up Big Tech's AI Race

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Amazon announced Tuesday its artificial intelligence (AI) assistant Amazon Q is generally available for AWS enterprise customers.</li><li>The offering could help the e-commerce giant better compete with its big tech peers amid the AI boom.</li><li>Amazon Q Business allows enterprise customers to customize the AI-powered assistant to best meet their needs, while Amazon Q Developer offers coding-specific features.</li><li>Microsoft and Alphabet's Google also offer AI assistants for business customers and coding tools for developers.</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"> 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>) announced Tuesday its <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> assistant Amazon Q for businesses and developers is generally available in the U.S. for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/011316/what-amazon-web-services-and-why-it-so-successful.asp">AWS</a> enterprise customers, in a move that could help the e-commerce giant better compete with its big tech peers amid the AI boom. </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-amazon-q-business-for-aws-enterprise-customers"></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"> Amazon Q Business for AWS Enterprise Customers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">generative AI (genAI)</a> tool for business customers, which was first unveiled at the AWS re:Invent conference in November of 2023, "can answer questions, provide summaries, generate content, and securely complete tasks based on data and information in [the customer's] enterprise systems."<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"> "With Amazon Q Business, you can deploy a secure, private, generative AI assistant that empowers your organization’s users to be more creative, data-driven, efficient, prepared, and productive," the company said in a release. </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 enterprise AI assistant has a variety of features that businesses can customize to align with their organization's workflow and goals. Amazon said it can connect to more than 40 enterprise data sources including Microsoft 365, and Salesforce, as well as be used to create a chatbot built on company-specific data to answer employees' questions, among other capabilities. </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"> Amazon Q Business is available through two subscription options. Amazon Q Business Lite "provides users access to the basic functionality of Amazon Q Business" and is priced at $3 per user per month, while the Amazon Business Pro option offers users access to all features for $20 per user monthly. </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-amazon-q-developer-offers-coding-specific-help"></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"> Amazon Q Developer Offers Coding-Specific Help </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Alongside Amazon Q Business, the company announced the general availability of Amazon Q Developer, a coding-specific AI assistant.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> "Q assists developers and IT professionals (IT pros) with all of their tasks—from coding, testing, and upgrading applications, to troubleshooting, performing security scanning and fixes, and optimizing AWS resources," Amazon said in a release.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> AWS offer a free tier of Amazon Q Developer, "which provides free coding to individuals in the IDE and command line, as well as free limited usage of most advanced capabilities, like Amazon Q Developer Agents" as well as an Amazon Q Developer Pro tier priced at $19 per user per month for more advanced capabilities and higher limits.<span class="ql-inline-citation" data-cite="5"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-microsoft-and-google-already-offer-similar-ai-assistant-subscriptions"></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"> Microsoft and Google Already Offer Similar AI Assistant Subscriptions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Amazon Q Business could help Amazon compete as 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 Alphabet's Google (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL">GOOGL</a>) already have enterprise AI assistants. </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"> Microsoft offers <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-doubles-down-on-ai-with-copilot-expansion-and-vodafone-partnership-8426674">Copilot</a> which can be integrated into its Office 365 products, while Google has <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-google-is-rebranding-its-bard-ai-chatbot-as-gemini-with-a-new-app-and-subscription-8572209">Gemini</a> which can be connected to Google Workspace apps. Both companies also offer coding-specific tools for developers.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Meta <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/meta-announces-ai-assistant-powered-by-llama-3-here-is-what-you-need-to-know-8635515">recently unveiled</a> its own AI assistant called Meta AI, though the tool, which is integrated into its platforms, is designed for individual consumer use rather than enterprise. </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"> Amazon announced the availability of the enterprise AI assistant Tuesday morning, ahead of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/amazon-q1-2024-earnings-preview-8638228">e-commerce giant's earnings report</a> set after market close.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Amazon shares were 0.6% lower at $179.83 around 3:15 p.m. ET Tuesday, though they've gained more than 18% year to date.<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 * Amazon announced Tuesday its artificial intelligence (AI) assistant Amazon Q is generally available for AWS enterprise customers. * The offering could help the e-commerce giant better compete with its big tech peers amid the AI boom. * Amazon Q Business allows enterprise customers to customize the AI-powered assistant to best meet their needs, while Amazon Q Developer offers coding-specific features. * Microsoft and Alphabet's Google also offer AI assistants for business customers and coding tools for developers. Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)) announced Tuesday its [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) assistant Amazon Q for businesses and developers is generally available in the U.S. for [AWS](https://www.investopedia.com/articles/investing/011316/what-amazon-web-services-and-why-it-so-successful.asp) enterprise customers, in a move that could help the e-commerce giant better compete with its big tech peers amid the AI boom. ## Amazon Q Business for AWS Enterprise Customers The [generative AI (genAI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) tool for business customers, which was first unveiled at the AWS re:Invent conference in November of 2023, "can answer questions, provide summaries, generate content, and securely complete tasks based on data and information in [the customer's] enterprise systems." "With Amazon Q Business, you can deploy a secure, private, generative AI assistant that empowers your organization’s users to be more creative, data-driven, efficient, prepared, and productive," the company said in a release. The enterprise AI assistant has a variety of features that businesses can customize to align with their organization's workflow and goals. Amazon said it can connect to more than 40 enterprise data sources including Microsoft 365, and Salesforce, as well as be used to create a chatbot built on company-specific data to answer employees' questions, among other capabilities. Amazon Q Business is available through two subscription options. Amazon Q Business Lite "provides users access to the basic functionality of Amazon Q Business" and is priced at $3 per user per month, while the Amazon Business Pro option offers users access to all features for $20 per user monthly. ## Amazon Q Developer Offers Coding-Specific Help Alongside Amazon Q Business, the company announced the general availability of Amazon Q Developer, a coding-specific AI assistant. "Q assists developers and IT professionals (IT pros) with all of their tasks—from coding, testing, and upgrading applications, to troubleshooting, performing security scanning and fixes, and optimizing AWS resources," Amazon said in a release. AWS offer a free tier of Amazon Q Developer, "which provides free coding to individuals in the IDE and command line, as well as free limited usage of most advanced capabilities, like Amazon Q Developer Agents" as well as an Amazon Q Developer Pro tier priced at $19 per user per month for more advanced capabilities and higher limits. ## Microsoft and Google Already Offer Similar AI Assistant Subscriptions Amazon Q Business could help Amazon compete as Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) and Alphabet's Google ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL)) already have enterprise AI assistants. Microsoft offers [Copilot](https://www.investopedia.com/microsoft-doubles-down-on-ai-with-copilot-expansion-and-vodafone-partnership-8426674) which can be integrated into its Office 365 products, while Google has [Gemini](https://www.investopedia.com/why-google-is-rebranding-its-bard-ai-chatbot-as-gemini-with-a-new-app-and-subscription-8572209) which can be connected to Google Workspace apps. Both companies also offer coding-specific tools for developers. Meta [recently unveiled](https://www.investopedia.com/meta-announces-ai-assistant-powered-by-llama-3-here-is-what-you-need-to-know-8635515) its own AI assistant called Meta AI, though the tool, which is integrated into its platforms, is designed for individual consumer use rather than enterprise. Amazon announced the availability of the enterprise AI assistant Tuesday morning, ahead of the [e-commerce giant's earnings report](https://www.investopedia.com/amazon-q1-2024-earnings-preview-8638228) set after market close. Amazon shares were 0.6% lower at $179.83 around 3:15 p.m. ET Tuesday, though they've gained more than 18% year to date. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Amazon announced Tuesday its artificial intelligence (AI) assistant Amazon Q is generally available for AWS enterprise customers.The offering could help the e-commerce giant better compete with its big tech peers amid the AI boom.Amazon Q Business allows enterprise customers to customize the AI-powered assistant to best meet their needs, while Amazon Q Developer offers coding-specific features.Microsoft and Alphabet's Google also offer AI assistants for business customers and coding tools for developers. Amazon (AMZN) announced Tuesday its artificial intelligence (AI) assistant Amazon Q for businesses and developers is generally available in the U.S. for AWS enterprise customers, in a move that could help the e-commerce giant better compete with its big tech peers amid the AI boom. Amazon Q Business for AWS Enterprise Customers The generative AI (genAI) tool for business customers, which was first unveiled at the AWS re:Invent conference in November of 2023, "can answer questions, provide summaries, generate content, and securely complete tasks based on data and information in [the customer's] enterprise systems." "With Amazon Q Business, you can deploy a secure, private, generative AI assistant that empowers your organization’s users to be more creative, data-driven, efficient, prepared, and productive," the company said in a release. The enterprise AI assistant has a variety of features that businesses can customize to align with their organization's workflow and goals. Amazon said it can connect to more than 40 enterprise data sources including Microsoft 365, and Salesforce, as well as be used to create a chatbot built on company-specific data to answer employees' questions, among other capabilities. Amazon Q Business is available through two subscription options. Amazon Q Business Lite "provides users access to the basic functionality of Amazon Q Business" and is priced at $3 per user per month, while the Amazon Business Pro option offers users access to all features for $20 per user monthly. Amazon Q Developer Offers Coding-Specific Help Alongside Amazon Q Business, the company announced the general availability of Amazon Q Developer, a coding-specific AI assistant. "Q assists developers and IT professionals (IT pros) with all of their tasks—from coding, testing, and upgrading applications, to troubleshooting, performing security scanning and fixes, and optimizing AWS resources," Amazon said in a release. AWS offer a free tier of Amazon Q Developer, "which provides free coding to individuals in the IDE and command line, as well as free limited usage of most advanced capabilities, like Amazon Q Developer Agents" as well as an Amazon Q Developer Pro tier priced at $19 per user per month for more advanced capabilities and higher limits. Microsoft and Google Already Offer Similar AI Assistant Subscriptions Amazon Q Business could help Amazon compete as Microsoft (MSFT) and Alphabet's Google (GOOGL) already have enterprise AI assistants. Microsoft offers Copilot which can be integrated into its Office 365 products, while Google has Gemini which can be connected to Google Workspace apps. Both companies also offer coding-specific tools for developers. Meta recently unveiled its own AI assistant called Meta AI, though the tool, which is integrated into its platforms, is designed for individual consumer use rather than enterprise. Amazon announced the availability of the enterprise AI assistant Tuesday morning, ahead of the e-commerce giant's earnings report set after market close. Amazon shares were 0.6% lower at $179.83 around 3:15 p.m. ET Tuesday, though they've gained more than 18% year to date. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/chase-adds-instacart-statement-credits-to-select-cards-6362272

Chase Adds Instacart Statement Credits to Sapphire and Freedom Cards

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> On Monday, Chase launched a new benefit for its flagship credit cards, offering up to $15 per month in statement credits toward Instacart purchases. This is in addition to its complimentary Instacart+ membership, which the card issuer announced previously. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Chase launched a new Instacart benefit for its Sapphire and Freedom credit cards.</li><li>Cardholders with an eligible card can get statement credits toward Instacart purchases, up to $15 per month, depending on which card you have.</li><li>Eligible cardholders need to enroll to take advantage of the benefit.</li></ul></div></div></div> <span class="heading-toc" id="toc-chase-offers-instacart-statement-credits"></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"> Chase Offers Instacart Statement Credits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> On Monday, Chase added a new benefit to its Sapphire and Freedom credit cards. Eligible cardholders who enroll can receive up to $15 per month in statement credits toward Instacart purchases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The new perk is in addition to a complimentary Instacart+ membership, which Chase announced previously, offering up to 12 months. Instacart+ normally costs $9.99 per month and offers no delivery fees on orders of $35 or more, a 5% credit on pickup orders, lower service fees, and a complimentary Grubhub+ membership. </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"> Chase Slate cardholders also get a complimentary Instacart+ membership but don't qualify for the statement credit. </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"> Here's how the Instacart benefits break down for each card:<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <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> <tbody data-check="-1"> <tr> <td> <b>Card</b></td> <td><b>Statement Credit</b></td> <td><b>Instacart+ Membership</b></td> </tr> <tr> <td>Chase Sapphire Reserve</td> <td>Up to $15 per month</td> <td>12 months</td> </tr> <tr> <td>Chase Sapphire Preferred </td> <td>Up to $15 per quarter</td> <td>6 months</td> </tr> <tr> <td>Chase Freedom Flex</td> <td>Up to $10 per quarter </td> <td>3 months</td> </tr> <tr> <td>Chase Freedom</td> <td>Up to $10 per quarter </td> <td>3 months</td> </tr> <tr> <td>Chase Freedom Unlimited </td> <td>Up to $10 per quarter </td> <td>3 months</td> </tr> <tr> <td>Chase Freedom Student </td> <td>Up to $10 per quarter </td> <td>3 months</td> </tr> <tr> <td>Chase Slate</td> <td>N/A</td> <td>3 months</td> </tr> </tbody> </table> </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"> Note that the benefit is not automatic. To activate it, eligible cardholders should visit Instacart.com/Chase and provide their card information. </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 announcement comes shortly after Chase announced its new <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chase-launches-new-instacart-credit-card-5703625">Instacart Mastercard Credit Card</a>, which offers bonus cash back on Instacart purchases and other everyday spending categories.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

On Monday, Chase launched a new benefit for its flagship credit cards, offering up to $15 per month in statement credits toward Instacart purchases. This is in addition to its complimentary Instacart+ membership, which the card issuer announced previously. ### Key Takeaways * Chase launched a new Instacart benefit for its Sapphire and Freedom credit cards. * Cardholders with an eligible card can get statement credits toward Instacart purchases, up to $15 per month, depending on which card you have. * Eligible cardholders need to enroll to take advantage of the benefit. ## Chase Offers Instacart Statement Credits On Monday, Chase added a new benefit to its Sapphire and Freedom credit cards. Eligible cardholders who enroll can receive up to $15 per month in statement credits toward Instacart purchases. The new perk is in addition to a complimentary Instacart+ membership, which Chase announced previously, offering up to 12 months. Instacart+ normally costs $9.99 per month and offers no delivery fees on orders of $35 or more, a 5% credit on pickup orders, lower service fees, and a complimentary Grubhub+ membership. Chase Slate cardholders also get a complimentary Instacart+ membership but don't qualify for the statement credit. Here's how the Instacart benefits break down for each card: | **Card** | **Statement Credit** | **Instacart+ Membership** | | --- | --- | --- | | Chase Sapphire Reserve | Up to $15 per month | 12 months | | Chase Sapphire Preferred | Up to $15 per quarter | 6 months | | Chase Freedom Flex | Up to $10 per quarter | 3 months | | Chase Freedom | Up to $10 per quarter | 3 months | | Chase Freedom Unlimited | Up to $10 per quarter | 3 months | | Chase Freedom Student | Up to $10 per quarter | 3 months | | Chase Slate | N/A | 3 months | Note that the benefit is not automatic. To activate it, eligible cardholders should visit Instacart.com/Chase and provide their card information. The announcement comes shortly after Chase announced its new [Instacart Mastercard Credit Card](https://www.investopedia.com/chase-launches-new-instacart-credit-card-5703625), which offers bonus cash back on Instacart purchases and other everyday spending categories. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

On Monday, Chase launched a new benefit for its flagship credit cards, offering up to $15 per month in statement credits toward Instacart purchases. This is in addition to its complimentary Instacart+ membership, which the card issuer announced previously. Key Takeaways Chase launched a new Instacart benefit for its Sapphire and Freedom credit cards.Cardholders with an eligible card can get statement credits toward Instacart purchases, up to $15 per month, depending on which card you have.Eligible cardholders need to enroll to take advantage of the benefit. Chase Offers Instacart Statement Credits On Monday, Chase added a new benefit to its Sapphire and Freedom credit cards. Eligible cardholders who enroll can receive up to $15 per month in statement credits toward Instacart purchases. The new perk is in addition to a complimentary Instacart+ membership, which Chase announced previously, offering up to 12 months. Instacart+ normally costs $9.99 per month and offers no delivery fees on orders of $35 or more, a 5% credit on pickup orders, lower service fees, and a complimentary Grubhub+ membership. Chase Slate cardholders also get a complimentary Instacart+ membership but don't qualify for the statement credit. Here's how the Instacart benefits break down for each card:  Card Statement Credit Instacart+ Membership Chase Sapphire Reserve Up to $15 per month 12 months Chase Sapphire Preferred  Up to $15 per quarter 6 months Chase Freedom Flex Up to $10 per quarter  3 months Chase Freedom Up to $10 per quarter  3 months Chase Freedom Unlimited  Up to $10 per quarter  3 months Chase Freedom Student  Up to $10 per quarter  3 months Chase Slate N/A 3 months Note that the benefit is not automatic. To activate it, eligible cardholders should visit Instacart.com/Chase and provide their card information. The announcement comes shortly after Chase announced its new Instacart Mastercard Credit Card, which offers bonus cash back on Instacart purchases and other everyday spending categories. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/best-japan-etfs-5076938

Top Japan ETFs for 2023

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Exchange-traded funds (ETFs) focused on Japan provide investors with exposure to the country’s economic growth and business profits. Japan is the third-largest economy in the world as measured by gross domestic product (GDP), according to 2021 data, the most recent available from The World Bank.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Japan's economy suffered a major contraction during the pandemic but it is showing signs of recovery. The economy grew at an annualized rate of 2.7% in the first quarter of 2023, driven by increases in domestic consumption of goods and services.<span class="ql-inline-citation" data-cite="60"></span> Despite ongoing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> challenges, the International Monetary Fund forecasts Japan's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gdp.asp">GDP</a> will grow 1.3% in 2023.<span class="ql-inline-citation" data-cite="54"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The country is home to many large, well-known multinational corporations, including Honda Motor Co. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HMC">HMC</a>) and Sony Group Corp. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SONY">SONY</a>). Japan <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">ETFs</a> offer investors the opportunity to profit from the growth of these businesses and many other companies. Japanese equities, as measured by the MSCI Japan Index, have returned more than 25% in the past year, compared with the S&amp;P 500's total return of about 16%.<span class="ql-inline-citation" data-cite="68"></span><span class="ql-inline-citation" data-cite="67"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Below, we look at the three Japan-focused ETFs with the lowest fees, the best 12-month return, and the most liquidity, respectively. We have excluded <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leveraged-etf.asp">leveraged ETFs</a>, which provide outsized returns but come with extra risk. All data below is as of June 22, 2023.<span class="ql-inline-citation" data-cite="58"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-japan-etf-with-the-lowest-fees-franklin-ftse-japan-etf-fljp"></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=FLJP" rel="nocaes">Japan ETF With the Lowest Fees: Franklin FTSE Japan ETF (FLJP)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <li>Performance over one year: 20.7%</li><li>Expense ratio: 0.09%</li><li>Annual dividend yield: 2.07%</li><li>30-day average daily volume: 458,621</li><li>Assets under management: $1.3 billion</li><li>Inception date: Nov. 2, 2017</li><li>Issuer: Franklin Templeton<span class="ql-inline-citation" data-cite="62"></span><span class="ql-inline-citation" data-cite="61"></span></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"> FLJP holds a portfolio of more than 500 large- and mid-sized Japanese equities, providing broad exposure to a variety of sectors. The fund aims to replicate the performance of the FTSE Japan Capped Index. Industrials, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/050416/consumer-discretionary-sector-industries-snapshot.asp">consumer discretionary</a>, and information technology stocks occupy the largest parts of the portfolio. The fund's top holdings include <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/021416/how-toyota-makes-money-tm.asp">Toyota Motor Corp.</a> (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=7203">7203:TKS</a>), Sony Group, and Keyence Corp. (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=6861">6861:TKS</a>).<span class="ql-inline-citation" data-cite="62"></span><br/> </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-japan-etf-with-the-best-1-year-return-ishares-jpx-nikkei-400-etf-jpxn"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPXN" rel="nocaes">Japan ETF With the Best 1-Year Return: iShares JPX-Nikkei 400 ETF (JPXN)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>Performance over one year: 22.1%</li><li>Expense ratio: 0.48%</li><li>Annual dividend yield: 1.05%</li><li>30-day average daily volume: 18,615</li><li>Assets under management: $80 million</li><li>Inception date: Oct. 23, 2001</li><li>Issuer: BlackRock Financial Management<span class="ql-inline-citation" data-cite="64"></span><span class="ql-inline-citation" data-cite="63"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> JPXN provides exposure to large- and mid-capitalization Japanese equities selected for their "perceived shareholder-friendly activities," including profitability and return on equity. The benchmark index for the fund is the JPX-Nikkei Index 400. JPXN holds roughly 400 individual stocks, with no single name currently accounting for more than 2% of assets. The producer manufacturing, financial, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/08/investing-in-healthcare.asp">health technology sectors</a> are the best represented in the portfolio. The fund's top holdings include Mitsubishi Corp. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=8058">8058:TKS</a>), Mitsui &amp; Co. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=8031">8031:TKS</a>), and Sumitomo Mitsui Financial Group.<span class="ql-inline-citation" data-cite="64"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-most-liquid-japan-etf-ishares-msci-japan-etf-ewj"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWJ" rel="nocaes">Most Liquid Japan ETF: iShares MSCI Japan ETF (EWJ)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li>Performance over one year: 20.8%</li><li>Expense ratio: 0.50%</li><li>Annual dividend yield: 0.89%</li><li>30-day average daily volume: 8,269,708</li><li>AUM: $13 billion</li><li>Inception date: March 12, 1996</li><li>Issuer: BlackRock Financial Management<span class="ql-inline-citation" data-cite="66"></span><span class="ql-inline-citation" data-cite="65"></span></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"> EWJ is the oldest Japan ETF and the largest by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">assets under management</a>, as well as the most liquid by a wide margin. The fund holds a portfolio of about 240 large-cap Japanese equities and tracks the benchmark MSCI Japan Index. Industrials stocks occupy the largest part of the portfolio, followed by consumer discretionary and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/030816/worlds-top-10-technology-companies-aapl-googl.asp">information technology</a> names. The top holdings of the fund include Toyota, Sony Group, and Keyence.<span class="ql-inline-citation" data-cite="66"></span><span class="ql-inline-citation" data-cite="65"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer">warranty and liability disclaimer</a> for more info.</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <em>As of the date this article was written, the author does not own any of the above ETFs.</em> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

Exchange-traded funds (ETFs) focused on Japan provide investors with exposure to the country’s economic growth and business profits. Japan is the third-largest economy in the world as measured by gross domestic product (GDP), according to 2021 data, the most recent available from The World Bank. Japan's economy suffered a major contraction during the pandemic but it is showing signs of recovery. The economy grew at an annualized rate of 2.7% in the first quarter of 2023, driven by increases in domestic consumption of goods and services. Despite ongoing [inflation](https://www.investopedia.com/terms/i/inflation.asp) challenges, the International Monetary Fund forecasts Japan's [GDP](https://www.investopedia.com/terms/g/gdp.asp) will grow 1.3% in 2023. The country is home to many large, well-known multinational corporations, including Honda Motor Co. ([HMC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HMC)) and Sony Group Corp. ([SONY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SONY)). Japan [ETFs](https://www.investopedia.com/terms/e/etf.asp) offer investors the opportunity to profit from the growth of these businesses and many other companies. Japanese equities, as measured by the MSCI Japan Index, have returned more than 25% in the past year, compared with the S&P 500's total return of about 16%. Below, we look at the three Japan-focused ETFs with the lowest fees, the best 12-month return, and the most liquidity, respectively. We have excluded [leveraged ETFs](https://www.investopedia.com/terms/l/leveraged-etf.asp), which provide outsized returns but come with extra risk. All data below is as of June 22, 2023. ## [Japan ETF With the Lowest Fees: Franklin FTSE Japan ETF (FLJP)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FLJP) * Performance over one year: 20.7% * Expense ratio: 0.09% * Annual dividend yield: 2.07% * 30-day average daily volume: 458,621 * Assets under management: $1.3 billion * Inception date: Nov. 2, 2017 * Issuer: Franklin Templeton FLJP holds a portfolio of more than 500 large- and mid-sized Japanese equities, providing broad exposure to a variety of sectors. The fund aims to replicate the performance of the FTSE Japan Capped Index. Industrials, [consumer discretionary](https://www.investopedia.com/articles/markets/050416/consumer-discretionary-sector-industries-snapshot.asp), and information technology stocks occupy the largest parts of the portfolio. The fund's top holdings include [Toyota Motor Corp.](https://www.investopedia.com/articles/markets/021416/how-toyota-makes-money-tm.asp) ([7203:TKS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=7203)), Sony Group, and Keyence Corp. ([6861:TKS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=6861)). ## [Japan ETF With the Best 1-Year Return: iShares JPX-Nikkei 400 ETF (JPXN)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPXN) * Performance over one year: 22.1% * Expense ratio: 0.48% * Annual dividend yield: 1.05% * 30-day average daily volume: 18,615 * Assets under management: $80 million * Inception date: Oct. 23, 2001 * Issuer: BlackRock Financial Management JPXN provides exposure to large- and mid-capitalization Japanese equities selected for their "perceived shareholder-friendly activities," including profitability and return on equity. The benchmark index for the fund is the JPX-Nikkei Index 400. JPXN holds roughly 400 individual stocks, with no single name currently accounting for more than 2% of assets. The producer manufacturing, financial, and [health technology sectors](https://www.investopedia.com/articles/stocks/08/investing-in-healthcare.asp) are the best represented in the portfolio. The fund's top holdings include Mitsubishi Corp. ([8058:TKS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=8058)), Mitsui & Co. ([8031:TKS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=8031)), and Sumitomo Mitsui Financial Group. ## [Most Liquid Japan ETF: iShares MSCI Japan ETF (EWJ)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWJ) * Performance over one year: 20.8% * Expense ratio: 0.50% * Annual dividend yield: 0.89% * 30-day average daily volume: 8,269,708 * AUM: $13 billion * Inception date: March 12, 1996 * Issuer: BlackRock Financial Management EWJ is the oldest Japan ETF and the largest by [assets under management](https://www.investopedia.com/terms/a/aum.asp), as well as the most liquid by a wide margin. The fund holds a portfolio of about 240 large-cap Japanese equities and tracks the benchmark MSCI Japan Index. Industrials stocks occupy the largest part of the portfolio, followed by consumer discretionary and [information technology](https://www.investopedia.com/articles/markets/030816/worlds-top-10-technology-companies-aapl-googl.asp) names. The top holdings of the fund include Toyota, Sony Group, and Keyence. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.* *As of the date this article was written, the author does not own any of the above ETFs.* Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Exchange-traded funds (ETFs) focused on Japan provide investors with exposure to the country’s economic growth and business profits. Japan is the third-largest economy in the world as measured by gross domestic product (GDP), according to 2021 data, the most recent available from The World Bank. Japan's economy suffered a major contraction during the pandemic but it is showing signs of recovery. The economy grew at an annualized rate of 2.7% in the first quarter of 2023, driven by increases in domestic consumption of goods and services. Despite ongoing inflation challenges, the International Monetary Fund forecasts Japan's GDP will grow 1.3% in 2023. The country is home to many large, well-known multinational corporations, including Honda Motor Co. (HMC) and Sony Group Corp. (SONY). Japan ETFs offer investors the opportunity to profit from the growth of these businesses and many other companies. Japanese equities, as measured by the MSCI Japan Index, have returned more than 25% in the past year, compared with the S&P 500's total return of about 16%. Below, we look at the three Japan-focused ETFs with the lowest fees, the best 12-month return, and the most liquidity, respectively. We have excluded leveraged ETFs, which provide outsized returns but come with extra risk. All data below is as of June 22, 2023. Japan ETF With the Lowest Fees: Franklin FTSE Japan ETF (FLJP) Performance over one year: 20.7%Expense ratio: 0.09%Annual dividend yield: 2.07%30-day average daily volume: 458,621Assets under management: $1.3 billionInception date: Nov. 2, 2017Issuer: Franklin Templeton FLJP holds a portfolio of more than 500 large- and mid-sized Japanese equities, providing broad exposure to a variety of sectors. The fund aims to replicate the performance of the FTSE Japan Capped Index. Industrials, consumer discretionary, and information technology stocks occupy the largest parts of the portfolio. The fund's top holdings include Toyota Motor Corp. (7203:TKS), Sony Group, and Keyence Corp. (6861:TKS). Japan ETF With the Best 1-Year Return: iShares JPX-Nikkei 400 ETF (JPXN) Performance over one year: 22.1%Expense ratio: 0.48%Annual dividend yield: 1.05%30-day average daily volume: 18,615Assets under management: $80 millionInception date: Oct. 23, 2001Issuer: BlackRock Financial Management JPXN provides exposure to large- and mid-capitalization Japanese equities selected for their "perceived shareholder-friendly activities," including profitability and return on equity. The benchmark index for the fund is the JPX-Nikkei Index 400. JPXN holds roughly 400 individual stocks, with no single name currently accounting for more than 2% of assets. The producer manufacturing, financial, and health technology sectors are the best represented in the portfolio. The fund's top holdings include Mitsubishi Corp. (8058:TKS), Mitsui & Co. (8031:TKS), and Sumitomo Mitsui Financial Group. Most Liquid Japan ETF: iShares MSCI Japan ETF (EWJ) Performance over one year: 20.8%Expense ratio: 0.50%Annual dividend yield: 0.89%30-day average daily volume: 8,269,708AUM: $13 billionInception date: March 12, 1996Issuer: BlackRock Financial Management EWJ is the oldest Japan ETF and the largest by assets under management, as well as the most liquid by a wide margin. The fund holds a portfolio of about 240 large-cap Japanese equities and tracks the benchmark MSCI Japan Index. Industrials stocks occupy the largest part of the portfolio, followed by consumer discretionary and information technology names. The top holdings of the fund include Toyota, Sony Group, and Keyence. The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own any of the above ETFs. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

What Is Wall Street? Role in Investing and Why It's Famous

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-wall-street"></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 Wall Street? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Wall Street is literally a street located in New York City at the southern end of Manhattan. Figuratively, Wall Street is much more. It's synonymous with the financial industry and the firms within it. This connotation has its roots in the fact that so many brokerages and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/121715/bulge-bracket-vs-mid-market-vs-boutique-investment-banks.asp">investment banks</a> historically have established their headquarters in and around the street. All the better to be close to 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>. </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"> Being on or near Wall Street is no longer considered essential for financial institutions. In fact, these days they are located all around the country. However, the term "Wall Street" still means business—the investment business—and the interests, motivations, and attitudes of its players. </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>Wall Street is a street located in the lower Manhattan section of New York City.</li><li>Wall Street is used as an umbrella term to describe the financial markets and the companies that trade publicly on exchanges throughout the U.S.</li><li>Historically, Wall Street has been the location of some of the largest U.S. brokerages and investment banking firms, and is also the home of the NYSE.</li><li>Wall Street is often contrasted with Main Street, the latter of which is a metaphor for small businesses and individual investors.</li><li>Events that happened on or around Wall Street often have impacted not just the investment industry, but the U.S. (and even the global) economy.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-wall-street"></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 Wall Street </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Wall Street and its surrounding southern Manhattan neighborhood—known to locals as the Financial District—remain an important location where a number of financial institutions are based. The financial district is iconic with the bronze Arturo Di Modica statue of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/100814/charging-bullthe-brass-icon-wall-street.asp">Charging Bull</a>. However, the globalization and digitization of finance and investing have led to the rise of many U.S. broker-dealers, registered investment advisors, and investment companies located elsewhere. </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"> Still, Wall Street<em> </em>remains a collective name for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-market.asp">financial markets</a>, the companies that trade publicly, and the investment community itself. Stock exchanges, investment banking firms, commercial banks, brokerages and broker-dealers, financial services, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwriting.asp">underwriting</a> firms all symbolize Wall Street. </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"> It's a globally recognized expression that, to some extent, ever refers to the U.S. financial system. Both the NYSE (the largest equities-based exchange in the world) and the Federal Reserve Bank of New York—arguably the most important regional bank of 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 System</a>—are based in the Wall Street area. </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"> Wall Street is often shortened to "the Street," which is how the term is frequently used by those in financial circles and the media. For example, when reporting a company's earnings, an analyst might compare a company's revenues to what the Street was expecting. In this case, the analyst is comparing the company's earnings to what financial analysts and investment firms were expecting for that period. </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-importance-of-wall-street"></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 Importance of Wall Street </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Wall Street has had an important impact both economically and culturally. </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"> Economic Importance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The U.S. is the largest economy in the world and New York City is its financial center. As such, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0910/7-secrets-of-wall-street.aspx">Wall Street's global importance</a> is unparalleled. </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"> Wall Street consists of some of the largest financial institutions in the world and employs hundreds of thousands of people. It's home to the NYSE and Nasdaq stock exchanges, two of the largest stock exchanges in the world. On these exchanges are listed some of the biggest companies, including Amazon, Google, Apple, and Exxon. </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 economic importance of Wall Street extends throughout the American and international economies, as many financial firms do business worldwide, extend loans to a variety of businesses and individuals, and finance large-scale, global projects. </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"> Cultural Importance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Wall Street's cultural influence extends to movies, TV shows, books, and more. Films such as <em>Wall Street, Margin Call, Boiler Room, Barbarians at the Gate</em>, and more from previous decades, highlight what the fast-paced life is like on Wall Street. They display an exciting, wealthy, and interesting lifestyle. </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"> Large players on Wall Street have become celebrity icons. <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>, Jamie Dimon, Carl Icahn, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bernard-madoff.asp">Bernie Madoff</a>, George Soros, and Larry Fink are names familiar to many. In the imaginations of some in contemporary society, the term Wall Street may evoke a sense of power, the elite, and often, unscrupulous behavior. </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"> During times of economic trouble, such as 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 2008</a>, Wall Street sometimes becomes a scapegoat and the ills of the economy are blamed on the assumed greed associated with it. No other financial term has become so woven into the global culture.<br/> </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-history-of-wall-street"></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"> History of Wall Street </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/where-does-the-name-wall-street-come-from/">Wall Street got its name</a> from the wooden wall Dutch colonists built in lower Manhattan in 1653 to defend themselves from the British and Native Americans. The wall was taken down in 1699, but the name stuck.<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"> Given its proximity to New York's ports, the Wall Street area became a bustling center of trade in the 1700s. Its origins as a financial center began in 1792, when 24 of the most prominent brokers and merchants in the U.S. signed the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buttonwoodagreement.asp">Buttonwood Agreement</a>. They reportedly gathered on Wall Street, under a buttonwood tree, to do business.<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_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The agreement outlined the common commission-based form of trading securities. In effect, it was an effort to establish a members-only stock exchange. Some of the first securities traded were war bonds and the stocks of such institutions as the Bank of New York.<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_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Out of this acorn of an agreement, the oak that became the NYSE grew. In 1817, the Buttonwood brokers renamed themselves The New York Stock and Exchange Board. The organization rented out spaces for trading in several locations until 1865, when it settled on a location of its own, at the corner of Wall and Broad Streets.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_43-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_44-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">18 Broad Street</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The location of the beating heart of Wall Street, the NYSE, is a 1903 Neo-Classical structure of white marble. An adjacent annex, constructed in 1922, is located at 11 Wall Street, and another subsidiary building is at 20 Broad Street. These three buildings fill the block bounded by Wall Street on the north, Broad Street on the East, Exchange Place on the south, and New Street on the west.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> As the U.S. grew, several other major exchanges established headquarters in the Wall Street area. These included the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nymex.asp">New York Mercantile Exchange</a>, the New York Board of Trade, the New York Futures Exchange (NYFE), and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/amex.asp">American Stock Exchange</a>, now known as the NYSE American Options. </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"> To support the exchanges and to be where the action was, banks, brokerage firms, and financiers clustered offices around Wall Street. In the late 19th and early 20th centuries, the House of Morgan, officially J.P. Morgan &amp; Co.—the forerunner to JP Morgan Chase and Morgan Stanley—was directly opposite the NYSE, at 23 Wall Street. </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"> After World War I, New York City surpassed London to become the world's largest and most significant financial center. </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-wall-street-vs-main-street"></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"> Wall Street vs. Main Street </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Wall Street is often compared and contrasted to Main Street. The term "Main Street" is used as a metaphor for individual investors, small businesses, employees, and the overall economy. It's derived from the common name for the principal street of a town where most of the local businesses are located. </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"> There is often a perceived conflict between the goals, desires, and motivations of Main Street and Wall Street. Wall Street tends to represent big businesses and financial institutions, while Main Street represents mom-and-pop shops, small companies, and individuals. </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-key-events-on-wall-street"></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"> Key Events on Wall Street </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Events that happened on or around Wall Street often have impacted not just the investment industry, but the global economy and society. Here are some significant moments in Wall Street history. </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"> 1889: The Wall Street Journal </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> On July 8, 1889, Charles Dow, Edward Jones, and Charles Bergstresser launched <em>The Wall Street Journal</em>, a four-page afternoon newspaper devoted to objective financial and business news. The three men were reporters, but Dow was also a numbers-cruncher who came up with the idea of creating a benchmark list of companies and their stock prices to represent the entire stock market.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Soon, the <em>Journal</em> was publishing 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> index along with hundreds of prices of company stocks, bonds, and futures, and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wall-street-journal-prime-rate.asp">average prime rate </a>for bank loans. For nearly a century, before the advent of real-time internet listings, the <em>Journal</em> was the paper of record for the financial markets. </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"> It evolved into a six-day-a-week periodical (that's been online since 1996). The <em>Journal</em> is a leading and well-respected <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/111215/who-actually-owns-wall-street-journal.asp">source of financial and business journalism</a>. </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 three founders operated out of offices in lower Manhattan. The fact that they chose to name their new publication <em>The Wall Street Journal</em> indicates that Wall Street already was something of an umbrella term for the world of finance and its denizens. Over the years, the paper helped fix this meaning in the public's mind. </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"> 1920: The Wall Street Bombing </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> It was around noon on Sept. 16, 1920. A horse-drawn cart pulled up at 23 Wall Street right in front of the headquarters of J.P. Morgan &amp; Co. A bustling corner of the neighborhood, it was especially crowded with those headed out for lunch. The cart suddenly exploded. It had been packed with dynamite and filled with sash weights that sailed through the air.<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_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> At that time, it was the worst domestic bombing in U.S. history. Ultimately, 40 people were killed or died from their injuries, and another 300 were injured. The J.P. Morgan building's interior was gutted. Marks from the shrapnel still are visible on the exterior.<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_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> No one claimed credit and the case was never solved. But because the explosion occurred in front of the Morgan building, known as a symbol of American capitalism, the bombing was ultimately decided to have been an act of terrorism performed by “Reds”—anarchists and communist sympathizers. A stack of anarchist flyers found in a mailbox a block away from Wall Street supported this theory.<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_74-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> As a result, the authorities arrested hundreds of suspected Reds and deported those of foreign nationality. The bombing also encouraged the nativist sentiments that developed in the U.S. during the 1920s, which led to tighter restrictions on immigration.<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_76-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_77-0"> <span class="mntl-sc-block-subheading__text"> 1929: The Stock Market Crash </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock-market-crash-1929.asp">stock market crash of 1929</a> remains the worst financial crisis in U.S. history. In a pre-digital trading era, its epicenter was the NYSE. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> The crash began on October 24 when, after nearly a decade of unparalleled, uninterrupted growth, the stock market opened lower than the previous session. Equities' prices continued to drop throughout the day and, as the news spread, crowds began to gather outside the Exchange.<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_81-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> They groaned as the market closed down again that day, cheered brokers during the next two days when the market seemed to rally, and then panicked on October 28 and October 29, when the declines resumed. Inside the stock exchange, the scene was sheer pandemonium as prices fell too fast for ticker tapes and blackboards to record them.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> Ultimately, the DJIA was to fall 89% from its September 1929 peak, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/042115/what-caused-stock-market-crash-1929-preceded-great-depression.asp">wiping out</a> both corporate and individual wealth.<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_85-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> The crash ushered in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/great_depression.asp">Great Depression</a>. A quarter of America’s working population lost their jobs as the U.S. economy went into a tailspin. Economies throughout Europe followed suit. In the end, the stock market crash and the ensuing decade-long depression directly impacted nearly every segment of society and altered an entire generation's perspective of, and relationship to, the financial markets.<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_87-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_88-0"> <span class="mntl-sc-block-subheading__text"> 1987: The Black Monday Crash </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> On what is known as Black Monday, Oct. 19, 1987, the S&amp;P 500 Index and Dow Jones Industrial Average plunged more than 25% in value, leading exchanges around the world to drop in a similar frenzy. The week prior, indices had fallen an approximate 10%, priming the pump for the ensuing panic. Up until that time, a bull market had been in control since 1982. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_91-0"> Thanks to the actions of chairman Alan Greenspan and the Federal Reserve, a seeming disaster on a global scale was averted. But the crash brought to light the potential for disruption that the then-new technique of computer programs instigating large-scale amounts of trading might cause (even though enormous amounts of trading were handled by humans that day, as well). </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"> The exact cause of this short-term crash has never been pinpointed. However, afterwards, exchanges implemented circuit breaker rules to prevent program trading from spurring runaway selling. It was hoped that this and other trading curbs would allow the markets time to stabilize and give regulators (and investors) the chance to take appropriate steps. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_95-0"> <span class="mntl-sc-block-subheading__text"> 2007-2008: The Global Financial Crisis </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> The global financial crisis of 2007-2008 resulted from years of deregulation, easy credit, predatory mortgage lending, the collapse of the subprime mortgage market, and the unregulated use of derivatives. It led to 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>. The root cause of the crisis was unethical and exploitative behavior by banks, investment banks, and insurance firms. </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"> Borrowers with unsatisfactory credit were given mortgage loans without concern for their ability to pay them off and without their comprehension of the risks involved with the loans. As rates rose, those borrowers' mortgage rates reset higher and they couldn't afford to make monthly payments. What's more, as home prices fell dramatically, homeowners couldn't sell their houses for enough to cover their loans. This caused massive numbers of defaults. </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"> Risky derivative securities had been created with the subprime mortgage loans sold by banks. In addition, banks and other large investors used customer deposits to invest in these derivatives. With the defaults on home loans, the derivatives plunged in value. </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"> Many financial institutions had ties to the loans, derivatives, and credit default swaps, an insurance product that investors in the derivatives bought to protect against the risk of default. Thus, they found themselves in severe trouble after the housing market bubble burst. </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"> From housing industry crash to a U.S. financial industry on the brink of collapse to the near ruin of other financial systems across the globe. It was the worst financial crisis since the stock market crash of 1929. </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"> The U.S. government had no choice but to bail out financial institutions that had always been considered “too big to fail.”<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_107-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_108-0"> <span class="mntl-sc-block-subheading__text"> 2011: Occupy Wall Street </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_109-0"> Occupy Wall Street was a 2011 protest movement against social and economic inequality that was centered in Zuccotti Park, located in Manhattan's Financial District. It began on September 17, as hundreds of protesters camped out in the park. The police forcibly removed and arrested them two months later, on November 15. During the intervening period, there were marches and speeches, calling for more balanced income distribution, better-paying jobs, bank reform, and less corporate influence in politics. "We are the 99%," was the Occupy protestors' slogan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_110-0"></div> <span class="heading-toc" id="toc-the-regulation-of-wall-street"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_111-0"> <span class="mntl-sc-block-heading__text"> The Regulation of Wall Street </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_112-0"> <span class="mntl-sc-block-subheading__text"> After the 1929 Crash </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_113-0"> Regulatory measures were put into place to address the lack of government oversight that was considered to have led to the crisis that began in 1929. Among other things, the Securities Act of 1933 required financial institutions to provide investors with all significant information about securities being offered for sale. It also prohibited fraud in securities sales. The Securities Exchange Act of 1934 established 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 gave it significant power over the securities industry. This included the authority to regulate brokerage firms and to require financial reporting by publicly traded companies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_114-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_115-0"> <span class="mntl-sc-block-subheading__text"> After the 2007-2008 Financial Crisis </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_116-0"> In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (<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</a>). It created new government agencies with financial system oversight. The idea behind the act was to address the risky behaviors of financial institutions and the dearth of regulatory oversight that led to the crisis. One area of grave concern was the predatory mortgage lending that had occurred. Another focus was the stability of financial institutions. The act made it possible to liquidate or restructure firms, if necessary, to prevent the use of taxpayer funds to keep them afloat. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_117-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_118-0"> The act's Volker Rule restricted the investing practices of banks and regulated derivative securities. It also set up the SEC Office of Credit Ratings to ensure that credit agencies henceforth issued appropriate ratings for institutions, rather than the fabricated favorable ratings that were part of the lead-up to the crisis. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_119-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_120-0"> <span class="mntl-sc-block-subheading__text"> During the Trump Administration </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_121-0"> The Economic Growth, Regulatory Relief, and Consumer Protection Act signed in 2018 by President Trump addressed criticisms of Dodd-Frank and rolled back some of its provisions. Among other things, it exempted banks with assets of less than $10 billion from the Volker Rule requirements, gave consumers the ability to freeze their credit files at no cost, and eased capital requirements for banks that didn't offer lending or traditional banking services. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_122-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_123-0"><span class="heading-toc" id="toc-what-does-wall-street-speculation-mean"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does Wall Street Speculation Mean?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Speculation refers to the act of investing in securities that have a high risk-reward profile with the goal of obtaining substantial gains, despite the risk of substantial losses. An investor who speculates is likely focused on price fluctuations. They may believe that the market has inaccurately priced a security and they're trying to capitalize on that disparity. Wall Street speculators tend to be professional traders as opposed to retail investors who buy and hold stocks or other assets for the long term.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_124-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_125-0"><span class="heading-toc" id="toc-what-time-does-wall-street-open-and-close"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Time Does Wall Street Open and Close?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The major U.S. stock markets, including the NYSE and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a>, are normally open 9:30 a.m. to 4 p.m. Eastern time, Monday through Friday. However, there are also extended-hour sessions earlier and later.</p><ul><li>Pre-market trading typically occurs between 8:00 a.m. and 9:30 a.m., though it can begin as early as 4 a.m. EST.</li><li>After-hours trading starts at 4 p.m. and can run as late as 8 p.m. EST.<br/></li></ul></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_126-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_127-0"><span class="heading-toc" id="toc-what-is-black-wall-street"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Black Wall Street?</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/insights/origins-black-wall-street/">Black Wall Street</a> was a nickname given to the Greenwood District of Tulsa, Oklahoma, one of the largest and most prosperous African-American business communities in the U.S. in the early 20th century. From May to June, 1921, its 35 blocks were destroyed during the Tulsa Race Riot. It was quickly rebuilt, with over 80 businesses reopening by 1922. More generally, Black Wall Street can also refer to any area of African-American high economic or financial activity.<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_128-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_129-0"><span class="heading-toc" id="toc-how-do-you-get-a-job-on-wall-street"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Get a Job on Wall Street?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Getting a<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/021015/how-land-wall-street-job-out-college.asp"> job on Wall Street</a> often starts in college. Majors like finance, business administration and management, economics, accounting, and mathematics are natural fits for the investment industry. Firms will consider degrees in other areas too, like marketing or engineering. Try to get an internship at a Wall Street firm or similar institution for at least one summer. A <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mba.asp">Master of Business Administration (MBA)</a> can also be attractive to financial institutions, as can tech industry experience. It's also important to target what type of Wall Street job you'd be best suited for. They break down into three main areas:</p><ul><li><strong>Investment Team</strong>: <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/research-analyst.asp">research analysts</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfoliomanager.asp">portfolio managers</a>, and <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trader.asp">traders</a></li><li><strong>Operations</strong>: client relationship, marketing, risk assessment, legal, <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/backoffice.asp">back-office</a> functions</li><li><strong>Sales</strong>: those involved in the creation, promotion, and sale of stocks, bonds, IPOs, foreign exchange, and other financial instruments</li></ul></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_130-0"></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_131-0"> <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_132-0"> Wall Street is both an actual street and a symbol. It's home to a variety of financial and investment firms, along with institutions like the NYSE and the Federal Reserve Bank of New York. Globally, it's come to connote the U.S. financial and investment communities and industries, plus its interests, attitudes, and behavior. </p></div>

## What Is Wall Street? Wall Street is literally a street located in New York City at the southern end of Manhattan. Figuratively, Wall Street is much more. It's synonymous with the financial industry and the firms within it. This connotation has its roots in the fact that so many brokerages and [investment banks](https://www.investopedia.com/articles/active-trading/121715/bulge-bracket-vs-mid-market-vs-boutique-investment-banks.asp) historically have established their headquarters in and around the street. All the better to be close to the [New York Stock Exchange (NYSE)](https://www.investopedia.com/terms/n/nyse.asp). Being on or near Wall Street is no longer considered essential for financial institutions. In fact, these days they are located all around the country. However, the term "Wall Street" still means business—the investment business—and the interests, motivations, and attitudes of its players. ### Key Takeaways * Wall Street is a street located in the lower Manhattan section of New York City. * Wall Street is used as an umbrella term to describe the financial markets and the companies that trade publicly on exchanges throughout the U.S. * Historically, Wall Street has been the location of some of the largest U.S. brokerages and investment banking firms, and is also the home of the NYSE. * Wall Street is often contrasted with Main Street, the latter of which is a metaphor for small businesses and individual investors. * Events that happened on or around Wall Street often have impacted not just the investment industry, but the U.S. (and even the global) economy. ## Understanding Wall Street Wall Street and its surrounding southern Manhattan neighborhood—known to locals as the Financial District—remain an important location where a number of financial institutions are based. The financial district is iconic with the bronze Arturo Di Modica statue of the [Charging Bull](https://www.investopedia.com/articles/investing/100814/charging-bullthe-brass-icon-wall-street.asp). However, the globalization and digitization of finance and investing have led to the rise of many U.S. broker-dealers, registered investment advisors, and investment companies located elsewhere. Still, Wall Streetremains a collective name for the [financial markets](https://www.investopedia.com/terms/f/financial-market.asp), the companies that trade publicly, and the investment community itself. Stock exchanges, investment banking firms, commercial banks, brokerages and broker-dealers, financial services, and [underwriting](https://www.investopedia.com/terms/u/underwriting.asp) firms all symbolize Wall Street. It's a globally recognized expression that, to some extent, ever refers to the U.S. financial system. Both the NYSE (the largest equities-based exchange in the world) and the Federal Reserve Bank of New York—arguably the most important regional bank of the [Federal Reserve System](https://www.investopedia.com/terms/f/federalreservesystem.asp)—are based in the Wall Street area. Wall Street is often shortened to "the Street," which is how the term is frequently used by those in financial circles and the media. For example, when reporting a company's earnings, an analyst might compare a company's revenues to what the Street was expecting. In this case, the analyst is comparing the company's earnings to what financial analysts and investment firms were expecting for that period. ## The Importance of Wall Street Wall Street has had an important impact both economically and culturally. ### Economic Importance The U.S. is the largest economy in the world and New York City is its financial center. As such, [Wall Street's global importance](https://www.investopedia.com/financial-edge/0910/7-secrets-of-wall-street.aspx) is unparalleled. Wall Street consists of some of the largest financial institutions in the world and employs hundreds of thousands of people. It's home to the NYSE and Nasdaq stock exchanges, two of the largest stock exchanges in the world. On these exchanges are listed some of the biggest companies, including Amazon, Google, Apple, and Exxon. The economic importance of Wall Street extends throughout the American and international economies, as many financial firms do business worldwide, extend loans to a variety of businesses and individuals, and finance large-scale, global projects. ### Cultural Importance Wall Street's cultural influence extends to movies, TV shows, books, and more. Films such as *Wall Street, Margin Call, Boiler Room, Barbarians at the Gate*, and more from previous decades, highlight what the fast-paced life is like on Wall Street. They display an exciting, wealthy, and interesting lifestyle. Large players on Wall Street have become celebrity icons. [Warren Buffett](https://www.investopedia.com/articles/01/071801.asp), Jamie Dimon, Carl Icahn, [Bernie Madoff](https://www.investopedia.com/terms/b/bernard-madoff.asp), George Soros, and Larry Fink are names familiar to many. In the imaginations of some in contemporary society, the term Wall Street may evoke a sense of power, the elite, and often, unscrupulous behavior. During times of economic trouble, such as the [financial crisis of 2008](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp), Wall Street sometimes becomes a scapegoat and the ills of the economy are blamed on the assumed greed associated with it. No other financial term has become so woven into the global culture. ## History of Wall Street [Wall Street got its name](https://www.investopedia.com/ask/answers/where-does-the-name-wall-street-come-from/) from the wooden wall Dutch colonists built in lower Manhattan in 1653 to defend themselves from the British and Native Americans. The wall was taken down in 1699, but the name stuck. Given its proximity to New York's ports, the Wall Street area became a bustling center of trade in the 1700s. Its origins as a financial center began in 1792, when 24 of the most prominent brokers and merchants in the U.S. signed the [Buttonwood Agreement](https://www.investopedia.com/terms/b/buttonwoodagreement.asp). They reportedly gathered on Wall Street, under a buttonwood tree, to do business. The agreement outlined the common commission-based form of trading securities. In effect, it was an effort to establish a members-only stock exchange. Some of the first securities traded were war bonds and the stocks of such institutions as the Bank of New York. Out of this acorn of an agreement, the oak that became the NYSE grew. In 1817, the Buttonwood brokers renamed themselves The New York Stock and Exchange Board. The organization rented out spaces for trading in several locations until 1865, when it settled on a location of its own, at the corner of Wall and Broad Streets. ### 18 Broad Street The location of the beating heart of Wall Street, the NYSE, is a 1903 Neo-Classical structure of white marble. An adjacent annex, constructed in 1922, is located at 11 Wall Street, and another subsidiary building is at 20 Broad Street. These three buildings fill the block bounded by Wall Street on the north, Broad Street on the East, Exchange Place on the south, and New Street on the west. As the U.S. grew, several other major exchanges established headquarters in the Wall Street area. These included the [New York Mercantile Exchange](https://www.investopedia.com/terms/n/nymex.asp), the New York Board of Trade, the New York Futures Exchange (NYFE), and the [American Stock Exchange](https://www.investopedia.com/terms/a/amex.asp), now known as the NYSE American Options. To support the exchanges and to be where the action was, banks, brokerage firms, and financiers clustered offices around Wall Street. In the late 19th and early 20th centuries, the House of Morgan, officially J.P. Morgan & Co.—the forerunner to JP Morgan Chase and Morgan Stanley—was directly opposite the NYSE, at 23 Wall Street. After World War I, New York City surpassed London to become the world's largest and most significant financial center. ## Wall Street vs. Main Street Wall Street is often compared and contrasted to Main Street. The term "Main Street" is used as a metaphor for individual investors, small businesses, employees, and the overall economy. It's derived from the common name for the principal street of a town where most of the local businesses are located. There is often a perceived conflict between the goals, desires, and motivations of Main Street and Wall Street. Wall Street tends to represent big businesses and financial institutions, while Main Street represents mom-and-pop shops, small companies, and individuals. ## Key Events on Wall Street Events that happened on or around Wall Street often have impacted not just the investment industry, but the global economy and society. Here are some significant moments in Wall Street history. ### 1889: The Wall Street Journal On July 8, 1889, Charles Dow, Edward Jones, and Charles Bergstresser launched *The Wall Street Journal*, a four-page afternoon newspaper devoted to objective financial and business news. The three men were reporters, but Dow was also a numbers-cruncher who came up with the idea of creating a benchmark list of companies and their stock prices to represent the entire stock market. Soon, the *Journal* was publishing the [Dow Jones Industrial Average (DJIA)](https://www.investopedia.com/terms/d/djia.asp) index along with hundreds of prices of company stocks, bonds, and futures, and the [average prime rate](https://www.investopedia.com/terms/w/wall-street-journal-prime-rate.asp) for bank loans. For nearly a century, before the advent of real-time internet listings, the *Journal* was the paper of record for the financial markets. It evolved into a six-day-a-week periodical (that's been online since 1996). The *Journal* is a leading and well-respected [source of financial and business journalism](https://www.investopedia.com/ask/answers/111215/who-actually-owns-wall-street-journal.asp). The three founders operated out of offices in lower Manhattan. The fact that they chose to name their new publication *The Wall Street Journal* indicates that Wall Street already was something of an umbrella term for the world of finance and its denizens. Over the years, the paper helped fix this meaning in the public's mind. ### 1920: The Wall Street Bombing It was around noon on Sept. 16, 1920. A horse-drawn cart pulled up at 23 Wall Street right in front of the headquarters of J.P. Morgan & Co. A bustling corner of the neighborhood, it was especially crowded with those headed out for lunch. The cart suddenly exploded. It had been packed with dynamite and filled with sash weights that sailed through the air. At that time, it was the worst domestic bombing in U.S. history. Ultimately, 40 people were killed or died from their injuries, and another 300 were injured. The J.P. Morgan building's interior was gutted. Marks from the shrapnel still are visible on the exterior. No one claimed credit and the case was never solved. But because the explosion occurred in front of the Morgan building, known as a symbol of American capitalism, the bombing was ultimately decided to have been an act of terrorism performed by “Reds”—anarchists and communist sympathizers. A stack of anarchist flyers found in a mailbox a block away from Wall Street supported this theory. As a result, the authorities arrested hundreds of suspected Reds and deported those of foreign nationality. The bombing also encouraged the nativist sentiments that developed in the U.S. during the 1920s, which led to tighter restrictions on immigration. ### 1929: The Stock Market Crash The [stock market crash of 1929](https://www.investopedia.com/terms/s/stock-market-crash-1929.asp) remains the worst financial crisis in U.S. history. In a pre-digital trading era, its epicenter was the NYSE. The crash began on October 24 when, after nearly a decade of unparalleled, uninterrupted growth, the stock market opened lower than the previous session. Equities' prices continued to drop throughout the day and, as the news spread, crowds began to gather outside the Exchange. They groaned as the market closed down again that day, cheered brokers during the next two days when the market seemed to rally, and then panicked on October 28 and October 29, when the declines resumed. Inside the stock exchange, the scene was sheer pandemonium as prices fell too fast for ticker tapes and blackboards to record them. Ultimately, the DJIA was to fall 89% from its September 1929 peak, [wiping out](https://www.investopedia.com/ask/answers/042115/what-caused-stock-market-crash-1929-preceded-great-depression.asp) both corporate and individual wealth. The crash ushered in the [Great Depression](https://www.investopedia.com/terms/g/great_depression.asp). A quarter of America’s working population lost their jobs as the U.S. economy went into a tailspin. Economies throughout Europe followed suit. In the end, the stock market crash and the ensuing decade-long depression directly impacted nearly every segment of society and altered an entire generation's perspective of, and relationship to, the financial markets. ### 1987: The Black Monday Crash On what is known as Black Monday, Oct. 19, 1987, the S&P 500 Index and Dow Jones Industrial Average plunged more than 25% in value, leading exchanges around the world to drop in a similar frenzy. The week prior, indices had fallen an approximate 10%, priming the pump for the ensuing panic. Up until that time, a bull market had been in control since 1982. Thanks to the actions of chairman Alan Greenspan and the Federal Reserve, a seeming disaster on a global scale was averted. But the crash brought to light the potential for disruption that the then-new technique of computer programs instigating large-scale amounts of trading might cause (even though enormous amounts of trading were handled by humans that day, as well). The exact cause of this short-term crash has never been pinpointed. However, afterwards, exchanges implemented circuit breaker rules to prevent program trading from spurring runaway selling. It was hoped that this and other trading curbs would allow the markets time to stabilize and give regulators (and investors) the chance to take appropriate steps. ### 2007-2008: The Global Financial Crisis The global financial crisis of 2007-2008 resulted from years of deregulation, easy credit, predatory mortgage lending, the collapse of the subprime mortgage market, and the unregulated use of derivatives. It led to the [Great Recession](https://www.investopedia.com/terms/g/great-recession.asp). The root cause of the crisis was unethical and exploitative behavior by banks, investment banks, and insurance firms. Borrowers with unsatisfactory credit were given mortgage loans without concern for their ability to pay them off and without their comprehension of the risks involved with the loans. As rates rose, those borrowers' mortgage rates reset higher and they couldn't afford to make monthly payments. What's more, as home prices fell dramatically, homeowners couldn't sell their houses for enough to cover their loans. This caused massive numbers of defaults. Risky derivative securities had been created with the subprime mortgage loans sold by banks. In addition, banks and other large investors used customer deposits to invest in these derivatives. With the defaults on home loans, the derivatives plunged in value. Many financial institutions had ties to the loans, derivatives, and credit default swaps, an insurance product that investors in the derivatives bought to protect against the risk of default. Thus, they found themselves in severe trouble after the housing market bubble burst. From housing industry crash to a U.S. financial industry on the brink of collapse to the near ruin of other financial systems across the globe. It was the worst financial crisis since the stock market crash of 1929. The U.S. government had no choice but to bail out financial institutions that had always been considered “too big to fail.” ### 2011: Occupy Wall Street Occupy Wall Street was a 2011 protest movement against social and economic inequality that was centered in Zuccotti Park, located in Manhattan's Financial District. It began on September 17, as hundreds of protesters camped out in the park. The police forcibly removed and arrested them two months later, on November 15. During the intervening period, there were marches and speeches, calling for more balanced income distribution, better-paying jobs, bank reform, and less corporate influence in politics. "We are the 99%," was the Occupy protestors' slogan. ## The Regulation of Wall Street ### After the 1929 Crash Regulatory measures were put into place to address the lack of government oversight that was considered to have led to the crisis that began in 1929. Among other things, the Securities Act of 1933 required financial institutions to provide investors with all significant information about securities being offered for sale. It also prohibited fraud in securities sales. The Securities Exchange Act of 1934 established the [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) and gave it significant power over the securities industry. This included the authority to regulate brokerage firms and to require financial reporting by publicly traded companies. ### After the 2007-2008 Financial Crisis In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act ([Dodd-Frank](https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp)). It created new government agencies with financial system oversight. The idea behind the act was to address the risky behaviors of financial institutions and the dearth of regulatory oversight that led to the crisis. One area of grave concern was the predatory mortgage lending that had occurred. Another focus was the stability of financial institutions. The act made it possible to liquidate or restructure firms, if necessary, to prevent the use of taxpayer funds to keep them afloat. The act's Volker Rule restricted the investing practices of banks and regulated derivative securities. It also set up the SEC Office of Credit Ratings to ensure that credit agencies henceforth issued appropriate ratings for institutions, rather than the fabricated favorable ratings that were part of the lead-up to the crisis. ### During the Trump Administration The Economic Growth, Regulatory Relief, and Consumer Protection Act signed in 2018 by President Trump addressed criticisms of Dodd-Frank and rolled back some of its provisions. Among other things, it exempted banks with assets of less than $10 billion from the Volker Rule requirements, gave consumers the ability to freeze their credit files at no cost, and eased capital requirements for banks that didn't offer lending or traditional banking services. ## What Does Wall Street Speculation Mean? Speculation refers to the act of investing in securities that have a high risk-reward profile with the goal of obtaining substantial gains, despite the risk of substantial losses. An investor who speculates is likely focused on price fluctuations. They may believe that the market has inaccurately priced a security and they're trying to capitalize on that disparity. Wall Street speculators tend to be professional traders as opposed to retail investors who buy and hold stocks or other assets for the long term. ## What Time Does Wall Street Open and Close? The major U.S. stock markets, including the NYSE and the [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp), are normally open 9:30 a.m. to 4 p.m. Eastern time, Monday through Friday. However, there are also extended-hour sessions earlier and later. * Pre-market trading typically occurs between 8:00 a.m. and 9:30 a.m., though it can begin as early as 4 a.m. EST. * After-hours trading starts at 4 p.m. and can run as late as 8 p.m. EST. ## What Is Black Wall Street? [Black Wall Street](https://www.investopedia.com/insights/origins-black-wall-street/) was a nickname given to the Greenwood District of Tulsa, Oklahoma, one of the largest and most prosperous African-American business communities in the U.S. in the early 20th century. From May to June, 1921, its 35 blocks were destroyed during the Tulsa Race Riot. It was quickly rebuilt, with over 80 businesses reopening by 1922. More generally, Black Wall Street can also refer to any area of African-American high economic or financial activity. ## How Do You Get a Job on Wall Street? Getting a [job on Wall Street](https://www.investopedia.com/articles/personal-finance/021015/how-land-wall-street-job-out-college.asp) often starts in college. Majors like finance, business administration and management, economics, accounting, and mathematics are natural fits for the investment industry. Firms will consider degrees in other areas too, like marketing or engineering. Try to get an internship at a Wall Street firm or similar institution for at least one summer. A [Master of Business Administration (MBA)](https://www.investopedia.com/terms/m/mba.asp) can also be attractive to financial institutions, as can tech industry experience. It's also important to target what type of Wall Street job you'd be best suited for. They break down into three main areas: * **Investment Team**: [research analysts](https://www.investopedia.com/terms/r/research-analyst.asp), [portfolio managers](https://www.investopedia.com/terms/p/portfoliomanager.asp), and [traders](https://www.investopedia.com/terms/t/trader.asp) * **Operations**: client relationship, marketing, risk assessment, legal, [back-office](https://www.investopedia.com/terms/b/backoffice.asp) functions * **Sales**: those involved in the creation, promotion, and sale of stocks, bonds, IPOs, foreign exchange, and other financial instruments ## The Bottom Line Wall Street is both an actual street and a symbol. It's home to a variety of financial and investment firms, along with institutions like the NYSE and the Federal Reserve Bank of New York. Globally, it's come to connote the U.S. financial and investment communities and industries, plus its interests, attitudes, and behavior.

What Is Wall Street? Wall Street is literally a street located in New York City at the southern end of Manhattan. Figuratively, Wall Street is much more. It's synonymous with the financial industry and the firms within it. This connotation has its roots in the fact that so many brokerages and investment banks historically have established their headquarters in and around the street. All the better to be close to the New York Stock Exchange (NYSE). Being on or near Wall Street is no longer considered essential for financial institutions. In fact, these days they are located all around the country. However, the term "Wall Street" still means business—the investment business—and the interests, motivations, and attitudes of its players. Key Takeaways Wall Street is a street located in the lower Manhattan section of New York City.Wall Street is used as an umbrella term to describe the financial markets and the companies that trade publicly on exchanges throughout the U.S.Historically, Wall Street has been the location of some of the largest U.S. brokerages and investment banking firms, and is also the home of the NYSE.Wall Street is often contrasted with Main Street, the latter of which is a metaphor for small businesses and individual investors.Events that happened on or around Wall Street often have impacted not just the investment industry, but the U.S. (and even the global) economy. Understanding Wall Street Wall Street and its surrounding southern Manhattan neighborhood—known to locals as the Financial District—remain an important location where a number of financial institutions are based. The financial district is iconic with the bronze Arturo Di Modica statue of the Charging Bull. However, the globalization and digitization of finance and investing have led to the rise of many U.S. broker-dealers, registered investment advisors, and investment companies located elsewhere. Still, Wall Street remains a collective name for the financial markets, the companies that trade publicly, and the investment community itself. Stock exchanges, investment banking firms, commercial banks, brokerages and broker-dealers, financial services, and underwriting firms all symbolize Wall Street. It's a globally recognized expression that, to some extent, ever refers to the U.S. financial system. Both the NYSE (the largest equities-based exchange in the world) and the Federal Reserve Bank of New York—arguably the most important regional bank of the Federal Reserve System—are based in the Wall Street area. Wall Street is often shortened to "the Street," which is how the term is frequently used by those in financial circles and the media. For example, when reporting a company's earnings, an analyst might compare a company's revenues to what the Street was expecting. In this case, the analyst is comparing the company's earnings to what financial analysts and investment firms were expecting for that period. The Importance of Wall Street Wall Street has had an important impact both economically and culturally. Economic Importance The U.S. is the largest economy in the world and New York City is its financial center. As such, Wall Street's global importance is unparalleled. Wall Street consists of some of the largest financial institutions in the world and employs hundreds of thousands of people. It's home to the NYSE and Nasdaq stock exchanges, two of the largest stock exchanges in the world. On these exchanges are listed some of the biggest companies, including Amazon, Google, Apple, and Exxon. The economic importance of Wall Street extends throughout the American and international economies, as many financial firms do business worldwide, extend loans to a variety of businesses and individuals, and finance large-scale, global projects. Cultural Importance Wall Street's cultural influence extends to movies, TV shows, books, and more. Films such as Wall Street, Margin Call, Boiler Room, Barbarians at the Gate, and more from previous decades, highlight what the fast-paced life is like on Wall Street. They display an exciting, wealthy, and interesting lifestyle. Large players on Wall Street have become celebrity icons. Warren Buffett, Jamie Dimon, Carl Icahn, Bernie Madoff, George Soros, and Larry Fink are names familiar to many. In the imaginations of some in contemporary society, the term Wall Street may evoke a sense of power, the elite, and often, unscrupulous behavior. During times of economic trouble, such as the financial crisis of 2008, Wall Street sometimes becomes a scapegoat and the ills of the economy are blamed on the assumed greed associated with it. No other financial term has become so woven into the global culture. History of Wall Street Wall Street got its name from the wooden wall Dutch colonists built in lower Manhattan in 1653 to defend themselves from the British and Native Americans. The wall was taken down in 1699, but the name stuck. Given its proximity to New York's ports, the Wall Street area became a bustling center of trade in the 1700s. Its origins as a financial center began in 1792, when 24 of the most prominent brokers and merchants in the U.S. signed the Buttonwood Agreement. They reportedly gathered on Wall Street, under a buttonwood tree, to do business. The agreement outlined the common commission-based form of trading securities. In effect, it was an effort to establish a members-only stock exchange. Some of the first securities traded were war bonds and the stocks of such institutions as the Bank of New York. Out of this acorn of an agreement, the oak that became the NYSE grew. In 1817, the Buttonwood brokers renamed themselves The New York Stock and Exchange Board. The organization rented out spaces for trading in several locations until 1865, when it settled on a location of its own, at the corner of Wall and Broad Streets. 18 Broad Street The location of the beating heart of Wall Street, the NYSE, is a 1903 Neo-Classical structure of white marble. An adjacent annex, constructed in 1922, is located at 11 Wall Street, and another subsidiary building is at 20 Broad Street. These three buildings fill the block bounded by Wall Street on the north, Broad Street on the East, Exchange Place on the south, and New Street on the west. As the U.S. grew, several other major exchanges established headquarters in the Wall Street area. These included the New York Mercantile Exchange, the New York Board of Trade, the New York Futures Exchange (NYFE), and the American Stock Exchange, now known as the NYSE American Options. To support the exchanges and to be where the action was, banks, brokerage firms, and financiers clustered offices around Wall Street. In the late 19th and early 20th centuries, the House of Morgan, officially J.P. Morgan & Co.—the forerunner to JP Morgan Chase and Morgan Stanley—was directly opposite the NYSE, at 23 Wall Street. After World War I, New York City surpassed London to become the world's largest and most significant financial center. Wall Street vs. Main Street Wall Street is often compared and contrasted to Main Street. The term "Main Street" is used as a metaphor for individual investors, small businesses, employees, and the overall economy. It's derived from the common name for the principal street of a town where most of the local businesses are located. There is often a perceived conflict between the goals, desires, and motivations of Main Street and Wall Street. Wall Street tends to represent big businesses and financial institutions, while Main Street represents mom-and-pop shops, small companies, and individuals. Key Events on Wall Street Events that happened on or around Wall Street often have impacted not just the investment industry, but the global economy and society. Here are some significant moments in Wall Street history. 1889: The Wall Street Journal On July 8, 1889, Charles Dow, Edward Jones, and Charles Bergstresser launched The Wall Street Journal, a four-page afternoon newspaper devoted to objective financial and business news. The three men were reporters, but Dow was also a numbers-cruncher who came up with the idea of creating a benchmark list of companies and their stock prices to represent the entire stock market. Soon, the Journal was publishing the Dow Jones Industrial Average (DJIA) index along with hundreds of prices of company stocks, bonds, and futures, and the average prime rate for bank loans. For nearly a century, before the advent of real-time internet listings, the Journal was the paper of record for the financial markets. It evolved into a six-day-a-week periodical (that's been online since 1996). The Journal is a leading and well-respected source of financial and business journalism. The three founders operated out of offices in lower Manhattan. The fact that they chose to name their new publication The Wall Street Journal indicates that Wall Street already was something of an umbrella term for the world of finance and its denizens. Over the years, the paper helped fix this meaning in the public's mind. 1920: The Wall Street Bombing It was around noon on Sept. 16, 1920. A horse-drawn cart pulled up at 23 Wall Street right in front of the headquarters of J.P. Morgan & Co. A bustling corner of the neighborhood, it was especially crowded with those headed out for lunch. The cart suddenly exploded. It had been packed with dynamite and filled with sash weights that sailed through the air. At that time, it was the worst domestic bombing in U.S. history. Ultimately, 40 people were killed or died from their injuries, and another 300 were injured. The J.P. Morgan building's interior was gutted. Marks from the shrapnel still are visible on the exterior. No one claimed credit and the case was never solved. But because the explosion occurred in front of the Morgan building, known as a symbol of American capitalism, the bombing was ultimately decided to have been an act of terrorism performed by “Reds”—anarchists and communist sympathizers. A stack of anarchist flyers found in a mailbox a block away from Wall Street supported this theory. As a result, the authorities arrested hundreds of suspected Reds and deported those of foreign nationality. The bombing also encouraged the nativist sentiments that developed in the U.S. during the 1920s, which led to tighter restrictions on immigration. 1929: The Stock Market Crash The stock market crash of 1929 remains the worst financial crisis in U.S. history. In a pre-digital trading era, its epicenter was the NYSE. The crash began on October 24 when, after nearly a decade of unparalleled, uninterrupted growth, the stock market opened lower than the previous session. Equities' prices continued to drop throughout the day and, as the news spread, crowds began to gather outside the Exchange. They groaned as the market closed down again that day, cheered brokers during the next two days when the market seemed to rally, and then panicked on October 28 and October 29, when the declines resumed. Inside the stock exchange, the scene was sheer pandemonium as prices fell too fast for ticker tapes and blackboards to record them. Ultimately, the DJIA was to fall 89% from its September 1929 peak, wiping out both corporate and individual wealth. The crash ushered in the Great Depression. A quarter of America’s working population lost their jobs as the U.S. economy went into a tailspin. Economies throughout Europe followed suit. In the end, the stock market crash and the ensuing decade-long depression directly impacted nearly every segment of society and altered an entire generation's perspective of, and relationship to, the financial markets. 1987: The Black Monday Crash On what is known as Black Monday, Oct. 19, 1987, the S&P 500 Index and Dow Jones Industrial Average plunged more than 25% in value, leading exchanges around the world to drop in a similar frenzy. The week prior, indices had fallen an approximate 10%, priming the pump for the ensuing panic. Up until that time, a bull market had been in control since 1982. Thanks to the actions of chairman Alan Greenspan and the Federal Reserve, a seeming disaster on a global scale was averted. But the crash brought to light the potential for disruption that the then-new technique of computer programs instigating large-scale amounts of trading might cause (even though enormous amounts of trading were handled by humans that day, as well). The exact cause of this short-term crash has never been pinpointed. However, afterwards, exchanges implemented circuit breaker rules to prevent program trading from spurring runaway selling. It was hoped that this and other trading curbs would allow the markets time to stabilize and give regulators (and investors) the chance to take appropriate steps. 2007-2008: The Global Financial Crisis The global financial crisis of 2007-2008 resulted from years of deregulation, easy credit, predatory mortgage lending, the collapse of the subprime mortgage market, and the unregulated use of derivatives. It led to the Great Recession. The root cause of the crisis was unethical and exploitative behavior by banks, investment banks, and insurance firms. Borrowers with unsatisfactory credit were given mortgage loans without concern for their ability to pay them off and without their comprehension of the risks involved with the loans. As rates rose, those borrowers' mortgage rates reset higher and they couldn't afford to make monthly payments. What's more, as home prices fell dramatically, homeowners couldn't sell their houses for enough to cover their loans. This caused massive numbers of defaults. Risky derivative securities had been created with the subprime mortgage loans sold by banks. In addition, banks and other large investors used customer deposits to invest in these derivatives. With the defaults on home loans, the derivatives plunged in value. Many financial institutions had ties to the loans, derivatives, and credit default swaps, an insurance product that investors in the derivatives bought to protect against the risk of default. Thus, they found themselves in severe trouble after the housing market bubble burst. From housing industry crash to a U.S. financial industry on the brink of collapse to the near ruin of other financial systems across the globe. It was the worst financial crisis since the stock market crash of 1929. The U.S. government had no choice but to bail out financial institutions that had always been considered “too big to fail.” 2011: Occupy Wall Street Occupy Wall Street was a 2011 protest movement against social and economic inequality that was centered in Zuccotti Park, located in Manhattan's Financial District. It began on September 17, as hundreds of protesters camped out in the park. The police forcibly removed and arrested them two months later, on November 15. During the intervening period, there were marches and speeches, calling for more balanced income distribution, better-paying jobs, bank reform, and less corporate influence in politics. "We are the 99%," was the Occupy protestors' slogan. The Regulation of Wall Street After the 1929 Crash Regulatory measures were put into place to address the lack of government oversight that was considered to have led to the crisis that began in 1929. Among other things, the Securities Act of 1933 required financial institutions to provide investors with all significant information about securities being offered for sale. It also prohibited fraud in securities sales. The Securities Exchange Act of 1934 established the Securities and Exchange Commission (SEC) and gave it significant power over the securities industry. This included the authority to regulate brokerage firms and to require financial reporting by publicly traded companies. After the 2007-2008 Financial Crisis In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). It created new government agencies with financial system oversight. The idea behind the act was to address the risky behaviors of financial institutions and the dearth of regulatory oversight that led to the crisis. One area of grave concern was the predatory mortgage lending that had occurred. Another focus was the stability of financial institutions. The act made it possible to liquidate or restructure firms, if necessary, to prevent the use of taxpayer funds to keep them afloat. The act's Volker Rule restricted the investing practices of banks and regulated derivative securities. It also set up the SEC Office of Credit Ratings to ensure that credit agencies henceforth issued appropriate ratings for institutions, rather than the fabricated favorable ratings that were part of the lead-up to the crisis. During the Trump Administration The Economic Growth, Regulatory Relief, and Consumer Protection Act signed in 2018 by President Trump addressed criticisms of Dodd-Frank and rolled back some of its provisions. Among other things, it exempted banks with assets of less than $10 billion from the Volker Rule requirements, gave consumers the ability to freeze their credit files at no cost, and eased capital requirements for banks that didn't offer lending or traditional banking services. What Does Wall Street Speculation Mean? Speculation refers to the act of investing in securities that have a high risk-reward profile with the goal of obtaining substantial gains, despite the risk of substantial losses. An investor who speculates is likely focused on price fluctuations. They may believe that the market has inaccurately priced a security and they're trying to capitalize on that disparity. Wall Street speculators tend to be professional traders as opposed to retail investors who buy and hold stocks or other assets for the long term. What Time Does Wall Street Open and Close? The major U.S. stock markets, including the NYSE and the Nasdaq, are normally open 9:30 a.m. to 4 p.m. Eastern time, Monday through Friday. However, there are also extended-hour sessions earlier and later.Pre-market trading typically occurs between 8:00 a.m. and 9:30 a.m., though it can begin as early as 4 a.m. EST.After-hours trading starts at 4 p.m. and can run as late as 8 p.m. EST. What Is Black Wall Street? Black Wall Street was a nickname given to the Greenwood District of Tulsa, Oklahoma, one of the largest and most prosperous African-American business communities in the U.S. in the early 20th century. From May to June, 1921, its 35 blocks were destroyed during the Tulsa Race Riot. It was quickly rebuilt, with over 80 businesses reopening by 1922. More generally, Black Wall Street can also refer to any area of African-American high economic or financial activity. How Do You Get a Job on Wall Street? Getting a job on Wall Street often starts in college. Majors like finance, business administration and management, economics, accounting, and mathematics are natural fits for the investment industry. Firms will consider degrees in other areas too, like marketing or engineering. Try to get an internship at a Wall Street firm or similar institution for at least one summer. A Master of Business Administration (MBA) can also be attractive to financial institutions, as can tech industry experience. It's also important to target what type of Wall Street job you'd be best suited for. They break down into three main areas:Investment Team: research analysts, portfolio managers, and tradersOperations: client relationship, marketing, risk assessment, legal, back-office functionsSales: those involved in the creation, promotion, and sale of stocks, bonds, IPOs, foreign exchange, and other financial instruments The Bottom Line Wall Street is both an actual street and a symbol. It's home to a variety of financial and investment firms, along with institutions like the NYSE and the Federal Reserve Bank of New York. Globally, it's come to connote the U.S. financial and investment communities and industries, plus its interests, attitudes, and behavior.

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

Debt: What It Is, How It Works, Types, and Ways to Pay Back

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-debt"></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 Debt? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Debt is something, usually money, owed by one party to another. Debt is used by many individuals and companies to make large purchases that they could not afford under other circumstances. Unless a debt is forgiven by the lender, it must be paid back, typically with added interest. </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 mntl-sc-block-featuredlink mntl-block download-link" data-tracking-container="true" id="mntl-sc-block_5-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://drive.google.com/file/d/1eb85QWgoTBG6jG3Q_4HmEC1fvHrzz3rt/view?usp=sharing" id="mntl-sc-block-featuredlink__link_1-0" rel="noopener nocaes" target="_blank"><span class="link__wrapper">Spanish Translation of Debt</span></a></div> <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>Debt is something one party owes another, typically money.</li><li>Companies and individuals often take on debt to make large purchases they could not afford without it.</li><li>Debt can be secured or unsecured, with a fixed end date or revolving.</li><li>Consumers can borrow money through loans or lines of credit, including credit cards.</li><li>Corporations can also issue debt in the form of bonds to raise capital.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-debt-works"></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 Debt Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The most common forms of debt are loans, including mortgages, auto loans, and personal loans, as well as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-card-debt.asp">credit cards</a>. Under the terms of a most loans, the borrower receives a set amount of money, which they must repay in full by a certain date, which may be months or years in the future. The terms of the loan will also stipulate the amount of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> that the borrower is required to pay, expressed as a percentage of the loan amount. Interest compensates the lender for taking on the risk of the loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Credit cards and lines of credit operate a little differently. They provide what's known as revolving or <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>, with no fixed end date. The borrower is assigned a credit limit and they can use their credit card or credit line repeatedly as long as they don't exceed that limit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-subheading__text"> An Example of Debt </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> When students take out federal student loans to pay for college, they will receive a certain sum of money that they agree to pay back in the future with interest. Students now have the option of several different repayment plans. If they choose what's known as the standard repayment plan, they will be required to make fixed monthly payments for 10 years, at which point their debt will be completely paid off.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Each of those monthly payments will represent a portion of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a> they owe plus interest on their debt. The interest rate on federal student loans for undergraduates is currently 5.50%.<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-types-of-consumer-debt"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Types of Consumer Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Debt can come in a variety of forms, each with their own uses and requirements. Most types of debt fall into one or more of the following categories: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Secured Debt </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/secureddebt.asp">Secured debt</a> is also known as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateralization.asp">collateralized</a> debt. That means the borrower has pledged something of value to back up the debt. With a car loan, for example, the vehicle usually serves as collateral. If the borrower fails to repay the money they borrowed to buy the car, the lender can seize and sell it. Similarly, when someone takes out a mortgage to buy a home, the home itself typically serves as collateral. If the borrower fails to make payments, the lender can <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreclosure.asp">foreclose</a> and take the home. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> A company that wants to borrow money might pledge a piece of machinery, real estate, or cash in the bank as collateral. </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"> Unsecured Debt </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecureddebt.asp">Unsecured debt</a> does not require any collateral as security. Instead, the lender decides whether to grant a loan based on the borrower's creditworthiness, as indicated by their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a>, credit history, and other factors. </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"> Most credit cards and most personal loans are examples of unsecured debt. Because unsecured debt can be riskier to the lender it generally commands a higher interest rate than secured debt. </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"> Revolving Debt </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revolvingcredit.asp">Revolving debt</a> provides the borrower with a line of credit that they are able to borrow from as they wish. The borrower can take up to a certain amount, pay the debt back, and borrow up to that amount again. The most common form of revolving debt is credit card debt. </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 long as the borrower fulfills their obligations, typically by making monthly payments of at least a certain minimum amount, the line of credit remains available for as long as the account is active. Over time, with a favorable repayment history, the amount of revolving debt that's available to the borrower may increase. </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"> Mortgages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">mortgage</a> is a type of secured debt used to purchase real estate, such as a house or condo. Mortgages are usually paid back over long periods, such as 15 or 30 years. </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"> Mortgages are often the largest debt, apart from student loans, that consumers will ever take on, and they come in many different varieties. Two broad categories are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixed-rate_mortgage.asp">fixed-rate mortgages</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arm.asp">adjustable-rate mortgages</a>, or ARMs. In the case of ARMs, the interest rate can change periodically, usually based on the performance of a particular <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arm_index.asp">index</a>. </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-types-of-corporate-debt"></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"> Types of Corporate Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Companies that want to borrow money have some options that aren't available to individual consumers. In addition to loans from a bank or other lender, they are often able to issue bonds and commercial paper. </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/financial-edge/0312/the-basics-of-bonds.aspx">Bonds</a> are a debt instrument that allow a company to borrow funds from investors by promising to repay the money with interest. Both individuals and investment firms can purchase bonds, which typically carry a fixed interest, or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon-rate.asp">coupon</a>, rate. If a company needs to raise $1 million to fund the purchase of new equipment, for example, it could issue 1,000 bonds with a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/facevalue.asp">face value</a> of $1,000 each. </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"> Bonds commonly become due at a certain date in the future, called the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp">maturity date</a>, at which time the investor will receive the bond's full face value. In addition, the investor will have received regular interest payments throughout the intervening years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commercialpaper.asp">Commercial paper</a> is short-term corporate debt with a maturity of 270 days or less.<span class="ql-inline-citation" data-cite="6"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-debt"></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"> Advantages and Disadvantages of Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Properly used, debt can be advantageous to individuals and companies alike. Few people could buy a home without a mortgage, and many people couldn't afford a new car without an auto loan. Credit cards can be a great convenience and even a lifesaver in emergency situations. </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"> For companies, access to debt can make all the difference in their ability to expand and compete. </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"> But debt can be risky, for borrower and lender alike. With enough credit cards in their wallets, consumers can easily accumulate an unmanageable amount of debt, especially if they lose their jobs or face another serious setback. </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"> Companies that take on a large amount of debt may not be able to make their interest payments if sales drop, putting the business in danger of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankruptcy</a>. Even if it doesn't reach that point, having too much debt can impose a crippling burden on a company, requiring it to devote much of its income to debt repayment rather than more productive purposes. </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-how-to-pay-off-debt"></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 Pay Off Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> The best way to stay out of debt trouble is to have a plan for paying it off. That starts with not taking on too much debt in the first place. </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"> For example, consumers should pay attention to their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-utilization-rate.asp">credit utilization ratio</a>, also known as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debttolimit-ratio.asp">debt-to-limit ratio</a>. That's the amount of debt they currently owe as a percentage of the total amount of credit they have available to them. For example, if someone has two credit cards with a combined credit limit of $10,000, and they currently owe $5,000 on those cards, their credit utilization ratio is 50%. </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"> Lenders typically prefer that consumers keep their credit utilization ratios below 30%, and credit scores penalize individuals for exceeding that level.<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_66-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> The fastest way to pay off debt is to devote a greater portion of your income to monthly debt payments, ideally paying off credit card debts in full each month before any interest charges kick in. If you need to prioritize, experts generally recommend <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt-avalanche.asp">paying off your highest interest debts first</a> and working your way down from there. </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"> You can also <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtconsolidation.asp">consolidate</a> several debts into one, which may make sense if the new loan carries a lower interest rate. Similarly, you may be able to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/balance-transfer-4689719">transfer your credit card balances</a> to another card with a lower interest rate or, ideally, a 0% interest rate for a period of time.<br/> </p> <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-are-examples-of-debt"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Examples of Debt?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Debt is anything owed by one party to another. Examples of debt include amounts owed on credit cards, car loans, and mortgages.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_73-0"><span class="heading-toc" id="toc-what-is-the-legal-definition-of-debt"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Legal Definition of Debt?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In terms of consumer debt, 15 U.S. Code Section 1692a defines it as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment."<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_74-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_75-0"><span class="heading-toc" id="toc-what-is-the-difference-between-debt-and-a-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between Debt and a Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Debt and loan are often used synonymously, but there are slight differences. Debt is anything owed by one person to another. Debt can involve real property, money, services, or other consideration. In corporate finance, debt is more narrowly defined as money raised through the issuance of bonds.</p><p>A loan is a form of debt but, more specifically, an agreement in which one party lends money to another. The lender sets repayment terms, including how much is to be repaid and when, as well as the interest rate on the debt.</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-difference-between-debt-and-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between Debt and Credit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Debt is amount of money you owe, while credit is the amount of money you have available to you to borrow. For example, unless you have maxed out your credit cards, your debt is less than your credit.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> Debt is an important, if not essential, tool in today's economy. Businesses take on debt in order to fund needed projects, while consumers may use it to buy a home or finance a college education. At the same time, debt can be risky, especially for companies or individuals that accumulate too much of it. </p></div>

## What Is Debt? Debt is something, usually money, owed by one party to another. Debt is used by many individuals and companies to make large purchases that they could not afford under other circumstances. Unless a debt is forgiven by the lender, it must be paid back, typically with added interest. [Spanish Translation of Debt](https://drive.google.com/file/d/1eb85QWgoTBG6jG3Q_4HmEC1fvHrzz3rt/view?usp=sharing) ### Key Takeaways * Debt is something one party owes another, typically money. * Companies and individuals often take on debt to make large purchases they could not afford without it. * Debt can be secured or unsecured, with a fixed end date or revolving. * Consumers can borrow money through loans or lines of credit, including credit cards. * Corporations can also issue debt in the form of bonds to raise capital. ## How Debt Works The most common forms of debt are loans, including mortgages, auto loans, and personal loans, as well as [credit cards](https://www.investopedia.com/terms/c/credit-card-debt.asp). Under the terms of a most loans, the borrower receives a set amount of money, which they must repay in full by a certain date, which may be months or years in the future. The terms of the loan will also stipulate the amount of [interest](https://www.investopedia.com/terms/i/interest.asp) that the borrower is required to pay, expressed as a percentage of the loan amount. Interest compensates the lender for taking on the risk of the loan. Credit cards and lines of credit operate a little differently. They provide what's known as revolving or [open-end credit](https://www.investopedia.com/terms/o/openendcredit.asp), with no fixed end date. The borrower is assigned a credit limit and they can use their credit card or credit line repeatedly as long as they don't exceed that limit. ### An Example of Debt When students take out federal student loans to pay for college, they will receive a certain sum of money that they agree to pay back in the future with interest. Students now have the option of several different repayment plans. If they choose what's known as the standard repayment plan, they will be required to make fixed monthly payments for 10 years, at which point their debt will be completely paid off. Each of those monthly payments will represent a portion of the [principal](https://www.investopedia.com/terms/p/principal.asp) they owe plus interest on their debt. The interest rate on federal student loans for undergraduates is currently 5.50%. ## Types of Consumer Debt Debt can come in a variety of forms, each with their own uses and requirements. Most types of debt fall into one or more of the following categories: ### Secured Debt [Secured debt](https://www.investopedia.com/terms/s/secureddebt.asp) is also known as [collateralized](https://www.investopedia.com/terms/c/collateralization.asp) debt. That means the borrower has pledged something of value to back up the debt. With a car loan, for example, the vehicle usually serves as collateral. If the borrower fails to repay the money they borrowed to buy the car, the lender can seize and sell it. Similarly, when someone takes out a mortgage to buy a home, the home itself typically serves as collateral. If the borrower fails to make payments, the lender can [foreclose](https://www.investopedia.com/terms/f/foreclosure.asp) and take the home. A company that wants to borrow money might pledge a piece of machinery, real estate, or cash in the bank as collateral. ### Unsecured Debt [Unsecured debt](https://www.investopedia.com/terms/u/unsecureddebt.asp) does not require any collateral as security. Instead, the lender decides whether to grant a loan based on the borrower's creditworthiness, as indicated by their [credit score](https://www.investopedia.com/terms/c/credit_score.asp), credit history, and other factors. Most credit cards and most personal loans are examples of unsecured debt. Because unsecured debt can be riskier to the lender it generally commands a higher interest rate than secured debt. ### Revolving Debt [Revolving debt](https://www.investopedia.com/terms/r/revolvingcredit.asp) provides the borrower with a line of credit that they are able to borrow from as they wish. The borrower can take up to a certain amount, pay the debt back, and borrow up to that amount again. The most common form of revolving debt is credit card debt. As long as the borrower fulfills their obligations, typically by making monthly payments of at least a certain minimum amount, the line of credit remains available for as long as the account is active. Over time, with a favorable repayment history, the amount of revolving debt that's available to the borrower may increase. ### Mortgages A [mortgage](https://www.investopedia.com/terms/m/mortgage.asp) is a type of secured debt used to purchase real estate, such as a house or condo. Mortgages are usually paid back over long periods, such as 15 or 30 years. Mortgages are often the largest debt, apart from student loans, that consumers will ever take on, and they come in many different varieties. Two broad categories are [fixed-rate mortgages](https://www.investopedia.com/terms/f/fixed-rate_mortgage.asp) and [adjustable-rate mortgages](https://www.investopedia.com/terms/a/arm.asp), or ARMs. In the case of ARMs, the interest rate can change periodically, usually based on the performance of a particular [index](https://www.investopedia.com/terms/a/arm_index.asp). ## Types of Corporate Debt Companies that want to borrow money have some options that aren't available to individual consumers. In addition to loans from a bank or other lender, they are often able to issue bonds and commercial paper. [Bonds](https://www.investopedia.com/financial-edge/0312/the-basics-of-bonds.aspx) are a debt instrument that allow a company to borrow funds from investors by promising to repay the money with interest. Both individuals and investment firms can purchase bonds, which typically carry a fixed interest, or [coupon](https://www.investopedia.com/terms/c/coupon-rate.asp), rate. If a company needs to raise $1 million to fund the purchase of new equipment, for example, it could issue 1,000 bonds with a [face value](https://www.investopedia.com/terms/f/facevalue.asp) of $1,000 each. Bonds commonly become due at a certain date in the future, called the [maturity date](https://www.investopedia.com/terms/m/maturitydate.asp), at which time the investor will receive the bond's full face value. In addition, the investor will have received regular interest payments throughout the intervening years. [Commercial paper](https://www.investopedia.com/terms/c/commercialpaper.asp) is short-term corporate debt with a maturity of 270 days or less. ## Advantages and Disadvantages of Debt Properly used, debt can be advantageous to individuals and companies alike. Few people could buy a home without a mortgage, and many people couldn't afford a new car without an auto loan. Credit cards can be a great convenience and even a lifesaver in emergency situations. For companies, access to debt can make all the difference in their ability to expand and compete. But debt can be risky, for borrower and lender alike. With enough credit cards in their wallets, consumers can easily accumulate an unmanageable amount of debt, especially if they lose their jobs or face another serious setback. Companies that take on a large amount of debt may not be able to make their interest payments if sales drop, putting the business in danger of [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp). Even if it doesn't reach that point, having too much debt can impose a crippling burden on a company, requiring it to devote much of its income to debt repayment rather than more productive purposes. ## How to Pay Off Debt The best way to stay out of debt trouble is to have a plan for paying it off. That starts with not taking on too much debt in the first place. For example, consumers should pay attention to their [credit utilization ratio](https://www.investopedia.com/terms/c/credit-utilization-rate.asp), also known as a [debt-to-limit ratio](https://www.investopedia.com/terms/d/debttolimit-ratio.asp). That's the amount of debt they currently owe as a percentage of the total amount of credit they have available to them. For example, if someone has two credit cards with a combined credit limit of $10,000, and they currently owe $5,000 on those cards, their credit utilization ratio is 50%. Lenders typically prefer that consumers keep their credit utilization ratios below 30%, and credit scores penalize individuals for exceeding that level. The fastest way to pay off debt is to devote a greater portion of your income to monthly debt payments, ideally paying off credit card debts in full each month before any interest charges kick in. If you need to prioritize, experts generally recommend [paying off your highest interest debts first](https://www.investopedia.com/terms/d/debt-avalanche.asp) and working your way down from there. You can also [consolidate](https://www.investopedia.com/terms/d/debtconsolidation.asp) several debts into one, which may make sense if the new loan carries a lower interest rate. Similarly, you may be able to [transfer your credit card balances](https://www.investopedia.com/balance-transfer-4689719) to another card with a lower interest rate or, ideally, a 0% interest rate for a period of time. ## What Are Examples of Debt? Debt is anything owed by one party to another. Examples of debt include amounts owed on credit cards, car loans, and mortgages. ## What Is the Legal Definition of Debt? In terms of consumer debt, 15 U.S. Code Section 1692a defines it as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment." ## What Is the Difference Between Debt and a Loan? Debt and loan are often used synonymously, but there are slight differences. Debt is anything owed by one person to another. Debt can involve real property, money, services, or other consideration. In corporate finance, debt is more narrowly defined as money raised through the issuance of bonds. A loan is a form of debt but, more specifically, an agreement in which one party lends money to another. The lender sets repayment terms, including how much is to be repaid and when, as well as the interest rate on the debt. ## What Is the Difference Between Debt and Credit? Debt is amount of money you owe, while credit is the amount of money you have available to you to borrow. For example, unless you have maxed out your credit cards, your debt is less than your credit. ## The Bottom Line Debt is an important, if not essential, tool in today's economy. Businesses take on debt in order to fund needed projects, while consumers may use it to buy a home or finance a college education. At the same time, debt can be risky, especially for companies or individuals that accumulate too much of it.

What Is Debt? Debt is something, usually money, owed by one party to another. Debt is used by many individuals and companies to make large purchases that they could not afford under other circumstances. Unless a debt is forgiven by the lender, it must be paid back, typically with added interest. Spanish Translation of Debt Key Takeaways Debt is something one party owes another, typically money.Companies and individuals often take on debt to make large purchases they could not afford without it.Debt can be secured or unsecured, with a fixed end date or revolving.Consumers can borrow money through loans or lines of credit, including credit cards.Corporations can also issue debt in the form of bonds to raise capital. How Debt Works The most common forms of debt are loans, including mortgages, auto loans, and personal loans, as well as credit cards. Under the terms of a most loans, the borrower receives a set amount of money, which they must repay in full by a certain date, which may be months or years in the future. The terms of the loan will also stipulate the amount of interest that the borrower is required to pay, expressed as a percentage of the loan amount. Interest compensates the lender for taking on the risk of the loan. Credit cards and lines of credit operate a little differently. They provide what's known as revolving or open-end credit, with no fixed end date. The borrower is assigned a credit limit and they can use their credit card or credit line repeatedly as long as they don't exceed that limit. An Example of Debt When students take out federal student loans to pay for college, they will receive a certain sum of money that they agree to pay back in the future with interest. Students now have the option of several different repayment plans. If they choose what's known as the standard repayment plan, they will be required to make fixed monthly payments for 10 years, at which point their debt will be completely paid off. Each of those monthly payments will represent a portion of the principal they owe plus interest on their debt. The interest rate on federal student loans for undergraduates is currently 5.50%. Types of Consumer Debt Debt can come in a variety of forms, each with their own uses and requirements. Most types of debt fall into one or more of the following categories: Secured Debt Secured debt is also known as collateralized debt. That means the borrower has pledged something of value to back up the debt. With a car loan, for example, the vehicle usually serves as collateral. If the borrower fails to repay the money they borrowed to buy the car, the lender can seize and sell it. Similarly, when someone takes out a mortgage to buy a home, the home itself typically serves as collateral. If the borrower fails to make payments, the lender can foreclose and take the home. A company that wants to borrow money might pledge a piece of machinery, real estate, or cash in the bank as collateral. Unsecured Debt Unsecured debt does not require any collateral as security. Instead, the lender decides whether to grant a loan based on the borrower's creditworthiness, as indicated by their credit score, credit history, and other factors. Most credit cards and most personal loans are examples of unsecured debt. Because unsecured debt can be riskier to the lender it generally commands a higher interest rate than secured debt. Revolving Debt Revolving debt provides the borrower with a line of credit that they are able to borrow from as they wish. The borrower can take up to a certain amount, pay the debt back, and borrow up to that amount again. The most common form of revolving debt is credit card debt. As long as the borrower fulfills their obligations, typically by making monthly payments of at least a certain minimum amount, the line of credit remains available for as long as the account is active. Over time, with a favorable repayment history, the amount of revolving debt that's available to the borrower may increase. Mortgages A mortgage is a type of secured debt used to purchase real estate, such as a house or condo. Mortgages are usually paid back over long periods, such as 15 or 30 years. Mortgages are often the largest debt, apart from student loans, that consumers will ever take on, and they come in many different varieties. Two broad categories are fixed-rate mortgages and adjustable-rate mortgages, or ARMs. In the case of ARMs, the interest rate can change periodically, usually based on the performance of a particular index. Types of Corporate Debt Companies that want to borrow money have some options that aren't available to individual consumers. In addition to loans from a bank or other lender, they are often able to issue bonds and commercial paper. Bonds are a debt instrument that allow a company to borrow funds from investors by promising to repay the money with interest. Both individuals and investment firms can purchase bonds, which typically carry a fixed interest, or coupon, rate. If a company needs to raise $1 million to fund the purchase of new equipment, for example, it could issue 1,000 bonds with a face value of $1,000 each. Bonds commonly become due at a certain date in the future, called the maturity date, at which time the investor will receive the bond's full face value. In addition, the investor will have received regular interest payments throughout the intervening years. Commercial paper is short-term corporate debt with a maturity of 270 days or less. Advantages and Disadvantages of Debt Properly used, debt can be advantageous to individuals and companies alike. Few people could buy a home without a mortgage, and many people couldn't afford a new car without an auto loan. Credit cards can be a great convenience and even a lifesaver in emergency situations. For companies, access to debt can make all the difference in their ability to expand and compete. But debt can be risky, for borrower and lender alike. With enough credit cards in their wallets, consumers can easily accumulate an unmanageable amount of debt, especially if they lose their jobs or face another serious setback. Companies that take on a large amount of debt may not be able to make their interest payments if sales drop, putting the business in danger of bankruptcy. Even if it doesn't reach that point, having too much debt can impose a crippling burden on a company, requiring it to devote much of its income to debt repayment rather than more productive purposes. How to Pay Off Debt The best way to stay out of debt trouble is to have a plan for paying it off. That starts with not taking on too much debt in the first place. For example, consumers should pay attention to their credit utilization ratio, also known as a debt-to-limit ratio. That's the amount of debt they currently owe as a percentage of the total amount of credit they have available to them. For example, if someone has two credit cards with a combined credit limit of $10,000, and they currently owe $5,000 on those cards, their credit utilization ratio is 50%. Lenders typically prefer that consumers keep their credit utilization ratios below 30%, and credit scores penalize individuals for exceeding that level. The fastest way to pay off debt is to devote a greater portion of your income to monthly debt payments, ideally paying off credit card debts in full each month before any interest charges kick in. If you need to prioritize, experts generally recommend paying off your highest interest debts first and working your way down from there. You can also consolidate several debts into one, which may make sense if the new loan carries a lower interest rate. Similarly, you may be able to transfer your credit card balances to another card with a lower interest rate or, ideally, a 0% interest rate for a period of time. What Are Examples of Debt? Debt is anything owed by one party to another. Examples of debt include amounts owed on credit cards, car loans, and mortgages. What Is the Legal Definition of Debt? In terms of consumer debt, 15 U.S. Code Section 1692a defines it as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment." What Is the Difference Between Debt and a Loan? Debt and loan are often used synonymously, but there are slight differences. Debt is anything owed by one person to another. Debt can involve real property, money, services, or other consideration. In corporate finance, debt is more narrowly defined as money raised through the issuance of bonds.A loan is a form of debt but, more specifically, an agreement in which one party lends money to another. The lender sets repayment terms, including how much is to be repaid and when, as well as the interest rate on the debt. What Is the Difference Between Debt and Credit? Debt is amount of money you owe, while credit is the amount of money you have available to you to borrow. For example, unless you have maxed out your credit cards, your debt is less than your credit. The Bottom Line Debt is an important, if not essential, tool in today's economy. Businesses take on debt in order to fund needed projects, while consumers may use it to buy a home or finance a college education. At the same time, debt can be risky, especially for companies or individuals that accumulate too much of it.

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

Irrevocable Trusts Explained: How They Work, Types, and Uses

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-an-irrevocable-trust"></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 Irrevocable Trust? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The purpose of an irrevocable trust is to move the assets from the grantor's control and name to that of the beneficiary. This reduces the value of the grantor's estate in regard to estate taxes and protects the assets from creditors. </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"> Irrevocable trusts cannot be modified, amended, or terminated without the permission of the grantor's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beneficiary.asp">beneficiary</a> or by the order of a court. The exact rules can vary by state. The grantor, having effectively transferred all ownership of assets into the trust, legally removes all of their rights of ownership to the assets and the trust. </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"> Irrevocable trusts are generally set up to minimize estate taxes, access government benefits, and protect assets. This is in contrast to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revocabletrust.asp">revocable trust</a>, which allows the grantor to modify the trust, but loses certain benefits such as creditor protection. </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>Irrevocable trusts cannot be modified, amended, or terminated without permission from the grantor's beneficiaries or by court order. </li><li>The grantor transfers all ownership of assets into the trust and legally removes all of their ownership rights to the assets and the trust. </li><li>Living and testamentary trusts are two types of irrevocable trusts.</li><li>These trusts offer tax-shelter benefits that revocable trusts do not.</li><li>Under the SECURE Act, some beneficiaries may have to take a full distribution by the end of the tenth calendar year following the year of the grantor's death.</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="Irrevocable Trust" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/gM-5PGSwlBj_gtEN-D1diy55dW0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TermDefinitions_Irrevocabletrust-4dab1d345f7d4d938fdb38a44ec3ea61.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/gM-5PGSwlBj_gtEN-D1diy55dW0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TermDefinitions_Irrevocabletrust-4dab1d345f7d4d938fdb38a44ec3ea61.jpg" data-srcset="https://www.investopedia.com/thmb/91HCspjV5SKO__r15n88S2RJ1s4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/TermDefinitions_Irrevocabletrust-4dab1d345f7d4d938fdb38a44ec3ea61.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Irrevocable Trust" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/gM-5PGSwlBj_gtEN-D1diy55dW0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TermDefinitions_Irrevocabletrust-4dab1d345f7d4d938fdb38a44ec3ea61.jpg" srcset="https://www.investopedia.com/thmb/91HCspjV5SKO__r15n88S2RJ1s4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/TermDefinitions_Irrevocabletrust-4dab1d345f7d4d938fdb38a44ec3ea61.jpg 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Mira Norian</p></span> </figcaption></figure> <span class="heading-toc" id="toc-how-an-irrevocable-trust-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> How an Irrevocable Trust Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Irrevocable trusts are primarily set up for estate and tax considerations. That's because it removes all <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incidentsofownership.asp">incidents of ownership</a>, removing the trust's assets from the grantor's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxableestate.asp">taxable estate</a>. It also relieves the grantor of the tax liability on the income generated by the assets.<span class="ql-inline-citation" data-cite="10"></span> While the tax rules vary between jurisdictions, the grantor can't receive these benefits if they are the trustee. The assets held in the trust can include (but are not limited to) a business, investment assets, cash, and life insurance policies. </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"> Trusts have an important place in estate and legacy planning. But there is a downside: the cost. Setting up any type of trust can be complicated enough that an attorney is necessary. And this means that people may end up spending a few thousand dollars or more in attorney fees to set them up. </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"> Irrevocable trusts are especially useful to individuals who work in professions that may make them vulnerable to lawsuits, such as doctors or attorneys. Once an asset is transferred to such a trust, it is owned by the trust for the benefit of its beneficiaries. Therefore, it is safe from legal judgments and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditor.asp">creditors</a> since the trust will not be a party to any lawsuit. </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"> Today’s irrevocable trusts come with many provisions that were not commonly found in older versions of these instruments. These additions allow for much greater flexibility in trust management and distribution of assets. Provisions such as decanting, which allows a trust to be moved into a newer trust with more modern or advantageous provisions, can ensure that the trust <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a> will be managed effectively.<span class="ql-inline-citation" data-cite="11"></span> Other features that allow the trust to change its state of domicile can provide additional tax savings or other benefits. </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>Although they are commonly associated with the very wealthy, trusts are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/12/set-up-a-trust-fund.asp">an important piece of estate planning for anyone</a>—regardless of income status.</p></div></div></div> <span class="heading-toc" id="toc-types-of-irrevocable-trusts"></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 Irrevocable Trusts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Irrevocable trusts come in two forms: living trusts and testamentary trusts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/living-trust.asp">living trust</a>, which is also known as an<em> inter vivos</em> (Latin for "between the living") trust, is originated and funded by an individual during their lifetime. Some living trust examples are: </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>Irrevocable life insurance trust</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grat.asp">Grantor-retained annuity trust (GRAT)</a>, spousal lifetime access trust (SLAT), and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/qualified-personal-residence-trust.asp">qualified personal residence trust (QPRT)</a> (all types of lifetime gifting trusts)</li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/charitableremaindertrust.asp">Charitable remainder trust</a> and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/charitableleadtrust.asp">charitable lead trust</a> (both forms of charitable trusts)</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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/testamentarytrust.asp">Testamentary trusts</a>, on the other hand, are irrevocable by design. That's because they are created after the death of their creator and are funded from the deceased's estate according to the terms of their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/what-is-a-will.asp">will</a>.<span class="ql-inline-citation" data-cite="12"></span> The sole way to make changes to a testamentary trust (or cancel it) is to alter the will of the trust's creator before they die. </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-irrevocable-trust-uses"></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"> Irrevocable Trust Uses </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> An irrevocable trust has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grantor.asp">grantor</a>, a trustee, and a beneficiary or beneficiaries. Once the grantor places an asset in an irrevocable trust, it is a gift to the trust and the grantor cannot revoke it. The grantor can dictate the terms, rules, and uses of the trust assets with the consent of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustee.asp">trustee</a> and the beneficiary.<span class="ql-inline-citation" data-cite="13"></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_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Irrevocable trusts can have many applications in planning for the preservation and distribution of an estate, including: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <li>To take advantage of 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> exemption and remove taxable assets from the estate. Property transferred to an irrevocable living trust does not count toward the gross value of an estate. Such trusts can be especially helpful in reducing the tax liability of very large estates.</li> <li>To prevent beneficiaries from misusing assets, the grantor can set conditions for distribution.</li> <li>To gift assets to the estate while still retaining the income from the assets.</li> <li>To remove <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appreciation.asp">appreciable assets</a> from the estate while still providing beneficiaries with a step-up basis in valuing the assets for tax purposes.</li> <li>To gift a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principalresidence.asp">principal residence</a> to children under more favorable tax rules.</li> <li>To house a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lifeinsurance.asp">life insurance policy</a> that would effectively remove the death proceeds from the estate.</li> <li>To deplete one's property to ensure eligibility for government benefits, such as Social Security income and Medicaid (for nursing home care). Such trusts can also be used to help secure benefits and care for a special needs child by preventing disqualification of eligibility.<span class="ql-inline-citation" data-cite="15"></span><span class="ql-inline-citation" data-cite="14"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> An irrevocable trust is a more complex legal arrangement than a revocable trust. Because there could be current income tax and future estate tax implications when using an irrevocable trust, seek a tax or estate attorney's guidance. </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-irrevocable-trusts-vs-revocable-trusts"></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"> Irrevocable Trusts vs. Revocable Trusts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Revocable trusts may be amended or canceled at any time as long as their creator is mentally competent. They do offer the benefit of allowing their creator to cancel them and reclaim <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/property.asp">property</a> held by the trust at any time before death. However, such trusts do not offer the same <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/121015/real-estate-trust-or-llc-helping-landlords-choose.asp">protection against legal action</a> or estate taxes as irrevocable trusts.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> When using revocable trusts, government entities will consider that any property held in one still belongs to the trust's creator and therefore may be included in their estate for tax purposes or when qualifying for government benefits.<span class="ql-inline-citation" data-cite="16"></span><span class="ql-inline-citation" data-cite="14"></span> Once a revocable trust's creator dies, the trust becomes irrevocable.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-secure-act-rules"></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"> SECURE Act Rules </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secure-act-4688468">Setting Every Community Up for Retirement Enhancement (SECURE) Act</a> changes some of the tax-saving benefits of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seethrough-trust.asp">see-through trusts</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Previously, certain non-spousal beneficiaries of retirement accounts that had been placed in an irrevocable trust could take their distributions over their life expectancy. However, under the SECURE Act rules, some beneficiaries may find they must take a full distribution by the end of the tenth calendar year following the year of the grantor's death.<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_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Again, because the tax implications of this can be challenging and can change with the passage of new laws, it's important to consult a tax or estate attorney's guidance when using an irrevocable trust. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-how-does-an-irrevocable-trust-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does an Irrevocable Trust Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An irrevocable trust cannot be changed or modified without the beneficiary's permission. Essentially, an irrevocable trust removes certain assets from a grantor’s taxable estate, and these incidents of ownership are transferred to a trust. A grantor may choose this structure to relieve assets in the trust from tax liabilities, along with other financial benefits.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-what-is-the-difference-between-an-irrevocable-and-a-revocable-trust"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between an Irrevocable and a Revocable Trust?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>First, irrevocable trusts cannot be changed or altered. Among the primary reasons they are used is for tax reasons, where the assets in the trust are not taxed on income generated in the trust, along with taxes in the event of the benefactor's death.<span class="ql-inline-citation" data-cite="10"></span> Revocable trusts, on the other hand, can change. Beneficiaries may be removed and stipulations may be modified, along with other terms and management of the trust. However, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gift-causa-mortis.asp">when the owner of the trust dies</a>, the assets held in the trust realize state and federal estate taxes.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="7"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_56-0"><span class="heading-toc" id="toc-who-controls-an-irrevocable-trust"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Controls an Irrevocable Trust?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Under an irrevocable trust, legal ownership of the trust is held by a trustee. At the same time, the grantor gives up certain rights to the trust. Once an irrevocable trust is established, the grantor cannot control or change the assets once they have been transferred into the trust without the beneficiary's permission. These assets can include a business, property, financial assets, or a life insurance policy.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Irrevocable trusts can be very useful in estate planning to minimize estate taxes and protect assets. There are two different types: living trusts, created and funded by an individual during their lifetime, and testamentary trusts, which are created after the death of their creator according to the terms of their will. Irrevocable trusts are more complex arrangements than revocable trusts and may have current and future tax implications, so it's best to consult a tax or estate attorney if you're contemplating setting one up.<br/> </p></div>

## What Is an Irrevocable Trust? The purpose of an irrevocable trust is to move the assets from the grantor's control and name to that of the beneficiary. This reduces the value of the grantor's estate in regard to estate taxes and protects the assets from creditors. Irrevocable trusts cannot be modified, amended, or terminated without the permission of the grantor's [beneficiary](https://www.investopedia.com/terms/b/beneficiary.asp) or by the order of a court. The exact rules can vary by state. The grantor, having effectively transferred all ownership of assets into the trust, legally removes all of their rights of ownership to the assets and the trust. Irrevocable trusts are generally set up to minimize estate taxes, access government benefits, and protect assets. This is in contrast to a [revocable trust](https://www.investopedia.com/terms/r/revocabletrust.asp), which allows the grantor to modify the trust, but loses certain benefits such as creditor protection. ### Key Takeaways * Irrevocable trusts cannot be modified, amended, or terminated without permission from the grantor's beneficiaries or by court order. * The grantor transfers all ownership of assets into the trust and legally removes all of their ownership rights to the assets and the trust. * Living and testamentary trusts are two types of irrevocable trusts. * These trusts offer tax-shelter benefits that revocable trusts do not. * Under the SECURE Act, some beneficiaries may have to take a full distribution by the end of the tenth calendar year following the year of the grantor's death. ![Irrevocable Trust]() :max_bytes(150000):strip_icc()/TermDefinitions_Irrevocabletrust-4dab1d345f7d4d938fdb38a44ec3ea61.jpg) Investopedia / Mira Norian ## How an Irrevocable Trust Works Irrevocable trusts are primarily set up for estate and tax considerations. That's because it removes all [incidents of ownership](https://www.investopedia.com/terms/i/incidentsofownership.asp), removing the trust's assets from the grantor's [taxable estate](https://www.investopedia.com/terms/t/taxableestate.asp). It also relieves the grantor of the tax liability on the income generated by the assets. While the tax rules vary between jurisdictions, the grantor can't receive these benefits if they are the trustee. The assets held in the trust can include (but are not limited to) a business, investment assets, cash, and life insurance policies. Trusts have an important place in estate and legacy planning. But there is a downside: the cost. Setting up any type of trust can be complicated enough that an attorney is necessary. And this means that people may end up spending a few thousand dollars or more in attorney fees to set them up. Irrevocable trusts are especially useful to individuals who work in professions that may make them vulnerable to lawsuits, such as doctors or attorneys. Once an asset is transferred to such a trust, it is owned by the trust for the benefit of its beneficiaries. Therefore, it is safe from legal judgments and [creditors](https://www.investopedia.com/terms/c/creditor.asp) since the trust will not be a party to any lawsuit. Today’s irrevocable trusts come with many provisions that were not commonly found in older versions of these instruments. These additions allow for much greater flexibility in trust management and distribution of assets. Provisions such as decanting, which allows a trust to be moved into a newer trust with more modern or advantageous provisions, can ensure that the trust [assets](https://www.investopedia.com/terms/a/asset.asp) will be managed effectively. Other features that allow the trust to change its state of domicile can provide additional tax savings or other benefits. ### Although they are commonly associated with the very wealthy, trusts are [an important piece of estate planning for anyone](https://www.investopedia.com/articles/pf/12/set-up-a-trust-fund.asp)—regardless of income status. ## Types of Irrevocable Trusts Irrevocable trusts come in two forms: living trusts and testamentary trusts. A [living trust](https://www.investopedia.com/terms/l/living-trust.asp), which is also known as an *inter vivos* (Latin for "between the living") trust, is originated and funded by an individual during their lifetime. Some living trust examples are: * Irrevocable life insurance trust * [Grantor-retained annuity trust (GRAT)](https://www.investopedia.com/terms/g/grat.asp), spousal lifetime access trust (SLAT), and [qualified personal residence trust (QPRT)](https://www.investopedia.com/terms/q/qualified-personal-residence-trust.asp) (all types of lifetime gifting trusts) * [Charitable remainder trust](https://www.investopedia.com/terms/c/charitableremaindertrust.asp) and [charitable lead trust](https://www.investopedia.com/terms/c/charitableleadtrust.asp) (both forms of charitable trusts) [Testamentary trusts](https://www.investopedia.com/terms/t/testamentarytrust.asp), on the other hand, are irrevocable by design. That's because they are created after the death of their creator and are funded from the deceased's estate according to the terms of their [will](https://www.investopedia.com/articles/pf/08/what-is-a-will.asp). The sole way to make changes to a testamentary trust (or cancel it) is to alter the will of the trust's creator before they die. ## Irrevocable Trust Uses An irrevocable trust has a [grantor](https://www.investopedia.com/terms/g/grantor.asp), a trustee, and a beneficiary or beneficiaries. Once the grantor places an asset in an irrevocable trust, it is a gift to the trust and the grantor cannot revoke it. The grantor can dictate the terms, rules, and uses of the trust assets with the consent of the [trustee](https://www.investopedia.com/terms/t/trustee.asp) and the beneficiary. Irrevocable trusts can have many applications in planning for the preservation and distribution of an estate, including: * To take advantage of the [estate tax](https://www.investopedia.com/terms/e/estatetax.asp) exemption and remove taxable assets from the estate. Property transferred to an irrevocable living trust does not count toward the gross value of an estate. Such trusts can be especially helpful in reducing the tax liability of very large estates. * To prevent beneficiaries from misusing assets, the grantor can set conditions for distribution. * To gift assets to the estate while still retaining the income from the assets. * To remove [appreciable assets](https://www.investopedia.com/terms/a/appreciation.asp) from the estate while still providing beneficiaries with a step-up basis in valuing the assets for tax purposes. * To gift a [principal residence](https://www.investopedia.com/terms/p/principalresidence.asp) to children under more favorable tax rules. * To house a [life insurance policy](https://www.investopedia.com/terms/l/lifeinsurance.asp) that would effectively remove the death proceeds from the estate. * To deplete one's property to ensure eligibility for government benefits, such as Social Security income and Medicaid (for nursing home care). Such trusts can also be used to help secure benefits and care for a special needs child by preventing disqualification of eligibility. An irrevocable trust is a more complex legal arrangement than a revocable trust. Because there could be current income tax and future estate tax implications when using an irrevocable trust, seek a tax or estate attorney's guidance. ## Irrevocable Trusts vs. Revocable Trusts Revocable trusts may be amended or canceled at any time as long as their creator is mentally competent. They do offer the benefit of allowing their creator to cancel them and reclaim [property](https://www.investopedia.com/terms/p/property.asp) held by the trust at any time before death. However, such trusts do not offer the same [protection against legal action](https://www.investopedia.com/articles/investing/121015/real-estate-trust-or-llc-helping-landlords-choose.asp) or estate taxes as irrevocable trusts. When using revocable trusts, government entities will consider that any property held in one still belongs to the trust's creator and therefore may be included in their estate for tax purposes or when qualifying for government benefits. Once a revocable trust's creator dies, the trust becomes irrevocable. ## SECURE Act Rules The [Setting Every Community Up for Retirement Enhancement (SECURE) Act](https://www.investopedia.com/secure-act-4688468) changes some of the tax-saving benefits of [see-through trusts](https://www.investopedia.com/terms/s/seethrough-trust.asp). Previously, certain non-spousal beneficiaries of retirement accounts that had been placed in an irrevocable trust could take their distributions over their life expectancy. However, under the SECURE Act rules, some beneficiaries may find they must take a full distribution by the end of the tenth calendar year following the year of the grantor's death. Again, because the tax implications of this can be challenging and can change with the passage of new laws, it's important to consult a tax or estate attorney's guidance when using an irrevocable trust. ## How Does an Irrevocable Trust Work? An irrevocable trust cannot be changed or modified without the beneficiary's permission. Essentially, an irrevocable trust removes certain assets from a grantor’s taxable estate, and these incidents of ownership are transferred to a trust. A grantor may choose this structure to relieve assets in the trust from tax liabilities, along with other financial benefits. ## What Is the Difference Between an Irrevocable and a Revocable Trust? First, irrevocable trusts cannot be changed or altered. Among the primary reasons they are used is for tax reasons, where the assets in the trust are not taxed on income generated in the trust, along with taxes in the event of the benefactor's death. Revocable trusts, on the other hand, can change. Beneficiaries may be removed and stipulations may be modified, along with other terms and management of the trust. However, [when the owner of the trust dies](https://www.investopedia.com/terms/g/gift-causa-mortis.asp), the assets held in the trust realize state and federal estate taxes. ## Who Controls an Irrevocable Trust? Under an irrevocable trust, legal ownership of the trust is held by a trustee. At the same time, the grantor gives up certain rights to the trust. Once an irrevocable trust is established, the grantor cannot control or change the assets once they have been transferred into the trust without the beneficiary's permission. These assets can include a business, property, financial assets, or a life insurance policy. ## The Bottom Line Irrevocable trusts can be very useful in estate planning to minimize estate taxes and protect assets. There are two different types: living trusts, created and funded by an individual during their lifetime, and testamentary trusts, which are created after the death of their creator according to the terms of their will. Irrevocable trusts are more complex arrangements than revocable trusts and may have current and future tax implications, so it's best to consult a tax or estate attorney if you're contemplating setting one up.

What Is an Irrevocable Trust? The purpose of an irrevocable trust is to move the assets from the grantor's control and name to that of the beneficiary. This reduces the value of the grantor's estate in regard to estate taxes and protects the assets from creditors. Irrevocable trusts cannot be modified, amended, or terminated without the permission of the grantor's beneficiary or by the order of a court. The exact rules can vary by state. The grantor, having effectively transferred all ownership of assets into the trust, legally removes all of their rights of ownership to the assets and the trust. Irrevocable trusts are generally set up to minimize estate taxes, access government benefits, and protect assets. This is in contrast to a revocable trust, which allows the grantor to modify the trust, but loses certain benefits such as creditor protection. Key Takeaways Irrevocable trusts cannot be modified, amended, or terminated without permission from the grantor's beneficiaries or by court order. The grantor transfers all ownership of assets into the trust and legally removes all of their ownership rights to the assets and the trust. Living and testamentary trusts are two types of irrevocable trusts.These trusts offer tax-shelter benefits that revocable trusts do not.Under the SECURE Act, some beneficiaries may have to take a full distribution by the end of the tenth calendar year following the year of the grantor's death. Investopedia / Mira Norian How an Irrevocable Trust Works Irrevocable trusts are primarily set up for estate and tax considerations. That's because it removes all incidents of ownership, removing the trust's assets from the grantor's taxable estate. It also relieves the grantor of the tax liability on the income generated by the assets. While the tax rules vary between jurisdictions, the grantor can't receive these benefits if they are the trustee. The assets held in the trust can include (but are not limited to) a business, investment assets, cash, and life insurance policies. Trusts have an important place in estate and legacy planning. But there is a downside: the cost. Setting up any type of trust can be complicated enough that an attorney is necessary. And this means that people may end up spending a few thousand dollars or more in attorney fees to set them up. Irrevocable trusts are especially useful to individuals who work in professions that may make them vulnerable to lawsuits, such as doctors or attorneys. Once an asset is transferred to such a trust, it is owned by the trust for the benefit of its beneficiaries. Therefore, it is safe from legal judgments and creditors since the trust will not be a party to any lawsuit. Today’s irrevocable trusts come with many provisions that were not commonly found in older versions of these instruments. These additions allow for much greater flexibility in trust management and distribution of assets. Provisions such as decanting, which allows a trust to be moved into a newer trust with more modern or advantageous provisions, can ensure that the trust assets will be managed effectively. Other features that allow the trust to change its state of domicile can provide additional tax savings or other benefits. Although they are commonly associated with the very wealthy, trusts are an important piece of estate planning for anyone—regardless of income status. Types of Irrevocable Trusts Irrevocable trusts come in two forms: living trusts and testamentary trusts. A living trust, which is also known as an inter vivos (Latin for "between the living") trust, is originated and funded by an individual during their lifetime. Some living trust examples are: Irrevocable life insurance trust Grantor-retained annuity trust (GRAT), spousal lifetime access trust (SLAT), and qualified personal residence trust (QPRT) (all types of lifetime gifting trusts) Charitable remainder trust and charitable lead trust (both forms of charitable trusts) Testamentary trusts, on the other hand, are irrevocable by design. That's because they are created after the death of their creator and are funded from the deceased's estate according to the terms of their will. The sole way to make changes to a testamentary trust (or cancel it) is to alter the will of the trust's creator before they die. Irrevocable Trust Uses An irrevocable trust has a grantor, a trustee, and a beneficiary or beneficiaries. Once the grantor places an asset in an irrevocable trust, it is a gift to the trust and the grantor cannot revoke it. The grantor can dictate the terms, rules, and uses of the trust assets with the consent of the trustee and the beneficiary. Irrevocable trusts can have many applications in planning for the preservation and distribution of an estate, including: To take advantage of the estate tax exemption and remove taxable assets from the estate. Property transferred to an irrevocable living trust does not count toward the gross value of an estate. Such trusts can be especially helpful in reducing the tax liability of very large estates. To prevent beneficiaries from misusing assets, the grantor can set conditions for distribution. To gift assets to the estate while still retaining the income from the assets. To remove appreciable assets from the estate while still providing beneficiaries with a step-up basis in valuing the assets for tax purposes. To gift a principal residence to children under more favorable tax rules. To house a life insurance policy that would effectively remove the death proceeds from the estate. To deplete one's property to ensure eligibility for government benefits, such as Social Security income and Medicaid (for nursing home care). Such trusts can also be used to help secure benefits and care for a special needs child by preventing disqualification of eligibility. An irrevocable trust is a more complex legal arrangement than a revocable trust. Because there could be current income tax and future estate tax implications when using an irrevocable trust, seek a tax or estate attorney's guidance. Irrevocable Trusts vs. Revocable Trusts Revocable trusts may be amended or canceled at any time as long as their creator is mentally competent. They do offer the benefit of allowing their creator to cancel them and reclaim property held by the trust at any time before death. However, such trusts do not offer the same protection against legal action or estate taxes as irrevocable trusts. When using revocable trusts, government entities will consider that any property held in one still belongs to the trust's creator and therefore may be included in their estate for tax purposes or when qualifying for government benefits. Once a revocable trust's creator dies, the trust becomes irrevocable. SECURE Act Rules The Setting Every Community Up for Retirement Enhancement (SECURE) Act changes some of the tax-saving benefits of see-through trusts. Previously, certain non-spousal beneficiaries of retirement accounts that had been placed in an irrevocable trust could take their distributions over their life expectancy. However, under the SECURE Act rules, some beneficiaries may find they must take a full distribution by the end of the tenth calendar year following the year of the grantor's death. Again, because the tax implications of this can be challenging and can change with the passage of new laws, it's important to consult a tax or estate attorney's guidance when using an irrevocable trust. How Does an Irrevocable Trust Work? An irrevocable trust cannot be changed or modified without the beneficiary's permission. Essentially, an irrevocable trust removes certain assets from a grantor’s taxable estate, and these incidents of ownership are transferred to a trust. A grantor may choose this structure to relieve assets in the trust from tax liabilities, along with other financial benefits. What Is the Difference Between an Irrevocable and a Revocable Trust? First, irrevocable trusts cannot be changed or altered. Among the primary reasons they are used is for tax reasons, where the assets in the trust are not taxed on income generated in the trust, along with taxes in the event of the benefactor's death. Revocable trusts, on the other hand, can change. Beneficiaries may be removed and stipulations may be modified, along with other terms and management of the trust. However, when the owner of the trust dies, the assets held in the trust realize state and federal estate taxes. Who Controls an Irrevocable Trust? Under an irrevocable trust, legal ownership of the trust is held by a trustee. At the same time, the grantor gives up certain rights to the trust. Once an irrevocable trust is established, the grantor cannot control or change the assets once they have been transferred into the trust without the beneficiary's permission. These assets can include a business, property, financial assets, or a life insurance policy. The Bottom Line Irrevocable trusts can be very useful in estate planning to minimize estate taxes and protect assets. There are two different types: living trusts, created and funded by an individual during their lifetime, and testamentary trusts, which are created after the death of their creator according to the terms of their will. Irrevocable trusts are more complex arrangements than revocable trusts and may have current and future tax implications, so it's best to consult a tax or estate attorney if you're contemplating setting one up.

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

Subprime Loan: Definition, Uses, Downsides

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-subprime-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Subprime Loan? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A subprime loan is a type of loan offered at a rate above prime to individuals who do not qualify for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/primerate.asp" rel="noopener noreferrer">prime-rate</a> loans. Quite often subprime borrowers have been turned down by traditional lenders because of their low credit ratings or other factors that suggest they have a reasonable chance of defaulting on the debt repayment. </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>Subprime loans have interest rates that are higher than the prime rate.</li><li>Subprime borrowers generally have low credit ratings or are people who are perceived of as likely to default on a loan.</li><li>Subprime interest rates can vary among lenders, so it’s a good idea to shop around before choosing one.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-subprime-loan-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> How a Subprime Loan Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> When banks lend each other money in the middle of the night to cover their reserve requirements, they charge each other the prime rate, an interest rate based on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> established by the Federal Open Market Committee of the Federal Reserve Bank. As the Fed's website explains it, "Although the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate—the rate that banks charge each other for short-term loans—established by the Federal Open Market Committee."<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/primerate.asp">prime rate</a> has fluctuated from a low of 2% in the 1940s to a high of 21.5% in the 1980s.<span class="ql-inline-citation" data-cite="7"></span> At its March 15, 2020, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fomc.asp">Federal Open Market Committee (FOMC)</a> meeting, the Federal Reserve lowered the target range for the Fed Funds Rate to 0%–0.25%.<span class="ql-inline-citation" data-cite="6"></span> This action was the result of the Federal Reserve's efforts to combat the economic repercussions of the COVID-19 pandemic. Since the 1990s, the prime rate has typically been set to 300 basis points above the fed funds rate, translating to a prime rate of 8.5% based on the Fed's latest action, as of this writing.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">4.25%</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The U.S. prime rate in March, 2020<span class="ql-inline-citation" data-cite="7"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The prime rate plays a large role in determining the interest that banks charge their borrowers. Traditionally, corporations and other financial institutions receive rates equal or very close to the prime rate. Retail customers with good credit and strong credit histories who take out mortgages, small business loans, and car loans receive rates slightly higher than, but based on, the prime rate. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/heloc/bad-credit/" rel="noopener noreferrer">Applicants with low credit scores or other risk factors</a> are offered rates by lenders that are significantly higher than the prime rate—hence the term “subprime loan.” </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 specific amount of interest charged on a subprime loan is not set in stone. Different lenders may not evaluate a borrower’s risk in the same manner. This means a subprime loan borrower has an opportunity to save some money by shopping around. Still, by definition, all subprime loan rates are higher than the prime rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Also, borrowers might accidentally stumble into the subprime lending market by, for example, responding to an advertisement for mortgages when they actually qualify for a better rate than they are offered when they follow up on the ad. Borrowers should always check to see whether they qualify for a better rate than the one they are originally offered. </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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The higher interest rates on subprime loans can translate into tens of thousands of dollars in additional interest payments over the life of a loan.</p></div></div></div> <span class="heading-toc" id="toc-special-considerations-for-subprime-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Special Considerations for Subprime Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> On large-term loans, such as mortgages, the additional percentage points of interest often translate to tens of thousands of dollars worth of extra interest payments over the life of the loan. This can make paying off subprime loans difficult for low-income borrowers, as it did in the late 2000s. In 2007, high numbers of borrowers holding subprime mortgages began to default. Ultimately, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/07/subprime-blame.asp">this subprime meltdown was a significant contributor to the financial crisis</a> and the ensuing <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/great-recession.asp">Great Recession</a>.<span class="ql-inline-citation" data-cite="2"></span> As a result, a number of big banks got out of the subprime lending business. <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/how-big-banks-are-slipping-back-subprime-loans/">More recently, though, this has started to change</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"> While any financial institution could offer a loan with subprime rates, there are lenders that focus on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/secondchanceloans.asp">second chance loans</a> and subprime loans with high rates. Arguably, these lenders give borrowers who have trouble getting low interest rates the ability to access capital to invest, grow their businesses, or buy homes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subprime_mortgage.asp">Subprime lending is often considered to be predatory lending</a>, which is the practice of giving borrowers loans with unreasonable rates and locking them into debt or increasing their likelihood of defaulting. Nevertheless, getting a subprime loan may be a sensible option if the loan is meant to pay off debts with higher interest rates, such as credit cards, or if the borrower has no other means of obtaining credit. </p></div>

## What Is a Subprime Loan? A subprime loan is a type of loan offered at a rate above prime to individuals who do not qualify for [prime-rate](https://www.investopedia.com/terms/p/primerate.asp) loans. Quite often subprime borrowers have been turned down by traditional lenders because of their low credit ratings or other factors that suggest they have a reasonable chance of defaulting on the debt repayment. ### Key Takeaways * Subprime loans have interest rates that are higher than the prime rate. * Subprime borrowers generally have low credit ratings or are people who are perceived of as likely to default on a loan. * Subprime interest rates can vary among lenders, so it’s a good idea to shop around before choosing one. ## How a Subprime Loan Works When banks lend each other money in the middle of the night to cover their reserve requirements, they charge each other the prime rate, an interest rate based on the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) established by the Federal Open Market Committee of the Federal Reserve Bank. As the Fed's website explains it, "Although the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate—the rate that banks charge each other for short-term loans—established by the Federal Open Market Committee." The [prime rate](https://www.investopedia.com/terms/p/primerate.asp) has fluctuated from a low of 2% in the 1940s to a high of 21.5% in the 1980s. At its March 15, 2020, [Federal Open Market Committee (FOMC)](https://www.investopedia.com/terms/f/fomc.asp) meeting, the Federal Reserve lowered the target range for the Fed Funds Rate to 0%–0.25%. This action was the result of the Federal Reserve's efforts to combat the economic repercussions of the COVID-19 pandemic. Since the 1990s, the prime rate has typically been set to 300 basis points above the fed funds rate, translating to a prime rate of 8.5% based on the Fed's latest action, as of this writing. ### 4.25% The U.S. prime rate in March, 2020 The prime rate plays a large role in determining the interest that banks charge their borrowers. Traditionally, corporations and other financial institutions receive rates equal or very close to the prime rate. Retail customers with good credit and strong credit histories who take out mortgages, small business loans, and car loans receive rates slightly higher than, but based on, the prime rate. [Applicants with low credit scores or other risk factors](https://www.investopedia.com/mortgage/heloc/bad-credit/) are offered rates by lenders that are significantly higher than the prime rate—hence the term “subprime loan.” The specific amount of interest charged on a subprime loan is not set in stone. Different lenders may not evaluate a borrower’s risk in the same manner. This means a subprime loan borrower has an opportunity to save some money by shopping around. Still, by definition, all subprime loan rates are higher than the prime rate. Also, borrowers might accidentally stumble into the subprime lending market by, for example, responding to an advertisement for mortgages when they actually qualify for a better rate than they are offered when they follow up on the ad. Borrowers should always check to see whether they qualify for a better rate than the one they are originally offered. ### The higher interest rates on subprime loans can translate into tens of thousands of dollars in additional interest payments over the life of a loan. ## Special Considerations for Subprime Loans On large-term loans, such as mortgages, the additional percentage points of interest often translate to tens of thousands of dollars worth of extra interest payments over the life of the loan. This can make paying off subprime loans difficult for low-income borrowers, as it did in the late 2000s. In 2007, high numbers of borrowers holding subprime mortgages began to default. Ultimately, [this subprime meltdown was a significant contributor to the financial crisis](https://www.investopedia.com/articles/07/subprime-blame.asp) and the ensuing [Great Recession](https://www.investopedia.com/terms/g/great-recession.asp). As a result, a number of big banks got out of the subprime lending business. [More recently, though, this has started to change](https://www.investopedia.com/news/how-big-banks-are-slipping-back-subprime-loans/). While any financial institution could offer a loan with subprime rates, there are lenders that focus on [second chance loans](https://www.investopedia.com/terms/s/secondchanceloans.asp) and subprime loans with high rates. Arguably, these lenders give borrowers who have trouble getting low interest rates the ability to access capital to invest, grow their businesses, or buy homes. [Subprime lending is often considered to be predatory lending](https://www.investopedia.com/terms/s/subprime_mortgage.asp), which is the practice of giving borrowers loans with unreasonable rates and locking them into debt or increasing their likelihood of defaulting. Nevertheless, getting a subprime loan may be a sensible option if the loan is meant to pay off debts with higher interest rates, such as credit cards, or if the borrower has no other means of obtaining credit.

What Is a Subprime Loan? A subprime loan is a type of loan offered at a rate above prime to individuals who do not qualify for prime-rate loans. Quite often subprime borrowers have been turned down by traditional lenders because of their low credit ratings or other factors that suggest they have a reasonable chance of defaulting on the debt repayment. Key Takeaways Subprime loans have interest rates that are higher than the prime rate.Subprime borrowers generally have low credit ratings or are people who are perceived of as likely to default on a loan.Subprime interest rates can vary among lenders, so it’s a good idea to shop around before choosing one. How a Subprime Loan Works When banks lend each other money in the middle of the night to cover their reserve requirements, they charge each other the prime rate, an interest rate based on the federal funds rate established by the Federal Open Market Committee of the Federal Reserve Bank. As the Fed's website explains it, "Although the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate—the rate that banks charge each other for short-term loans—established by the Federal Open Market Committee." The prime rate has fluctuated from a low of 2% in the 1940s to a high of 21.5% in the 1980s. At its March 15, 2020, Federal Open Market Committee (FOMC) meeting, the Federal Reserve lowered the target range for the Fed Funds Rate to 0%–0.25%. This action was the result of the Federal Reserve's efforts to combat the economic repercussions of the COVID-19 pandemic. Since the 1990s, the prime rate has typically been set to 300 basis points above the fed funds rate, translating to a prime rate of 8.5% based on the Fed's latest action, as of this writing. 4.25% The U.S. prime rate in March, 2020 The prime rate plays a large role in determining the interest that banks charge their borrowers. Traditionally, corporations and other financial institutions receive rates equal or very close to the prime rate. Retail customers with good credit and strong credit histories who take out mortgages, small business loans, and car loans receive rates slightly higher than, but based on, the prime rate. Applicants with low credit scores or other risk factors are offered rates by lenders that are significantly higher than the prime rate—hence the term “subprime loan.” The specific amount of interest charged on a subprime loan is not set in stone. Different lenders may not evaluate a borrower’s risk in the same manner. This means a subprime loan borrower has an opportunity to save some money by shopping around. Still, by definition, all subprime loan rates are higher than the prime rate. Also, borrowers might accidentally stumble into the subprime lending market by, for example, responding to an advertisement for mortgages when they actually qualify for a better rate than they are offered when they follow up on the ad. Borrowers should always check to see whether they qualify for a better rate than the one they are originally offered. The higher interest rates on subprime loans can translate into tens of thousands of dollars in additional interest payments over the life of a loan. Special Considerations for Subprime Loans On large-term loans, such as mortgages, the additional percentage points of interest often translate to tens of thousands of dollars worth of extra interest payments over the life of the loan. This can make paying off subprime loans difficult for low-income borrowers, as it did in the late 2000s. In 2007, high numbers of borrowers holding subprime mortgages began to default. Ultimately, this subprime meltdown was a significant contributor to the financial crisis and the ensuing Great Recession. As a result, a number of big banks got out of the subprime lending business. More recently, though, this has started to change. While any financial institution could offer a loan with subprime rates, there are lenders that focus on second chance loans and subprime loans with high rates. Arguably, these lenders give borrowers who have trouble getting low interest rates the ability to access capital to invest, grow their businesses, or buy homes. Subprime lending is often considered to be predatory lending, which is the practice of giving borrowers loans with unreasonable rates and locking them into debt or increasing their likelihood of defaulting. Nevertheless, getting a subprime loan may be a sensible option if the loan is meant to pay off debts with higher interest rates, such as credit cards, or if the borrower has no other means of obtaining credit.

https://www.investopedia.com/ask/answers/032615/what-are-differences-between-weak-strong-and-semistrong-versions-efficient-market-hypothesis.asp

The Weak, Strong, and Semi-Strong Efficient Market Hypotheses

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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/e/efficientmarkethypothesis.asp">efficient market hypothesis</a> (EMH), as a whole, theorizes that the market is generally efficient, but the theory is offered in three different versions: weak, semi-strong, and strong. </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 basic efficient market hypothesis posits that the market cannot be beaten because it incorporates all important determining information into <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/061615/how-companys-share-price-determined.asp">current share prices</a>. Therefore, stocks trade at the fairest value, meaning that they can't be purchased <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/undervalued.asp">undervalued</a> or sold <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/overvalued.asp">overvalued</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 theory determines that the only opportunity <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/younginvestors/09/common-mistakes-young-investors.asp">investors</a> have to gain higher returns on their investments is through purely <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/speculativestock.asp">speculative investments</a> that pose a substantial risk. </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 efficient market hypothesis posits that the market cannot be beaten because it incorporates all important information into current share prices, so stocks trade at the fairest value.</li><li>Though the efficient market hypothesis theorizes the market is generally efficient, the theory is offered in three different versions: weak, semi-strong, and strong.</li><li>The weak form suggests today’s stock prices reflect all the data of past prices and that no form of technical analysis can aid investors.</li><li>The semi-strong form submits that because public information is part of a stock's current price, investors cannot utilize either technical or fundamental analysis, though information not available to the public can help investors.</li><li>The strong form version states that all information, public and not public, is completely accounted for in current stock prices, and no type of information can give an investor an advantage on the market.</li></ul></div></div></div> <span class="heading-toc" id="toc-weak-form"></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"> Weak Form </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The three versions of the efficient market hypothesis are varying degrees of the same basic theory. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/weakform.asp">weak form</a> suggests that today’s stock prices reflect all the data of past prices and that no form of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalanalysis.asp">technical analysis</a> can be effectively utilized to aid investors in making trading decisions. </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"> Advocates for the weak form efficiency theory believe that if the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundamentalanalysis.asp">fundamental analysis</a> is used, undervalued and overvalued stocks can be determined, and investors can research companies' <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> to increase their chances of making higher-than-market-average profits. </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-semi-strong-form"></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"> Semi-Strong Form </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/semistrongform.asp">semi-strong form</a> efficiency theory follows the belief that because all information that is public is used in the calculation of a stock's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currentprice.asp">current price</a>, investors cannot utilize either technical or fundamental analysis to gain higher returns in the market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Those who subscribe to this version of the theory believe that only information that is not readily available to the public can help investors boost their returns to a performance level above that of the general market. </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-strong-form"></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"> Strong Form </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/strongform.asp">strong form</a> version of the efficient market hypothesis states that all information—both the information available to the public and any information not publicly known—is completely accounted for in current stock prices, and there is no type of information that can give an investor an advantage on the market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Advocates for this degree of the theory suggest that investors cannot make returns on investments that exceed normal market returns, regardless of information retrieved or research conducted. </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-anomalies"></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"> Anomalies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> There are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/anomaly.asp">anomalies</a> that the efficient market theory cannot explain and that may even flatly contradict the theory. For example, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp">price/earnings</a> (P/E) ratio shows that firms trading at lower P/E multiples are often responsible for generating higher returns. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/neglectedfirm.asp">neglected firm effect</a> suggests that companies that are not covered extensively by market <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/analyst.asp">analysts</a> are sometimes priced incorrectly in relation to their true value and offer investors the opportunity to pick stocks with hidden potential. The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/januaryeffect.asp">January effect</a> shows historical evidence that stock prices—especially smaller cap stocks—tend to experience an upsurge in January. </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"> Though the efficient market hypothesis is an important pillar of modern financial theories and has a large backing, primarily in the academic community, it also has a large number of critics. The theory remains controversial, and investors continue attempting to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outperform.asp">outperform</a> market averages with their stock selections. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_31-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_32-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Due to the empirical presence of market anomalies and information asymmetries, many practitioners do not believe that the efficient markets hypothesis holds in reality, except, perhaps, in the weak form.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></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-the-importance-of-the-efficient-market-hypothesis"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Importance of the Efficient Market Hypothesis?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The efficient market hypothesis (EMH) is important because it implies that free markets are able to optimally allocate and distribute goods, services, capital, or labor (depending on what the market is for), without the need for central planning, oversight, or government authority. The EMH suggests that prices reflect all available information and represent an equilibrium between supply (sellers/producers) and demand (buyers/consumers). One important implication is that it is impossible to "beat the market" since there are no abnormal profit opportunities in an efficient market.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-what-are-the-3-forms-of-market-efficiency"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the 3 Forms of Market Efficiency?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The EMH has three forms. The strong form assumes that all past and current information in a market, whether public or private, is accounted for in prices. The semi-strong form assumes that only publicly-available information is incorporated into prices, but privately-held information may not be. The weak form concedes that markets tend to be efficient but anomalies can and do occur, which can be exploited (which tends to remove the anomaly, restoring efficiency via <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arbitrage.asp">arbitrage</a>). In reality, only the weak form is thought to exist in most markets, if any.</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-would-you-know-if-the-market-is-semi-strong-form-efficient"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Would You Know If the Market Is Semi-Strong Form Efficient?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>To test the semi-strong version of the EMH, one can see if a stock's price gaps up or down when previously private news is released. For instance, a proposed merger or dismal earnings announcement would be known by insiders but not the public. Therefore, this information is not correctly priced into the shares until it is made available. At that point, the stock may jump or slump, depending on the nature of the news, as investors and traders incorporate this new information.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The efficient market hypothesis exists in degrees, but each degree argues that financial markets are already too efficient for investors to consistently beat them. The idea is that the volume of activity within markets is so high that the value of resulting prices are as fair as can be. The weak form of the theory is the most lenient and concedes that there are circumstance when fundamental analysis can help investors find value. The strong form of the theory is the least lenient in this regard, while the semi-strong form of the theory holds a middle ground between the two. </p></div>

The [efficient market hypothesis](https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp) (EMH), as a whole, theorizes that the market is generally efficient, but the theory is offered in three different versions: weak, semi-strong, and strong. The basic efficient market hypothesis posits that the market cannot be beaten because it incorporates all important determining information into [current share prices](https://www.investopedia.com/ask/answers/061615/how-companys-share-price-determined.asp). Therefore, stocks trade at the fairest value, meaning that they can't be purchased [undervalued](https://www.investopedia.com/terms/u/undervalued.asp) or sold [overvalued](https://www.investopedia.com/terms/o/overvalued.asp). The theory determines that the only opportunity [investors](https://www.investopedia.com/articles/younginvestors/09/common-mistakes-young-investors.asp) have to gain higher returns on their investments is through purely [speculative investments](https://www.investopedia.com/terms/s/speculativestock.asp) that pose a substantial risk. ### Key Takeaways * The efficient market hypothesis posits that the market cannot be beaten because it incorporates all important information into current share prices, so stocks trade at the fairest value. * Though the efficient market hypothesis theorizes the market is generally efficient, the theory is offered in three different versions: weak, semi-strong, and strong. * The weak form suggests today’s stock prices reflect all the data of past prices and that no form of technical analysis can aid investors. * The semi-strong form submits that because public information is part of a stock's current price, investors cannot utilize either technical or fundamental analysis, though information not available to the public can help investors. * The strong form version states that all information, public and not public, is completely accounted for in current stock prices, and no type of information can give an investor an advantage on the market. ## Weak Form The three versions of the efficient market hypothesis are varying degrees of the same basic theory. The [weak form](https://www.investopedia.com/terms/w/weakform.asp) suggests that today’s stock prices reflect all the data of past prices and that no form of [technical analysis](https://www.investopedia.com/terms/t/technicalanalysis.asp) can be effectively utilized to aid investors in making trading decisions. Advocates for the weak form efficiency theory believe that if the [fundamental analysis](https://www.investopedia.com/terms/f/fundamentalanalysis.asp) is used, undervalued and overvalued stocks can be determined, and investors can research companies' [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp) to increase their chances of making higher-than-market-average profits. ## Semi-Strong Form The [semi-strong form](https://www.investopedia.com/terms/s/semistrongform.asp) efficiency theory follows the belief that because all information that is public is used in the calculation of a stock's [current price](https://www.investopedia.com/terms/c/currentprice.asp), investors cannot utilize either technical or fundamental analysis to gain higher returns in the market. Those who subscribe to this version of the theory believe that only information that is not readily available to the public can help investors boost their returns to a performance level above that of the general market. ## Strong Form The [strong form](https://www.investopedia.com/terms/s/strongform.asp) version of the efficient market hypothesis states that all information—both the information available to the public and any information not publicly known—is completely accounted for in current stock prices, and there is no type of information that can give an investor an advantage on the market. Advocates for this degree of the theory suggest that investors cannot make returns on investments that exceed normal market returns, regardless of information retrieved or research conducted. ## Anomalies There are [anomalies](https://www.investopedia.com/terms/a/anomaly.asp) that the efficient market theory cannot explain and that may even flatly contradict the theory. For example, the [price/earnings](https://www.investopedia.com/terms/p/price-earningsratio.asp) (P/E) ratio shows that firms trading at lower P/E multiples are often responsible for generating higher returns. The [neglected firm effect](https://www.investopedia.com/terms/n/neglectedfirm.asp) suggests that companies that are not covered extensively by market [analysts](https://www.investopedia.com/terms/a/analyst.asp) are sometimes priced incorrectly in relation to their true value and offer investors the opportunity to pick stocks with hidden potential. The [January effect](https://www.investopedia.com/terms/j/januaryeffect.asp) shows historical evidence that stock prices—especially smaller cap stocks—tend to experience an upsurge in January. Though the efficient market hypothesis is an important pillar of modern financial theories and has a large backing, primarily in the academic community, it also has a large number of critics. The theory remains controversial, and investors continue attempting to [outperform](https://www.investopedia.com/terms/o/outperform.asp) market averages with their stock selections. ### Due to the empirical presence of market anomalies and information asymmetries, many practitioners do not believe that the efficient markets hypothesis holds in reality, except, perhaps, in the weak form. ## What Is the Importance of the Efficient Market Hypothesis? The efficient market hypothesis (EMH) is important because it implies that free markets are able to optimally allocate and distribute goods, services, capital, or labor (depending on what the market is for), without the need for central planning, oversight, or government authority. The EMH suggests that prices reflect all available information and represent an equilibrium between supply (sellers/producers) and demand (buyers/consumers). One important implication is that it is impossible to "beat the market" since there are no abnormal profit opportunities in an efficient market. ## What Are the 3 Forms of Market Efficiency? The EMH has three forms. The strong form assumes that all past and current information in a market, whether public or private, is accounted for in prices. The semi-strong form assumes that only publicly-available information is incorporated into prices, but privately-held information may not be. The weak form concedes that markets tend to be efficient but anomalies can and do occur, which can be exploited (which tends to remove the anomaly, restoring efficiency via [arbitrage](https://www.investopedia.com/terms/a/arbitrage.asp)). In reality, only the weak form is thought to exist in most markets, if any. ## How Would You Know If the Market Is Semi-Strong Form Efficient? To test the semi-strong version of the EMH, one can see if a stock's price gaps up or down when previously private news is released. For instance, a proposed merger or dismal earnings announcement would be known by insiders but not the public. Therefore, this information is not correctly priced into the shares until it is made available. At that point, the stock may jump or slump, depending on the nature of the news, as investors and traders incorporate this new information. ## The Bottom Line The efficient market hypothesis exists in degrees, but each degree argues that financial markets are already too efficient for investors to consistently beat them. The idea is that the volume of activity within markets is so high that the value of resulting prices are as fair as can be. The weak form of the theory is the most lenient and concedes that there are circumstance when fundamental analysis can help investors find value. The strong form of the theory is the least lenient in this regard, while the semi-strong form of the theory holds a middle ground between the two.

The efficient market hypothesis (EMH), as a whole, theorizes that the market is generally efficient, but the theory is offered in three different versions: weak, semi-strong, and strong. The basic efficient market hypothesis posits that the market cannot be beaten because it incorporates all important determining information into current share prices. Therefore, stocks trade at the fairest value, meaning that they can't be purchased undervalued or sold overvalued. The theory determines that the only opportunity investors have to gain higher returns on their investments is through purely speculative investments that pose a substantial risk. Key Takeaways The efficient market hypothesis posits that the market cannot be beaten because it incorporates all important information into current share prices, so stocks trade at the fairest value.Though the efficient market hypothesis theorizes the market is generally efficient, the theory is offered in three different versions: weak, semi-strong, and strong.The weak form suggests today’s stock prices reflect all the data of past prices and that no form of technical analysis can aid investors.The semi-strong form submits that because public information is part of a stock's current price, investors cannot utilize either technical or fundamental analysis, though information not available to the public can help investors.The strong form version states that all information, public and not public, is completely accounted for in current stock prices, and no type of information can give an investor an advantage on the market. Weak Form The three versions of the efficient market hypothesis are varying degrees of the same basic theory. The weak form suggests that today’s stock prices reflect all the data of past prices and that no form of technical analysis can be effectively utilized to aid investors in making trading decisions. Advocates for the weak form efficiency theory believe that if the fundamental analysis is used, undervalued and overvalued stocks can be determined, and investors can research companies' financial statements to increase their chances of making higher-than-market-average profits. Semi-Strong Form The semi-strong form efficiency theory follows the belief that because all information that is public is used in the calculation of a stock's current price, investors cannot utilize either technical or fundamental analysis to gain higher returns in the market. Those who subscribe to this version of the theory believe that only information that is not readily available to the public can help investors boost their returns to a performance level above that of the general market. Strong Form The strong form version of the efficient market hypothesis states that all information—both the information available to the public and any information not publicly known—is completely accounted for in current stock prices, and there is no type of information that can give an investor an advantage on the market. Advocates for this degree of the theory suggest that investors cannot make returns on investments that exceed normal market returns, regardless of information retrieved or research conducted. Anomalies There are anomalies that the efficient market theory cannot explain and that may even flatly contradict the theory. For example, the price/earnings (P/E) ratio shows that firms trading at lower P/E multiples are often responsible for generating higher returns. The neglected firm effect suggests that companies that are not covered extensively by market analysts are sometimes priced incorrectly in relation to their true value and offer investors the opportunity to pick stocks with hidden potential. The January effect shows historical evidence that stock prices—especially smaller cap stocks—tend to experience an upsurge in January. Though the efficient market hypothesis is an important pillar of modern financial theories and has a large backing, primarily in the academic community, it also has a large number of critics. The theory remains controversial, and investors continue attempting to outperform market averages with their stock selections. Due to the empirical presence of market anomalies and information asymmetries, many practitioners do not believe that the efficient markets hypothesis holds in reality, except, perhaps, in the weak form. What Is the Importance of the Efficient Market Hypothesis? The efficient market hypothesis (EMH) is important because it implies that free markets are able to optimally allocate and distribute goods, services, capital, or labor (depending on what the market is for), without the need for central planning, oversight, or government authority. The EMH suggests that prices reflect all available information and represent an equilibrium between supply (sellers/producers) and demand (buyers/consumers). One important implication is that it is impossible to "beat the market" since there are no abnormal profit opportunities in an efficient market. What Are the 3 Forms of Market Efficiency? The EMH has three forms. The strong form assumes that all past and current information in a market, whether public or private, is accounted for in prices. The semi-strong form assumes that only publicly-available information is incorporated into prices, but privately-held information may not be. The weak form concedes that markets tend to be efficient but anomalies can and do occur, which can be exploited (which tends to remove the anomaly, restoring efficiency via arbitrage). In reality, only the weak form is thought to exist in most markets, if any. How Would You Know If the Market Is Semi-Strong Form Efficient? To test the semi-strong version of the EMH, one can see if a stock's price gaps up or down when previously private news is released. For instance, a proposed merger or dismal earnings announcement would be known by insiders but not the public. Therefore, this information is not correctly priced into the shares until it is made available. At that point, the stock may jump or slump, depending on the nature of the news, as investors and traders incorporate this new information. The Bottom Line The efficient market hypothesis exists in degrees, but each degree argues that financial markets are already too efficient for investors to consistently beat them. The idea is that the volume of activity within markets is so high that the value of resulting prices are as fair as can be. The weak form of the theory is the most lenient and concedes that there are circumstance when fundamental analysis can help investors find value. The strong form of the theory is the least lenient in this regard, while the semi-strong form of the theory holds a middle ground between the two.

https://www.investopedia.com/should-you-sell-in-may-and-go-away-8644577

Should You Sell in May and Go Away? Probably Not

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>"Sell in May and go away" is a popular adage that suggests investors get out of stock holdings in the summer months and invest again around Halloween.</li><li>While historical stock performance shows evidence of lower returns during summer months, advisors don't recommend investors pull out of the markets.</li><li>Expectations for a strong market performance the remainder of the year stem from the robust start to 2024 for equities, as well as evidence from prior Presidential election years.<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"> Major U.S. stock indexes have hit all-time highs this past week, and it's May, which begs the question: Is it time to lock in your profits and come back to the market later in the year? </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"> "Sell in May and go away" is a stock market adage suggesting investors bail on stocks in the summer months, when returns tend to moderate, and reinvest in the fall. While history shows stocks generally perform better in the colder months, financial advisors don't recommend embracing a sell-in-May strategy. </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"> "Attempting to time the market is a fool's errand," said Austin Marrs with TSA Wealth Management in Houston. "Investors should not let emotions, current events or even catchy slogans dictate their long-term investing." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-the-summer-slowdown-for-stocks"></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 Summer Slowdown For Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The idea behind "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp">sell in May and go away</a>" is that stocks tend to do little during the summer months, picking up again during the fall, as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/halloween-strategy.asp">Halloween effect</a> comes into play. And so, the idea goes, investors should sell off their equity positions in May and put money back into stocks come November.<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"> Historical data confirm that stocks tend to tread water from the beginning of May through the end of October. </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 the last 80 years, the S&amp;P 500 Index (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPX">SPX</a>) has increased an average of 6.9% in the six months starting Nov. 1, and it has posted positive returns in 61 of those 80 timeframes, according to Bespoke Investments. Conversely, in the same eight-decade stretch, the index has increased an average of just 1.7% in the six months starting May 1.<br/> </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"> Stocks also tend to rally stronger early and late in the year. The S&amp;P 500 has surged 20% or more in one of every eight years during the past 80 yearsincluding the six-month period through last month. Since 1945, it never has surged 20% between May 1 and October 31.<br> </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-the-pitfalls-of-staying-on-the-sidelines"></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 Pitfalls of Staying on the Sidelines </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Since it became an index of 500 stocks in 1957, 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> has on average returned 11.65%.<span class="ql-inline-citation" data-cite="6"></span> Had investors during that time period only invested from November through April, they would have missed out on a sizable chunk of additional returns. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> After all, even though returns tend to fall from May through October, they still remain positive, on average. The index has posted losses in just 27 of the last 80 May-October periods, Bespoke said. </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"> "Overall, the seasonal strategy wouldn’t have worked well, especially if you stayed out of all assets. Had you switched into Treasuries the trade would have slightly outperformed but with the buy and hold strategy having caught up in recent years," said analysts at Deustche Bank. </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 S&amp;P 500 has declined just twice from May through October during the past dozen years, according to Bespoke. </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 not about timing the market, it's about time IN the market," said Chris Mankoff, an advisor with LPL in Plano, Texas, "and missing periods of positive returns will limit your upside potential." </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"> Kevin Brady, an advisor with Wealthspire in New York City, concurs. </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"> "Positive and negative returns occur so closely to each other, especially in times of uncertainty, that you'll miss any rebound in trying to minimize loss," Brady said.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-what-about-this-year"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> What About This Year? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> An investor following the strategy this year could have missed out on sizable gains in the first few weeks of May. The S&amp;P has added 5.3% so far this month, as the index has scaled record highs on multiple days amid optimism about strong corporate earnings and hopes the Federal Reserve will cut interest rates this year. </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"> Lawrence Fuller, leader of the investing group at The Portfolio Architect, notes that some investors may want to choose to limit their divestment to May through August—when summer distractions peak and stock market trading typically ebbs. </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"> However, historical odds may favor remaining invested this year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> When the S&amp;P 500 posts a gain in the first four months of the year, as it has this year, it has finished the year higher all but four times in the past 40 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> More recently, the index in the 21st century also has exhibited 18% 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> from May through October than during the other six months of year. Moreover, the average differential in returns versus the rest of the year diminished from earlier time periods—meaning <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskadjustedreturn.asp">risk-adjusted returns</a> improved even more.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> "Do not sell in May and go away," said Bank of America analysts, especially in U.S. Presidential election years. </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"> "Presidential election years can see big summer rallies. June-August is the second strongest 3-month period of the year for all years going back to 1928 with the SPX up 65% of the time on an average return of 3.2%. In Presidential election years, the SPX is up 75% of the time from June-August on an average return of 7.3%," they said.<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_47-0"></div> <span class="heading-toc" id="toc-the-allure-of-easy-to-remember-rhyming-schemes"></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 Allure of Easy-to-Remember Rhyming Schemes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> So why do market adages seem so timeless? </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"> Patrick Huey, owner and principal advisor of Victory Independent Planning in Camas, Wash. and author of <em>History Lessons for the Modern Investor, </em>said that the "rhyme or reason fallacy" allows sayings such as "sell in May" to persist. </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"> Our brains, Huey said, tend to remember things that rhyme. And people tend to act on things they remember—even if they're not necessarily accurate. So his advice to investors remains relatively simple: </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"> "Please don't do anything in any month," he said, "based on seven syllables and a rhyme scheme."<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 * "Sell in May and go away" is a popular adage that suggests investors get out of stock holdings in the summer months and invest again around Halloween. * While historical stock performance shows evidence of lower returns during summer months, advisors don't recommend investors pull out of the markets. * Expectations for a strong market performance the remainder of the year stem from the robust start to 2024 for equities, as well as evidence from prior Presidential election years. Major U.S. stock indexes have hit all-time highs this past week, and it's May, which begs the question: Is it time to lock in your profits and come back to the market later in the year? "Sell in May and go away" is a stock market adage suggesting investors bail on stocks in the summer months, when returns tend to moderate, and reinvest in the fall. While history shows stocks generally perform better in the colder months, financial advisors don't recommend embracing a sell-in-May strategy. "Attempting to time the market is a fool's errand," said Austin Marrs with TSA Wealth Management in Houston. "Investors should not let emotions, current events or even catchy slogans dictate their long-term investing." ## The Summer Slowdown For Stocks The idea behind "[sell in May and go away](https://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp)" is that stocks tend to do little during the summer months, picking up again during the fall, as the [Halloween effect](https://www.investopedia.com/terms/h/halloween-strategy.asp) comes into play. And so, the idea goes, investors should sell off their equity positions in May and put money back into stocks come November. Historical data confirm that stocks tend to tread water from the beginning of May through the end of October. In the last 80 years, the S&P 500 Index ([SPX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPX)) has increased an average of 6.9% in the six months starting Nov. 1, and it has posted positive returns in 61 of those 80 timeframes, according to Bespoke Investments. Conversely, in the same eight-decade stretch, the index has increased an average of just 1.7% in the six months starting May 1. Stocks also tend to rally stronger early and late in the year. The S&P 500 has surged 20% or more in one of every eight years during the past 80 yearsincluding the six-month period through last month. Since 1945, it never has surged 20% between May 1 and October 31. ## The Pitfalls of Staying on the Sidelines Since it became an index of 500 stocks in 1957, the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) has on average returned 11.65%. Had investors during that time period only invested from November through April, they would have missed out on a sizable chunk of additional returns. After all, even though returns tend to fall from May through October, they still remain positive, on average. The index has posted losses in just 27 of the last 80 May-October periods, Bespoke said. "Overall, the seasonal strategy wouldn’t have worked well, especially if you stayed out of all assets. Had you switched into Treasuries the trade would have slightly outperformed but with the buy and hold strategy having caught up in recent years," said analysts at Deustche Bank. The S&P 500 has declined just twice from May through October during the past dozen years, according to Bespoke. "It's not about timing the market, it's about time IN the market," said Chris Mankoff, an advisor with LPL in Plano, Texas, "and missing periods of positive returns will limit your upside potential." Kevin Brady, an advisor with Wealthspire in New York City, concurs. "Positive and negative returns occur so closely to each other, especially in times of uncertainty, that you'll miss any rebound in trying to minimize loss," Brady said. ## What About This Year? An investor following the strategy this year could have missed out on sizable gains in the first few weeks of May. The S&P has added 5.3% so far this month, as the index has scaled record highs on multiple days amid optimism about strong corporate earnings and hopes the Federal Reserve will cut interest rates this year. Lawrence Fuller, leader of the investing group at The Portfolio Architect, notes that some investors may want to choose to limit their divestment to May through August—when summer distractions peak and stock market trading typically ebbs. However, historical odds may favor remaining invested this year. When the S&P 500 posts a gain in the first four months of the year, as it has this year, it has finished the year higher all but four times in the past 40 years. More recently, the index in the 21st century also has exhibited 18% less [volatility](https://www.investopedia.com/terms/v/volatility.asp) from May through October than during the other six months of year. Moreover, the average differential in returns versus the rest of the year diminished from earlier time periods—meaning [risk-adjusted returns](https://www.investopedia.com/terms/r/riskadjustedreturn.asp) improved even more. "Do not sell in May and go away," said Bank of America analysts, especially in U.S. Presidential election years. "Presidential election years can see big summer rallies. June-August is the second strongest 3-month period of the year for all years going back to 1928 with the SPX up 65% of the time on an average return of 3.2%. In Presidential election years, the SPX is up 75% of the time from June-August on an average return of 7.3%," they said. ## The Allure of Easy-to-Remember Rhyming Schemes So why do market adages seem so timeless? Patrick Huey, owner and principal advisor of Victory Independent Planning in Camas, Wash. and author of *History Lessons for the Modern Investor,* said that the "rhyme or reason fallacy" allows sayings such as "sell in May" to persist. Our brains, Huey said, tend to remember things that rhyme. And people tend to act on things they remember—even if they're not necessarily accurate. So his advice to investors remains relatively simple: "Please don't do anything in any month," he said, "based on seven syllables and a rhyme scheme." Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

KEY TAKEAWAYS "Sell in May and go away" is a popular adage that suggests investors get out of stock holdings in the summer months and invest again around Halloween.While historical stock performance shows evidence of lower returns during summer months, advisors don't recommend investors pull out of the markets.Expectations for a strong market performance the remainder of the year stem from the robust start to 2024 for equities, as well as evidence from prior Presidential election years. Major U.S. stock indexes have hit all-time highs this past week, and it's May, which begs the question: Is it time to lock in your profits and come back to the market later in the year? "Sell in May and go away" is a stock market adage suggesting investors bail on stocks in the summer months, when returns tend to moderate, and reinvest in the fall. While history shows stocks generally perform better in the colder months, financial advisors don't recommend embracing a sell-in-May strategy. "Attempting to time the market is a fool's errand," said Austin Marrs with TSA Wealth Management in Houston. "Investors should not let emotions, current events or even catchy slogans dictate their long-term investing." The Summer Slowdown For Stocks The idea behind "sell in May and go away" is that stocks tend to do little during the summer months, picking up again during the fall, as the Halloween effect comes into play. And so, the idea goes, investors should sell off their equity positions in May and put money back into stocks come November. Historical data confirm that stocks tend to tread water from the beginning of May through the end of October. In the last 80 years, the S&P 500 Index (SPX) has increased an average of 6.9% in the six months starting Nov. 1, and it has posted positive returns in 61 of those 80 timeframes, according to Bespoke Investments. Conversely, in the same eight-decade stretch, the index has increased an average of just 1.7% in the six months starting May 1. Stocks also tend to rally stronger early and late in the year. The S&P 500 has surged 20% or more in one of every eight years during the past 80 yearsincluding the six-month period through last month. Since 1945, it never has surged 20% between May 1 and October 31. The Pitfalls of Staying on the Sidelines Since it became an index of 500 stocks in 1957, the S&P 500 has on average returned 11.65%. Had investors during that time period only invested from November through April, they would have missed out on a sizable chunk of additional returns. After all, even though returns tend to fall from May through October, they still remain positive, on average. The index has posted losses in just 27 of the last 80 May-October periods, Bespoke said. "Overall, the seasonal strategy wouldn’t have worked well, especially if you stayed out of all assets. Had you switched into Treasuries the trade would have slightly outperformed but with the buy and hold strategy having caught up in recent years," said analysts at Deustche Bank. The S&P 500 has declined just twice from May through October during the past dozen years, according to Bespoke. "It's not about timing the market, it's about time IN the market," said Chris Mankoff, an advisor with LPL in Plano, Texas, "and missing periods of positive returns will limit your upside potential." Kevin Brady, an advisor with Wealthspire in New York City, concurs. "Positive and negative returns occur so closely to each other, especially in times of uncertainty, that you'll miss any rebound in trying to minimize loss," Brady said. What About This Year? An investor following the strategy this year could have missed out on sizable gains in the first few weeks of May. The S&P has added 5.3% so far this month, as the index has scaled record highs on multiple days amid optimism about strong corporate earnings and hopes the Federal Reserve will cut interest rates this year. Lawrence Fuller, leader of the investing group at The Portfolio Architect, notes that some investors may want to choose to limit their divestment to May through August—when summer distractions peak and stock market trading typically ebbs. However, historical odds may favor remaining invested this year. When the S&P 500 posts a gain in the first four months of the year, as it has this year, it has finished the year higher all but four times in the past 40 years. More recently, the index in the 21st century also has exhibited 18% less volatility from May through October than during the other six months of year. Moreover, the average differential in returns versus the rest of the year diminished from earlier time periods—meaning risk-adjusted returns improved even more. "Do not sell in May and go away," said Bank of America analysts, especially in U.S. Presidential election years. "Presidential election years can see big summer rallies. June-August is the second strongest 3-month period of the year for all years going back to 1928 with the SPX up 65% of the time on an average return of 3.2%. In Presidential election years, the SPX is up 75% of the time from June-August on an average return of 7.3%," they said. The Allure of Easy-to-Remember Rhyming Schemes So why do market adages seem so timeless? Patrick Huey, owner and principal advisor of Victory Independent Planning in Camas, Wash. and author of History Lessons for the Modern Investor, said that the "rhyme or reason fallacy" allows sayings such as "sell in May" to persist. Our brains, Huey said, tend to remember things that rhyme. And people tend to act on things they remember—even if they're not necessarily accurate. So his advice to investors remains relatively simple: "Please don't do anything in any month," he said, "based on seven syllables and a rhyme scheme." Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Community Investing: What It Is, How It Works, Examples

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-community-investing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Community Investing? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> In finance, the term “community investing” refers to institutions and investment products that are intended to support economically disadvantaged communities.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> In the United States, for example, there are several types of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cdfi.asp">Community Development Financial Institutions</a> (CDFIs), such as community development banks (CDBs) and community development credit unions (CDCUs). These institutions provide capital to underserved communities through <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loans-4689729">personal credit</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/real-estate-investing-guide/">real estate development financing</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/13/business-financing-primer.asp">business loans</a>, and other financial products. </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>Community investing is the practice of allocating capital to low-income communities.</li><li>It is typically achieved through various financial intermediaries and investment products.</li><li>The practice has become increasingly popular throughout the world, driven in part by coordinating institutions such as the United Nations Principles for Responsible Investment (PRI).</li></ul></div></div></div> <span class="heading-toc" id="toc-how-community-investing-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 Community Investing Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Today, community investing forms part of a larger trend in the investing community. Increasingly, both retail and institutional investors have come to view social and environmental impacts as a central consideration in their investment decision-making process.  </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"> Under the framework of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/un-principles-responsible-investment-pri.asp">United Nations-based Principles for Responsible Investment</a> (PRI), for example, over 3,500 participating financial institutions have pledged to steer their portfolios toward investments with 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</a> (ESG) factors.<span class="ql-inline-citation" data-cite="6"></span> As of March 2020, those institutions collectively represent <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">assets under management</a> (AUM) of over $103.4 trillion.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Yet while community investing is part of this global shift toward responsible investment practices, it also has a specific meaning in the United States. In 1994, the United States Congress passed the Riegle Community Development and Regulatory Improvement Act, giving rise to the Community Development Financial Institutions Fund (CDFI Fund).<span class="ql-inline-citation" data-cite="5"></span> Through this new institution, financial service companies could apply for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxcredit.asp">tax credits</a> and other incentives in order to help fund investments in economically disadvantaged communities throughout the United States. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-real-world-example-of-community-investing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Real World Example of Community Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> As of July 2020, there were nearly 1,030 financial institutions delivering various services to underserved communities that received certification from the CDFI Fund.<span class="ql-inline-citation" data-cite="2"></span> Of these, roughly half consisted of loan funds, which are institutions that pool capital from investors in order to lend money to entrepreneurs in relatively impoverished communities; while about 40% consisted of CDFI-affiliated <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-unions-vs-banks-4590218">banks and credit unions</a> that use depositors’ funds to support the communities in which they reside.<span class="ql-inline-citation" data-cite="3"></span> Altogether, there was roughly $141.2 billion invested in CDFI-certified institutions as 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_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Increasingly, there are also some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedincome.asp">fixed income</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.thestreet.com/opinion/7-common-alternative-investments-that-all-investors-should-know-13155301">alternative investment vehicles</a> that specialize in community investing. For example, the Community Investment Note—offered by the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/non-profitorganization.asp">non-profit</a> financial firm Calvert Impact Capital—is a fixed income security that allocates capital to various community investment initiatives. Since its inception in 1995, roughly $2 billion had been distributed through these notes as of December 2020.<span class="ql-inline-citation" data-cite="4"></span> </p></div>

## What Is Community Investing? In finance, the term “community investing” refers to institutions and investment products that are intended to support economically disadvantaged communities.  In the United States, for example, there are several types of [Community Development Financial Institutions](https://www.investopedia.com/terms/c/cdfi.asp) (CDFIs), such as community development banks (CDBs) and community development credit unions (CDCUs). These institutions provide capital to underserved communities through [personal credit](https://www.investopedia.com/personal-loans-4689729), [real estate development financing](https://www.investopedia.com/mortgage/real-estate-investing-guide/), [business loans](https://www.investopedia.com/articles/pf/13/business-financing-primer.asp), and other financial products. ### Key Takeaways * Community investing is the practice of allocating capital to low-income communities. * It is typically achieved through various financial intermediaries and investment products. * The practice has become increasingly popular throughout the world, driven in part by coordinating institutions such as the United Nations Principles for Responsible Investment (PRI). ## How Community Investing Works Today, community investing forms part of a larger trend in the investing community. Increasingly, both retail and institutional investors have come to view social and environmental impacts as a central consideration in their investment decision-making process.  Under the framework of the [United Nations-based Principles for Responsible Investment](https://www.investopedia.com/terms/u/un-principles-responsible-investment-pri.asp) (PRI), for example, over 3,500 participating financial institutions have pledged to steer their portfolios toward investments with high [environmental, social, and governance](https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp) (ESG) factors. As of March 2020, those institutions collectively represent [assets under management](https://www.investopedia.com/terms/a/aum.asp) (AUM) of over $103.4 trillion. Yet while community investing is part of this global shift toward responsible investment practices, it also has a specific meaning in the United States. In 1994, the United States Congress passed the Riegle Community Development and Regulatory Improvement Act, giving rise to the Community Development Financial Institutions Fund (CDFI Fund). Through this new institution, financial service companies could apply for [tax credits](https://www.investopedia.com/terms/t/taxcredit.asp) and other incentives in order to help fund investments in economically disadvantaged communities throughout the United States. ## Real World Example of Community Investing As of July 2020, there were nearly 1,030 financial institutions delivering various services to underserved communities that received certification from the CDFI Fund. Of these, roughly half consisted of loan funds, which are institutions that pool capital from investors in order to lend money to entrepreneurs in relatively impoverished communities; while about 40% consisted of CDFI-affiliated [banks and credit unions](https://www.investopedia.com/credit-unions-vs-banks-4590218) that use depositors’ funds to support the communities in which they reside. Altogether, there was roughly $141.2 billion invested in CDFI-certified institutions as of 2019. Increasingly, there are also some [fixed income](https://www.investopedia.com/terms/f/fixedincome.asp) and [alternative investment vehicles](https://www.thestreet.com/opinion/7-common-alternative-investments-that-all-investors-should-know-13155301) that specialize in community investing. For example, the Community Investment Note—offered by the [non-profit](https://www.investopedia.com/terms/n/non-profitorganization.asp) financial firm Calvert Impact Capital—is a fixed income security that allocates capital to various community investment initiatives. Since its inception in 1995, roughly $2 billion had been distributed through these notes as of December 2020.

What Is Community Investing? In finance, the term “community investing” refers to institutions and investment products that are intended to support economically disadvantaged communities.  In the United States, for example, there are several types of Community Development Financial Institutions (CDFIs), such as community development banks (CDBs) and community development credit unions (CDCUs). These institutions provide capital to underserved communities through personal credit, real estate development financing, business loans, and other financial products. Key Takeaways Community investing is the practice of allocating capital to low-income communities.It is typically achieved through various financial intermediaries and investment products.The practice has become increasingly popular throughout the world, driven in part by coordinating institutions such as the United Nations Principles for Responsible Investment (PRI). How Community Investing Works Today, community investing forms part of a larger trend in the investing community. Increasingly, both retail and institutional investors have come to view social and environmental impacts as a central consideration in their investment decision-making process.  Under the framework of the United Nations-based Principles for Responsible Investment (PRI), for example, over 3,500 participating financial institutions have pledged to steer their portfolios toward investments with high environmental, social, and governance (ESG) factors. As of March 2020, those institutions collectively represent assets under management (AUM) of over $103.4 trillion. Yet while community investing is part of this global shift toward responsible investment practices, it also has a specific meaning in the United States. In 1994, the United States Congress passed the Riegle Community Development and Regulatory Improvement Act, giving rise to the Community Development Financial Institutions Fund (CDFI Fund). Through this new institution, financial service companies could apply for tax credits and other incentives in order to help fund investments in economically disadvantaged communities throughout the United States. Real World Example of Community Investing As of July 2020, there were nearly 1,030 financial institutions delivering various services to underserved communities that received certification from the CDFI Fund. Of these, roughly half consisted of loan funds, which are institutions that pool capital from investors in order to lend money to entrepreneurs in relatively impoverished communities; while about 40% consisted of CDFI-affiliated banks and credit unions that use depositors’ funds to support the communities in which they reside. Altogether, there was roughly $141.2 billion invested in CDFI-certified institutions as of 2019. Increasingly, there are also some fixed income and alternative investment vehicles that specialize in community investing. For example, the Community Investment Note—offered by the non-profit financial firm Calvert Impact Capital—is a fixed income security that allocates capital to various community investment initiatives. Since its inception in 1995, roughly $2 billion had been distributed through these notes as of December 2020.

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

Personal Financial Statement: Definition, Uses, and Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-personal-financial-statement"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Personal Financial Statement? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The term personal financial statement refers to a document or spreadsheet that outlines an individual's financial position at a given point in time. The statement typically includes general information about the individual, such as name and address, along with a breakdown of total <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp" rel="noopener noreferrer">assets</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liability.asp" rel="noopener noreferrer">liabilities</a>. The statement can help individuals track their financial goals and wealth, and can be used when they apply for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit.asp" rel="noopener noreferrer">credit</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A personal financial statement lists all assets and liabilities of an individual or couple.</li><li>An individual's net worth is determined by subtracting their liabilities from their assets—a positive net worth shows more assets than liabilities.</li><li>Net worth can fluctuate over time as the values of assets and liabilities change.</li><li>Personal financial statements are helpful for tracking wealth and goals, as well as applying for credit.</li><li>Although they may be included in a personal financial statement, income and expenses are generally placed on a separate sheet called the income statement.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-personal-financial-statement"></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 Personal Financial Statement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-statements.asp">Financial statements</a> can be prepared for either companies or individuals. An individual’s financial statement is referred to as a personal financial statement and is a simpler version of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/031815/how-are-three-major-financial-statements-related-each-other.asp">corporate statements</a>. Both are tools that can show the financial health of the subject. </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 personal financial statement shows the individual's <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>—their assets minus their liabilities—which reflects what that person has in cash if they sell all their assets and pay off all their debts. If their liabilities are greater than their assets, the financial statement indicates a negative net worth. If the individual has more assets than liabilities, they end up with a positive net worth. </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"> Keeping an updated personal financial statement allows an individual to track how their financial health improves or deteriorates over time. These can be invaluable tools when consumers want to change their financial situation or apply for credit such as a loan or a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">mortgage</a>. Knowing where they stand financially allows consumers to avoid unnecessary inquiries on their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit reports</a> and the hassles of declined credit applications. </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 statement allows also <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit.asp">credit</a> officers to easily gain perspective into the applicant's financial situation in order to make an informed credit decision. In many cases, the individual or couple may be asked to provide a personal guarantee for part of the loan or they may be required to put up <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 secure the loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> A personal financial statement is broken down into assets and liabilities. Assets include the value of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">securities</a> and funds held in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/checking-vs-savings-accounts-4783514">checking or savings accounts</a>, retirement account balances, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tradingaccount.asp">trading accounts</a>, and real estate. Liabilities include any debts the individual may have including personal loans, credit cards, student loans, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/back-taxes.asp">unpaid taxes</a>, and mortgages.<span class="ql-inline-citation" data-cite="1"></span> Debts that are jointly owned are also included. Married couples may create joint personal financial statements by combining their assets and liabilities. </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"> Income and expenses are also included if the statement is used to attain credit or to show someone's overall financial position. This can be tracked on a separate sheet or an addendum, called the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incomestatement.asp">income statement</a>. This includes all forms of income and expenses—typically expressed in the form of monthly or yearly amounts. </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 following items are not included in a personal financial statement: </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>Business-related assets and liabilities:</strong> These are excluded unless the individual is directly and personally responsible. So if someone <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/personal-guarantee.asp">personally guarantees</a> a loan for their business—similar to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/co_sign.asp">cosigning</a>—the loan is included in their personal financial statement.</li> <li><strong>Rented items: </strong>Anything rented is not included in personal financial statements because the assets aren't owned. This changes if you own the property and rent it out to someone else. In this case, the value of the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/property.asp">property</a> is included in your asset list.</li> <li><strong>Personal property: </strong>Items such as furniture and household goods are typically not included as assets on a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/evaluate-personal-financial-statement.asp">personal balance sheet</a> because these items can’t easily be sold to pay off a loan. Personal property with significant value, such as jewelry and antiques, may be included if their value can be verified with an <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appraisal.asp">appraisal</a>.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Business liabilities are only included in a personal financial statement if an individual provides the creditor with a personal guarantee.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Keep in mind. Your credit report and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a> are big considerations when it comes to getting new credit and every <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lender</a> has different requirements for issuing credit. So, even if you have a positive net worth—more assets than liabilities—you may still be refused a loan or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit card</a> if you haven't paid your previous debts on time or have too many inquiries on file.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-example-of-a-personal-financial-statement"></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"> Example of a Personal Financial Statement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Let's assume that River wants to track their net worth as they move toward <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retirement.asp">retirement</a>. They have been paying off debts, saving money, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/06/invest1000.asp">investing</a>, and are getting closer to owning their home. Each year, they update the statement to see the progress they have made. </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"> Here's how they would break it down. They would list all their assets—$20,000 for a car, $200,000 for their house, $300,000 in investments, and $50,000 in cash and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashequivalents.asp">equivalents</a>. They also own some highly collectible stamps and art valued at $20,000 that they can list. Their total assets are, therefore, $590,000. As for liabilities, River owes $5,000 on the car and $50,000 for their house. Although River makes all of their purchases with a credit card, they pay the balance off each month and never carry a balance. River cosigned a loan for their daughter and $10,000 remains on that. Even though it is not River's loan, they are still responsible, so it is included in the statement. River's liabilities are $65,000. </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"> When we subtract their liabilities from their assets, River's net worth is $525,000. Although they use it mainly to track their financial health, River can use this information—and the statement as a whole—if they want to apply for any other credit. </p></div>

## What Is a Personal Financial Statement? The term personal financial statement refers to a document or spreadsheet that outlines an individual's financial position at a given point in time. The statement typically includes general information about the individual, such as name and address, along with a breakdown of total [assets](https://www.investopedia.com/terms/a/asset.asp) and [liabilities](https://www.investopedia.com/terms/l/liability.asp). The statement can help individuals track their financial goals and wealth, and can be used when they apply for [credit](https://www.investopedia.com/terms/c/credit.asp). ### Key Takeaways * A personal financial statement lists all assets and liabilities of an individual or couple. * An individual's net worth is determined by subtracting their liabilities from their assets—a positive net worth shows more assets than liabilities. * Net worth can fluctuate over time as the values of assets and liabilities change. * Personal financial statements are helpful for tracking wealth and goals, as well as applying for credit. * Although they may be included in a personal financial statement, income and expenses are generally placed on a separate sheet called the income statement. ## Understanding the Personal Financial Statement [Financial statements](https://www.investopedia.com/terms/f/financial-statements.asp) can be prepared for either companies or individuals. An individual’s financial statement is referred to as a personal financial statement and is a simpler version of [corporate statements](https://www.investopedia.com/ask/answers/031815/how-are-three-major-financial-statements-related-each-other.asp). Both are tools that can show the financial health of the subject. A personal financial statement shows the individual's [net worth](https://www.investopedia.com/terms/n/networth.asp)—their assets minus their liabilities—which reflects what that person has in cash if they sell all their assets and pay off all their debts. If their liabilities are greater than their assets, the financial statement indicates a negative net worth. If the individual has more assets than liabilities, they end up with a positive net worth. Keeping an updated personal financial statement allows an individual to track how their financial health improves or deteriorates over time. These can be invaluable tools when consumers want to change their financial situation or apply for credit such as a loan or a [mortgage](https://www.investopedia.com/terms/m/mortgage.asp). Knowing where they stand financially allows consumers to avoid unnecessary inquiries on their [credit reports](https://www.investopedia.com/terms/c/creditreport.asp) and the hassles of declined credit applications. The statement allows also [credit](https://www.investopedia.com/terms/c/credit.asp) officers to easily gain perspective into the applicant's financial situation in order to make an informed credit decision. In many cases, the individual or couple may be asked to provide a personal guarantee for part of the loan or they may be required to put up [collateral](https://www.investopedia.com/terms/c/collateral.asp) to secure the loan. ## Special Considerations A personal financial statement is broken down into assets and liabilities. Assets include the value of [securities](https://www.investopedia.com/terms/s/security.asp) and funds held in [checking or savings accounts](https://www.investopedia.com/checking-vs-savings-accounts-4783514), retirement account balances, [trading accounts](https://www.investopedia.com/terms/t/tradingaccount.asp), and real estate. Liabilities include any debts the individual may have including personal loans, credit cards, student loans, [unpaid taxes](https://www.investopedia.com/terms/b/back-taxes.asp), and mortgages. Debts that are jointly owned are also included. Married couples may create joint personal financial statements by combining their assets and liabilities. Income and expenses are also included if the statement is used to attain credit or to show someone's overall financial position. This can be tracked on a separate sheet or an addendum, called the [income statement](https://www.investopedia.com/terms/i/incomestatement.asp). This includes all forms of income and expenses—typically expressed in the form of monthly or yearly amounts. The following items are not included in a personal financial statement: * **Business-related assets and liabilities:** These are excluded unless the individual is directly and personally responsible. So if someone [personally guarantees](https://www.investopedia.com/terms/p/personal-guarantee.asp) a loan for their business—similar to [cosigning](https://www.investopedia.com/terms/c/co_sign.asp)—the loan is included in their personal financial statement. * **Rented items:** Anything rented is not included in personal financial statements because the assets aren't owned. This changes if you own the property and rent it out to someone else. In this case, the value of the [property](https://www.investopedia.com/terms/p/property.asp) is included in your asset list. * **Personal property:** Items such as furniture and household goods are typically not included as assets on a [personal balance sheet](https://www.investopedia.com/articles/pf/08/evaluate-personal-financial-statement.asp) because these items can’t easily be sold to pay off a loan. Personal property with significant value, such as jewelry and antiques, may be included if their value can be verified with an [appraisal](https://www.investopedia.com/terms/a/appraisal.asp). ### Business liabilities are only included in a personal financial statement if an individual provides the creditor with a personal guarantee. Keep in mind. Your credit report and [credit history](https://www.investopedia.com/terms/c/credit-history.asp) are big considerations when it comes to getting new credit and every [lender](https://www.investopedia.com/terms/l/lender.asp) has different requirements for issuing credit. So, even if you have a positive net worth—more assets than liabilities—you may still be refused a loan or [credit card](https://www.investopedia.com/terms/c/creditcard.asp) if you haven't paid your previous debts on time or have too many inquiries on file. ## Example of a Personal Financial Statement Let's assume that River wants to track their net worth as they move toward [retirement](https://www.investopedia.com/terms/r/retirement.asp). They have been paying off debts, saving money, [investing](https://www.investopedia.com/articles/basics/06/invest1000.asp), and are getting closer to owning their home. Each year, they update the statement to see the progress they have made. Here's how they would break it down. They would list all their assets—$20,000 for a car, $200,000 for their house, $300,000 in investments, and $50,000 in cash and [equivalents](https://www.investopedia.com/terms/c/cashequivalents.asp). They also own some highly collectible stamps and art valued at $20,000 that they can list. Their total assets are, therefore, $590,000. As for liabilities, River owes $5,000 on the car and $50,000 for their house. Although River makes all of their purchases with a credit card, they pay the balance off each month and never carry a balance. River cosigned a loan for their daughter and $10,000 remains on that. Even though it is not River's loan, they are still responsible, so it is included in the statement. River's liabilities are $65,000. When we subtract their liabilities from their assets, River's net worth is $525,000. Although they use it mainly to track their financial health, River can use this information—and the statement as a whole—if they want to apply for any other credit.

What Is a Personal Financial Statement? The term personal financial statement refers to a document or spreadsheet that outlines an individual's financial position at a given point in time. The statement typically includes general information about the individual, such as name and address, along with a breakdown of total assets and liabilities. The statement can help individuals track their financial goals and wealth, and can be used when they apply for credit. Key Takeaways A personal financial statement lists all assets and liabilities of an individual or couple.An individual's net worth is determined by subtracting their liabilities from their assets—a positive net worth shows more assets than liabilities.Net worth can fluctuate over time as the values of assets and liabilities change.Personal financial statements are helpful for tracking wealth and goals, as well as applying for credit.Although they may be included in a personal financial statement, income and expenses are generally placed on a separate sheet called the income statement. Understanding the Personal Financial Statement Financial statements can be prepared for either companies or individuals. An individual’s financial statement is referred to as a personal financial statement and is a simpler version of corporate statements. Both are tools that can show the financial health of the subject. A personal financial statement shows the individual's net worth—their assets minus their liabilities—which reflects what that person has in cash if they sell all their assets and pay off all their debts. If their liabilities are greater than their assets, the financial statement indicates a negative net worth. If the individual has more assets than liabilities, they end up with a positive net worth. Keeping an updated personal financial statement allows an individual to track how their financial health improves or deteriorates over time. These can be invaluable tools when consumers want to change their financial situation or apply for credit such as a loan or a mortgage. Knowing where they stand financially allows consumers to avoid unnecessary inquiries on their credit reports and the hassles of declined credit applications. The statement allows also credit officers to easily gain perspective into the applicant's financial situation in order to make an informed credit decision. In many cases, the individual or couple may be asked to provide a personal guarantee for part of the loan or they may be required to put up collateral to secure the loan. Special Considerations A personal financial statement is broken down into assets and liabilities. Assets include the value of securities and funds held in checking or savings accounts, retirement account balances, trading accounts, and real estate. Liabilities include any debts the individual may have including personal loans, credit cards, student loans, unpaid taxes, and mortgages. Debts that are jointly owned are also included. Married couples may create joint personal financial statements by combining their assets and liabilities. Income and expenses are also included if the statement is used to attain credit or to show someone's overall financial position. This can be tracked on a separate sheet or an addendum, called the income statement. This includes all forms of income and expenses—typically expressed in the form of monthly or yearly amounts. The following items are not included in a personal financial statement: Business-related assets and liabilities: These are excluded unless the individual is directly and personally responsible. So if someone personally guarantees a loan for their business—similar to cosigning—the loan is included in their personal financial statement. Rented items: Anything rented is not included in personal financial statements because the assets aren't owned. This changes if you own the property and rent it out to someone else. In this case, the value of the property is included in your asset list. Personal property: Items such as furniture and household goods are typically not included as assets on a personal balance sheet because these items can’t easily be sold to pay off a loan. Personal property with significant value, such as jewelry and antiques, may be included if their value can be verified with an appraisal. Business liabilities are only included in a personal financial statement if an individual provides the creditor with a personal guarantee. Keep in mind. Your credit report and credit history are big considerations when it comes to getting new credit and every lender has different requirements for issuing credit. So, even if you have a positive net worth—more assets than liabilities—you may still be refused a loan or credit card if you haven't paid your previous debts on time or have too many inquiries on file. Example of a Personal Financial Statement Let's assume that River wants to track their net worth as they move toward retirement. They have been paying off debts, saving money, investing, and are getting closer to owning their home. Each year, they update the statement to see the progress they have made. Here's how they would break it down. They would list all their assets—$20,000 for a car, $200,000 for their house, $300,000 in investments, and $50,000 in cash and equivalents. They also own some highly collectible stamps and art valued at $20,000 that they can list. Their total assets are, therefore, $590,000. As for liabilities, River owes $5,000 on the car and $50,000 for their house. Although River makes all of their purchases with a credit card, they pay the balance off each month and never carry a balance. River cosigned a loan for their daughter and $10,000 remains on that. Even though it is not River's loan, they are still responsible, so it is included in the statement. River's liabilities are $65,000. When we subtract their liabilities from their assets, River's net worth is $525,000. Although they use it mainly to track their financial health, River can use this information—and the statement as a whole—if they want to apply for any other credit.

https://www.investopedia.com/articles/investing/101215/how-trust-funds-can-safeguard-your-children.asp

How Trust Funds Can Safeguard Your Children

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trust-fund.asp" rel="noopener noreferrer">trust fund</a> is a legal entity established for the purpose of holding assets for the benefit of specific people, or even for an organization. Children are frequent <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beneficiary.asp" rel="noopener noreferrer">beneficiaries</a> of trust funds because trust funds can safeguard your assets and make sure they are used for your children's stewardship. How can a trust fund accomplish this? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Setting up a trust fund for your children is not necessarily just for wealthy families.</li><li>Children are often beneficiaries of trust funds by parents or grandparents who want to pass along their assets.</li><li>A will can be challenged by third-parties making it a risker option for dispensing your assets. A trust will ensure your money reaches the intended recipient.<span class="ql-inline-citation" data-cite="1"></span> </li><li>You can set the trust up to be dispersed when the child reaches a certain age, and you can set up a payment schedule or disperse it in one lump sum.</li></ul></div></div></div> <span class="heading-toc" id="toc-guaranteeing-funds-are-available-for-your-children"></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"> Guaranteeing Funds Are Available for Your Children </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> One of the primary benefits of having a trust is that the assets held within it are protected from legal claims. With the possible exception of retirement savings, any assets that you have are subject to seizure by courts and creditors. However, assets held in trust are legally protected. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> This will be important if, after setting up targeted savings or investment accounts for your children, you are forced to file bankruptcy, or you experience business failure. Still another possibility is facing a lawsuit as a result of civil liability. </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>Having your children’s assets in a trust will protect that money, and ensure it will be available when they need it.</p></div></div></div> <span class="heading-toc" id="toc-irrevocable-trust-vs-revocable-trust"></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"> Irrevocable Trust vs. Revocable Trust </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> There is an important distinction in regard to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/062215/what-difference-between-revocable-and-irrevocable-intervivos-trusts.asp" rel="noopener noreferrer">trusts</a>, however. In order for assets to be protected, they have to be held in an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/071615/what-difference-between-revocable-trust-and-living-trust.asp" rel="noopener noreferrer">irrevocable trust</a>. This is a type of trust in which the terms of the trust are created at the outset, and then become permanent. You cannot change them, even if you are funding the trust. This means that you will give up a certain amount of control over the trust. But if you want the assets completely protected, that will be absolutely necessary. </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 other type of trust is referred to as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revocabletrust.asp" rel="noopener noreferrer">revocable trust</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/living-trust.asp" rel="noopener noreferrer">living trust</a>. You can retain control over the trust, but for that reason, it will remain subject to seizure by creditors and other parties. </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-safeguarding-the-money"></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"> Safeguarding the Money </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> A trust gives you the ability to name specific beneficiaries, and once you do, your intentions cannot be changed after the fact. This means that you will be able to specifically name your children as beneficiaries of the trust—and even exclude certain children if that is your choice—and your wishes will be carried out. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> This is not true with regular investment accounts, and not necessarily true in the case of a will. Since a will disperses your general assets, any part of it can be challenged by unintended third parties. A trust will ensure that the money goes to the people listed in the trust, and no one else. </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-ensuring-funds-are-available-for-the-long-term"></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"> Ensuring Funds Are Available for the Long-Term </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> One of the biggest advantages of a trust is that you have control over how the money in the trust is dispersed to the beneficiaries. You can have it done in a lump sum, or you can have it parceled out over a period of several years. You can even set it up as an annuity to make payments to the beneficiary on any basis that you choose–monthly, quarterly, semiannually, or annually. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> You can think of this as a kind of “spendthrift provision.” It will make sure that the money isn’t dispersed from the trust and then blown quickly by the beneficiary. This can be especially important with young children, when there may have to be a guardian appointed, or even for young adult children, whom you may not entirely trust in handling the money early in life. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> You can set the trust up to be dispersed when the child reaches a certain age, say 25, 30, or even 50 years old. That will allow you to delay turning the assets of the trust over to your child until they reach an age at which you believe they will be financially responsible. You can even choose to make monthly or annual payments up to a certain age, upon which the remaining balance of the trust will be issued to the individual in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lumpsumdistribution.asp" rel="noopener noreferrer">lump sum</a>. </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-ensuring-the-money-is-used-for-intended-purpose"></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"> Ensuring the Money Is Used for Intended Purpose </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> A trust can be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/12/set-up-a-trust-fund.asp" rel="noopener noreferrer">set up</a> in such a way that you can even determine what the specific purposes of the distributions will be for. For example, you can include wording in the trust that requires that the money is disbursed only for major expenses, such as a college education, buying a home, starting a business, or even caring for a child or grandchild with a disability. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Though we may not like to think about it this way, if you have a child who has a substance abuse problem, a gambling disorder, or whose spending habits you do not condone, putting restrictions on the reasons for which it will be dispersed can be the perfect way to guarantee that the money will be available only for expenditures that will help to improve your child’s life. </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-making-sure-money-is-there-after-youre-gone"></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"> Making Sure Money Is There After You’re Gone </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> While it’s true that you can use a will to bequeath your estate to your children, a trust will accomplish that goal much more efficiently and completely.<span class="ql-inline-citation" data-cite="4"></span> This will be especially important in the event that you die before your children reach adulthood. A trust will guarantee that funds will be available during your children’s time of dependency, as well as when they are adults. In this way, you can create a method by which money will be available for their care, for their college educations, and to help them enter the adult world when they’re older<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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> You may not be there to provide the funds for all of those essential needs, but the trust fund will help take care of them in your absence. An independent trustee can be appointed who will handle the disbursement of assets upon your death based on the terms you spelled out in the trust. This will guarantee that those disbursements will happen in an orderly fashion, and at the intervals that you consider to be appropriate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> You can use conventional investment accounts, or even a will, to distribute assets to your children. But a trust fund will do it safely, and in exactly the way you want it to occur. </p></div>

A [trust fund](https://www.investopedia.com/terms/t/trust-fund.asp) is a legal entity established for the purpose of holding assets for the benefit of specific people, or even for an organization. Children are frequent [beneficiaries](https://www.investopedia.com/terms/b/beneficiary.asp) of trust funds because trust funds can safeguard your assets and make sure they are used for your children's stewardship. How can a trust fund accomplish this? ### Key Takeaways * Setting up a trust fund for your children is not necessarily just for wealthy families. * Children are often beneficiaries of trust funds by parents or grandparents who want to pass along their assets. * A will can be challenged by third-parties making it a risker option for dispensing your assets. A trust will ensure your money reaches the intended recipient. * You can set the trust up to be dispersed when the child reaches a certain age, and you can set up a payment schedule or disperse it in one lump sum. ## Guaranteeing Funds Are Available for Your Children One of the primary benefits of having a trust is that the assets held within it are protected from legal claims. With the possible exception of retirement savings, any assets that you have are subject to seizure by courts and creditors. However, assets held in trust are legally protected. This will be important if, after setting up targeted savings or investment accounts for your children, you are forced to file bankruptcy, or you experience business failure. Still another possibility is facing a lawsuit as a result of civil liability. ### Having your children’s assets in a trust will protect that money, and ensure it will be available when they need it. ## Irrevocable Trust vs. Revocable Trust There is an important distinction in regard to [trusts](https://www.investopedia.com/ask/answers/062215/what-difference-between-revocable-and-irrevocable-intervivos-trusts.asp), however. In order for assets to be protected, they have to be held in an [irrevocable trust](https://www.investopedia.com/ask/answers/071615/what-difference-between-revocable-trust-and-living-trust.asp). This is a type of trust in which the terms of the trust are created at the outset, and then become permanent. You cannot change them, even if you are funding the trust. This means that you will give up a certain amount of control over the trust. But if you want the assets completely protected, that will be absolutely necessary. The other type of trust is referred to as a [revocable trust](https://www.investopedia.com/terms/r/revocabletrust.asp) or [living trust](https://www.investopedia.com/terms/l/living-trust.asp). You can retain control over the trust, but for that reason, it will remain subject to seizure by creditors and other parties. ## Safeguarding the Money A trust gives you the ability to name specific beneficiaries, and once you do, your intentions cannot be changed after the fact. This means that you will be able to specifically name your children as beneficiaries of the trust—and even exclude certain children if that is your choice—and your wishes will be carried out. This is not true with regular investment accounts, and not necessarily true in the case of a will. Since a will disperses your general assets, any part of it can be challenged by unintended third parties. A trust will ensure that the money goes to the people listed in the trust, and no one else. ## Ensuring Funds Are Available for the Long-Term One of the biggest advantages of a trust is that you have control over how the money in the trust is dispersed to the beneficiaries. You can have it done in a lump sum, or you can have it parceled out over a period of several years. You can even set it up as an annuity to make payments to the beneficiary on any basis that you choose–monthly, quarterly, semiannually, or annually. You can think of this as a kind of “spendthrift provision.” It will make sure that the money isn’t dispersed from the trust and then blown quickly by the beneficiary. This can be especially important with young children, when there may have to be a guardian appointed, or even for young adult children, whom you may not entirely trust in handling the money early in life. You can set the trust up to be dispersed when the child reaches a certain age, say 25, 30, or even 50 years old. That will allow you to delay turning the assets of the trust over to your child until they reach an age at which you believe they will be financially responsible. You can even choose to make monthly or annual payments up to a certain age, upon which the remaining balance of the trust will be issued to the individual in a [lump sum](https://www.investopedia.com/terms/l/lumpsumdistribution.asp). ## Ensuring the Money Is Used for Intended Purpose A trust can be [set up](https://www.investopedia.com/articles/pf/12/set-up-a-trust-fund.asp) in such a way that you can even determine what the specific purposes of the distributions will be for. For example, you can include wording in the trust that requires that the money is disbursed only for major expenses, such as a college education, buying a home, starting a business, or even caring for a child or grandchild with a disability. Though we may not like to think about it this way, if you have a child who has a substance abuse problem, a gambling disorder, or whose spending habits you do not condone, putting restrictions on the reasons for which it will be dispersed can be the perfect way to guarantee that the money will be available only for expenditures that will help to improve your child’s life. ## Making Sure Money Is There After You’re Gone While it’s true that you can use a will to bequeath your estate to your children, a trust will accomplish that goal much more efficiently and completely. This will be especially important in the event that you die before your children reach adulthood. A trust will guarantee that funds will be available during your children’s time of dependency, as well as when they are adults. In this way, you can create a method by which money will be available for their care, for their college educations, and to help them enter the adult world when they’re older You may not be there to provide the funds for all of those essential needs, but the trust fund will help take care of them in your absence. An independent trustee can be appointed who will handle the disbursement of assets upon your death based on the terms you spelled out in the trust. This will guarantee that those disbursements will happen in an orderly fashion, and at the intervals that you consider to be appropriate. ## The Bottom Line You can use conventional investment accounts, or even a will, to distribute assets to your children. But a trust fund will do it safely, and in exactly the way you want it to occur.

A trust fund is a legal entity established for the purpose of holding assets for the benefit of specific people, or even for an organization. Children are frequent beneficiaries of trust funds because trust funds can safeguard your assets and make sure they are used for your children's stewardship. How can a trust fund accomplish this? Key Takeaways Setting up a trust fund for your children is not necessarily just for wealthy families.Children are often beneficiaries of trust funds by parents or grandparents who want to pass along their assets.A will can be challenged by third-parties making it a risker option for dispensing your assets. A trust will ensure your money reaches the intended recipient. You can set the trust up to be dispersed when the child reaches a certain age, and you can set up a payment schedule or disperse it in one lump sum. Guaranteeing Funds Are Available for Your Children One of the primary benefits of having a trust is that the assets held within it are protected from legal claims. With the possible exception of retirement savings, any assets that you have are subject to seizure by courts and creditors. However, assets held in trust are legally protected. This will be important if, after setting up targeted savings or investment accounts for your children, you are forced to file bankruptcy, or you experience business failure. Still another possibility is facing a lawsuit as a result of civil liability. Having your children’s assets in a trust will protect that money, and ensure it will be available when they need it. Irrevocable Trust vs. Revocable Trust There is an important distinction in regard to trusts, however. In order for assets to be protected, they have to be held in an irrevocable trust. This is a type of trust in which the terms of the trust are created at the outset, and then become permanent. You cannot change them, even if you are funding the trust. This means that you will give up a certain amount of control over the trust. But if you want the assets completely protected, that will be absolutely necessary. The other type of trust is referred to as a revocable trust or living trust. You can retain control over the trust, but for that reason, it will remain subject to seizure by creditors and other parties. Safeguarding the Money A trust gives you the ability to name specific beneficiaries, and once you do, your intentions cannot be changed after the fact. This means that you will be able to specifically name your children as beneficiaries of the trust—and even exclude certain children if that is your choice—and your wishes will be carried out. This is not true with regular investment accounts, and not necessarily true in the case of a will. Since a will disperses your general assets, any part of it can be challenged by unintended third parties. A trust will ensure that the money goes to the people listed in the trust, and no one else. Ensuring Funds Are Available for the Long-Term One of the biggest advantages of a trust is that you have control over how the money in the trust is dispersed to the beneficiaries. You can have it done in a lump sum, or you can have it parceled out over a period of several years. You can even set it up as an annuity to make payments to the beneficiary on any basis that you choose–monthly, quarterly, semiannually, or annually. You can think of this as a kind of “spendthrift provision.” It will make sure that the money isn’t dispersed from the trust and then blown quickly by the beneficiary. This can be especially important with young children, when there may have to be a guardian appointed, or even for young adult children, whom you may not entirely trust in handling the money early in life. You can set the trust up to be dispersed when the child reaches a certain age, say 25, 30, or even 50 years old. That will allow you to delay turning the assets of the trust over to your child until they reach an age at which you believe they will be financially responsible. You can even choose to make monthly or annual payments up to a certain age, upon which the remaining balance of the trust will be issued to the individual in a lump sum. Ensuring the Money Is Used for Intended Purpose A trust can be set up in such a way that you can even determine what the specific purposes of the distributions will be for. For example, you can include wording in the trust that requires that the money is disbursed only for major expenses, such as a college education, buying a home, starting a business, or even caring for a child or grandchild with a disability. Though we may not like to think about it this way, if you have a child who has a substance abuse problem, a gambling disorder, or whose spending habits you do not condone, putting restrictions on the reasons for which it will be dispersed can be the perfect way to guarantee that the money will be available only for expenditures that will help to improve your child’s life. Making Sure Money Is There After You’re Gone While it’s true that you can use a will to bequeath your estate to your children, a trust will accomplish that goal much more efficiently and completely. This will be especially important in the event that you die before your children reach adulthood. A trust will guarantee that funds will be available during your children’s time of dependency, as well as when they are adults. In this way, you can create a method by which money will be available for their care, for their college educations, and to help them enter the adult world when they’re older You may not be there to provide the funds for all of those essential needs, but the trust fund will help take care of them in your absence. An independent trustee can be appointed who will handle the disbursement of assets upon your death based on the terms you spelled out in the trust. This will guarantee that those disbursements will happen in an orderly fashion, and at the intervals that you consider to be appropriate. The Bottom Line You can use conventional investment accounts, or even a will, to distribute assets to your children. But a trust fund will do it safely, and in exactly the way you want it to occur.

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

Exempt Transaction: 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-an-exempt-transaction"></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 Exempt Transaction? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An exempt transaction is a type of securities transaction where a business does not need to file registrations with any regulatory bodies, provided the number of securities involved is relatively minor compared to the scope of the issuer's operations and that no new securities are being issued. </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>Exempt transactions do not require registrations to be filed.</li><li>Exempt securities are tax-exempt in most cases.</li><li>There are some regulations for exempt transactions such as anti-fraud provisions.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-exempt-transactions"></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 Exempt Transactions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> An exempt transaction is a securities exchange that would otherwise have to register with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission</a> (SEC) but does not because of the nature of the transaction in question. Exempt securities which have tax-exempt status are the instruments that the government backs, </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"> Exempt transactions cut down the amount of paperwork needed for relatively minor transactions. For example, it would be a big hassle to perform a filing with the SEC every time a non-executive employee wanted to sell back some of the company's common shares he or she purchased as part of an employee stock purchase plan. </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 private placement or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regulationd.asp">Reg D</a> offering is a type of exempt transaction in which the securities are not offered to the public, but are instead sold privately to an accredited investor. According to the SEC, an accredited investor can be: </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>An insurance company, bank, business development company, small business investment company, or registered investment company</li><li>An employee benefit plan administered by a bank registered investment company, or insurance company</li><li>A tax-exempt charitable organization</li><li>Someone with at least $1 million in net worth, excluding their primary residence</li><li>A person with more than $200,000 in income, or joint income of more than $300,000 with a spouse in both of the previous two years</li><li>An enterprise owned by accredited investors</li><li>A general partner, executive officer, or director of the company selling the securities</li><li>A trust with assets of at least $5 million, as long as it has not been formed just to buy the securities in question</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Even with exempt transactions, investors and companies are responsible for any misleading or false statements. Exempt transactions are also not exempt from the general provisions of regulating codes, including reporting requirements.</p></div></div></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Other types of exempt transactions include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regulationa.asp">Reg A</a> offerings, also known as small business company offerings, which permit the issuing company to raise no more than $5 million in 12 months. This allows smaller companies to access securities markets to raise capital. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/secrule147.asp">Rule 147 offerings</a>, or intrastate offerings, are also exempt. Transactions with financial institutions, fiduciaries, and insurance underwriters may be considered exempt. Unsolicited orders, which are those executed through a broker at the request of his or her client, are also considered exempt. </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"> Usually, an exempt transaction involves a small amount of money or an accredited or sophisticated investor, or does not, for some other reason, warrant a full registration. However, even exempt transactions are subject to some regulations, such as anti-fraud provisions. Investors and companies can still be held liable to misleading or false statements made on behalf of the company, the offering, or the securities, even if the transaction is exempt. </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"> And while exempt transactions may not need to be registered with state securities regulators, those state authorities retain the authority to investigate fraud, collect associated state fees, and enforce state filing requirements. Therefore, companies should take care to remain in compliance with state securities regulations, even if their offerings and transactions are exempt under federal filing regulations. </p></div>

## What Is an Exempt Transaction? An exempt transaction is a type of securities transaction where a business does not need to file registrations with any regulatory bodies, provided the number of securities involved is relatively minor compared to the scope of the issuer's operations and that no new securities are being issued. ### Key Takeaways * Exempt transactions do not require registrations to be filed. * Exempt securities are tax-exempt in most cases. * There are some regulations for exempt transactions such as anti-fraud provisions. ## Understanding Exempt Transactions An exempt transaction is a securities exchange that would otherwise have to register with the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) but does not because of the nature of the transaction in question. Exempt securities which have tax-exempt status are the instruments that the government backs, Exempt transactions cut down the amount of paperwork needed for relatively minor transactions. For example, it would be a big hassle to perform a filing with the SEC every time a non-executive employee wanted to sell back some of the company's common shares he or she purchased as part of an employee stock purchase plan. A private placement or [Reg D](https://www.investopedia.com/terms/r/regulationd.asp) offering is a type of exempt transaction in which the securities are not offered to the public, but are instead sold privately to an accredited investor. According to the SEC, an accredited investor can be: * An insurance company, bank, business development company, small business investment company, or registered investment company * An employee benefit plan administered by a bank registered investment company, or insurance company * A tax-exempt charitable organization * Someone with at least $1 million in net worth, excluding their primary residence * A person with more than $200,000 in income, or joint income of more than $300,000 with a spouse in both of the previous two years * An enterprise owned by accredited investors * A general partner, executive officer, or director of the company selling the securities * A trust with assets of at least $5 million, as long as it has not been formed just to buy the securities in question ### Even with exempt transactions, investors and companies are responsible for any misleading or false statements. Exempt transactions are also not exempt from the general provisions of regulating codes, including reporting requirements. ## Special Considerations Other types of exempt transactions include [Reg A](https://www.investopedia.com/terms/r/regulationa.asp) offerings, also known as small business company offerings, which permit the issuing company to raise no more than $5 million in 12 months. This allows smaller companies to access securities markets to raise capital. [Rule 147 offerings](https://www.investopedia.com/terms/r/secrule147.asp), or intrastate offerings, are also exempt. Transactions with financial institutions, fiduciaries, and insurance underwriters may be considered exempt. Unsolicited orders, which are those executed through a broker at the request of his or her client, are also considered exempt. Usually, an exempt transaction involves a small amount of money or an accredited or sophisticated investor, or does not, for some other reason, warrant a full registration. However, even exempt transactions are subject to some regulations, such as anti-fraud provisions. Investors and companies can still be held liable to misleading or false statements made on behalf of the company, the offering, or the securities, even if the transaction is exempt. And while exempt transactions may not need to be registered with state securities regulators, those state authorities retain the authority to investigate fraud, collect associated state fees, and enforce state filing requirements. Therefore, companies should take care to remain in compliance with state securities regulations, even if their offerings and transactions are exempt under federal filing regulations.

What Is an Exempt Transaction? An exempt transaction is a type of securities transaction where a business does not need to file registrations with any regulatory bodies, provided the number of securities involved is relatively minor compared to the scope of the issuer's operations and that no new securities are being issued. Key Takeaways Exempt transactions do not require registrations to be filed.Exempt securities are tax-exempt in most cases.There are some regulations for exempt transactions such as anti-fraud provisions. Understanding Exempt Transactions An exempt transaction is a securities exchange that would otherwise have to register with the Securities and Exchange Commission (SEC) but does not because of the nature of the transaction in question. Exempt securities which have tax-exempt status are the instruments that the government backs, Exempt transactions cut down the amount of paperwork needed for relatively minor transactions. For example, it would be a big hassle to perform a filing with the SEC every time a non-executive employee wanted to sell back some of the company's common shares he or she purchased as part of an employee stock purchase plan. A private placement or Reg D offering is a type of exempt transaction in which the securities are not offered to the public, but are instead sold privately to an accredited investor. According to the SEC, an accredited investor can be: An insurance company, bank, business development company, small business investment company, or registered investment companyAn employee benefit plan administered by a bank registered investment company, or insurance companyA tax-exempt charitable organizationSomeone with at least $1 million in net worth, excluding their primary residenceA person with more than $200,000 in income, or joint income of more than $300,000 with a spouse in both of the previous two yearsAn enterprise owned by accredited investorsA general partner, executive officer, or director of the company selling the securitiesA trust with assets of at least $5 million, as long as it has not been formed just to buy the securities in question Even with exempt transactions, investors and companies are responsible for any misleading or false statements. Exempt transactions are also not exempt from the general provisions of regulating codes, including reporting requirements. Special Considerations Other types of exempt transactions include Reg A offerings, also known as small business company offerings, which permit the issuing company to raise no more than $5 million in 12 months. This allows smaller companies to access securities markets to raise capital. Rule 147 offerings, or intrastate offerings, are also exempt. Transactions with financial institutions, fiduciaries, and insurance underwriters may be considered exempt. Unsolicited orders, which are those executed through a broker at the request of his or her client, are also considered exempt. Usually, an exempt transaction involves a small amount of money or an accredited or sophisticated investor, or does not, for some other reason, warrant a full registration. However, even exempt transactions are subject to some regulations, such as anti-fraud provisions. Investors and companies can still be held liable to misleading or false statements made on behalf of the company, the offering, or the securities, even if the transaction is exempt. And while exempt transactions may not need to be registered with state securities regulators, those state authorities retain the authority to investigate fraud, collect associated state fees, and enforce state filing requirements. Therefore, companies should take care to remain in compliance with state securities regulations, even if their offerings and transactions are exempt under federal filing regulations.

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

Annual Percentage Rate (APR): 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-annual-percentage-rate-apr"></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 Annual Percentage Rate (APR)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Annual percentage rate (APR) refers to the yearly interest generated by a sum that's charged to borrowers or paid to investors. APR is expressed as a percentage that represents the actual yearly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/costoffunds.asp">cost of funds</a> over the term of a loan or income earned on an investment. This includes any fees or additional costs associated with the transaction but does not take <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compounding.asp">compounding</a> into account. The APR provides consumers with a bottom-line number they can compare among lenders, credit cards, or investment products. </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 mntl-sc-block-featuredlink mntl-block download-link" data-tracking-container="true" id="mntl-sc-block_5-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://drive.google.com/file/d/1dcFCXsd9OXR_RBRKtEbGy4xfsp_WwoLX/view?usp=sharing" id="mntl-sc-block-featuredlink__link_1-0" rel="noopener nocaes" target="_blank"><span class="link__wrapper">Spanish Translation of Annual Percentage Rate (APR)</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>An annual percentage rate (APR) is the yearly rate charged for a loan or earned by an investment and includes interest and fees.</li><li>Financial institutions must disclose a financial instrument’s APR before any agreement is signed.</li><li>The APR provides a consistent basis for presenting annual interest rate information in order to protect consumers from misleading advertising.</li><li>An APR may not reflect the actual cost of borrowing because lenders have a fair amount of leeway in calculating it, excluding certain fees.</li><li>APR shouldn't be confused with APY (annual percentage yield), a calculation that takes the compounding of interest into account.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-the-annual-percentage-rate-apr-works"></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 the Annual Percentage Rate (APR) Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> An annual percentage rate is expressed as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rate</a>. It calculates what percentage of the principal you’ll pay each year by taking things such as monthly payments and fees into account. APR is also the annual rate of interest paid on investments without accounting for the compounding of interest within that year. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tila.asp">Truth in Lending Act (TILA)</a> of 1968 mandates that <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/average-credit-card-interest-rate-5076674">lenders disclose</a> the APR they charge to borrowers.<span class="ql-inline-citation" data-cite="6"></span> Credit card companies are allowed to advertise interest rates on a monthly basis, but they must clearly report the APR to customers before they sign an agreement.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <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>Credit card companies can increase your interest rate for new purchases, but not existing balances if they provide you with 45 days' notice first.<span class="ql-inline-citation" data-cite="8"></span></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"> How Is APR Calculated? </span> </h3> <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/y/yearly-rate-of-return-method.asp">APR is calculated</a> by multiplying the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/periodic_interest_rate.asp">periodic interest rate</a> by the number of periods in a year in which it was applied. It does not indicate how many times the rate is actually applied to the balance.</p> <p><span data-value="\begin{aligned} &amp;\text{APR} = \left ( \left ( \frac{ \frac{ \text{Fees} + \text{Interest} }{ \text {Principal} } }{ n } \right ) \times 365 \right ) \times 100 \\ &amp;\textbf{where:} \\ &amp;\text{Interest} = \text{Total interest paid over life of the loan} \\ &amp;\text{Principal} = \text{Loan amount} \\ &amp;n = \text{Number of days in loan term} \\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> APR </mtext> <mo> = </mo> <mrow> <mo> ( </mo> <mrow> <mo> ( </mo> <mfrac> <mfrac> <mrow> <mtext> Fees </mtext> <mo> + </mo> <mtext> Interest </mtext> </mrow> <mtext> Principal </mtext> </mfrac> <mi> n </mi> </mfrac> <mo> ) </mo> </mrow> <mo> × </mo> <mn> 365 </mn> <mo> ) </mo> </mrow> <mo> × </mo> <mn> 100 </mn> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> Interest </mtext> <mo> = </mo> <mtext> Total interest paid over life of the loan </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> Principal </mtext> <mo> = </mo> <mtext> Loan amount </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> n </mi> <mo> = </mo> <mtext> Number of days in loan term </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\text{APR} = \left ( \left ( \frac{ \frac{ \text{Fees} + \text{Interest} }{ \text {Principal} } }{ n } \right ) \times 365 \right ) \times 100 \\ &amp;\textbf{where:} \\ &amp;\text{Interest} = \text{Total interest paid over life of the loan} \\ &amp;\text{Principal} = \text{Loan amount} \\ &amp;n = \text{Number of days in loan term} \\ \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">APR</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="minner"><span class="mopen delimcenter"><span class="delimsizing size4">(</span></span><span class="minner"><span class="mopen delimcenter"><span class="delimsizing size4">(</span></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathnormal">n</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord text mtight"><span class="mord mtight">Principal</span></span></span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord text mtight"><span class="mord mtight">Fees</span></span><span class="mbin mtight">+</span><span class="mord text mtight"><span class="mord mtight">Interest</span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mclose delimcenter"><span class="delimsizing size4">)</span></span></span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">365</span><span class="mclose delimcenter"><span class="delimsizing size4">)</span></span></span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">100</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord textbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">Interest</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Total interest paid over life of the loan</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">Principal</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Loan amount</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathnormal">n</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Number of days in loan term</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-types-of-aprs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Types of APRs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Credit card APRs vary based on the type of charge. The credit card issuer may charge one APR for purchases, another for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashadvance.asp">cash advances</a>, and yet another for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balance-transfer-fee.asp">balance transfers</a> from another card. Issuers also charge high-rate penalty APRs to customers for late payments or violating other terms of the cardholder agreement. There’s also the introductory APR—a low or 0% rate—with which many credit card companies try to entice new customers to sign up for a card. </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"> Bank loans generally come with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/07/fixed-variable.asp">either fixed or variable APRs</a>. A fixed APR loan has an interest rate that is guaranteed not to change during the life of the loan or credit facility. A variable APR loan has an interest rate that may change at any time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The APR borrowers are charged also depends on their credit. The rates offered 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">those with excellent credit</a> are significantly lower than those offered to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349">those with bad credit</a>. </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-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_27-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">Compound Interest or Simple Interest?</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>APR does not take into account the compounding of interest within a specific year: It is based only on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/simple_interest.asp">simple interest</a>.</p></div></div></div> <span class="heading-toc" id="toc-apr-vs-annual-percentage-yield-apy"></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"> APR vs. Annual Percentage Yield (APY) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Though an APR only accounts for simple interest, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apy.asp">annual percentage yield (APY)</a> takes compound interest into account. As a result, a loan’s APY is higher than its APR. The higher the interest rate—and to a lesser extent, the smaller the compounding periods—the greater the difference between the APR and APY. </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"> Imagine that a loan’s APR is 12%, and the loan compounds once a month. If an individual borrows $10,000, their interest for one month is 1% of the balance, or $100. That effectively increases the balance to $10,100. The following month, 1% interest is assessed on this amount, and the interest payment is $101, slightly higher than it was the previous month. If you carry that balance for the year, your effective interest rate becomes 12.68%. APY includes these small shifts in interest expenses due to compounding, while APR does not. </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's another way to look at it. Say you compare an investment that pays 5% per year with one that pays 5% monthly. For the first month, the APY equals 5%, the same as the APR. But for the second, the APY is 5.12%, reflecting the monthly compounding. </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"> Given that an APR and a different APY can represent the same interest rate on a loan or financial product, lenders often <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/apr-apy-bank-hopes-cant-tell-difference/">emphasize the more flattering number</a>, which is why the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/truth-in-savings-act.asp">Truth in Savings Act of 1991</a> mandated both APR and APY disclosure in ads, contracts, and agreements.<span class="ql-inline-citation" data-cite="4"></span> A bank will advertise a savings account’s APY in a large font and its corresponding APR in a smaller one, given that the former features a superficially larger number. The opposite happens when the bank acts as the lender and tries to convince its borrowers that it’s charging a low rate. A great resource for comparing both APR and APY rates on a mortgage is a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">mortgage calculator</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> APR vs. APY Example </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Let's say that XYZ Corp. offers a credit card that levies interest of 0.06273% daily. Multiply that by 365, and that’s 22.9% per year, which is the advertised APR. Now, if you were to charge a different $1,000 item to your card every day and waited until the day after the due date (when the issuer started levying interest) to start making payments, you’d owe $1,000.6273 for each thing you bought. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> To calculate the APY or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/effectiveinterest.asp">effective annual interest rate</a>—the more typical term for credit cards—add one (that represents the principal) and take that number to the power of the number of compounding periods in a year; subtract one from the result to get the percentage: </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"> <span data-value="\begin{aligned} &amp;\text{APY} = (1 + \text{Periodic Rate} ) ^ n - 1 \\ &amp;\textbf{where:} \\ &amp;n = \text{Number of compounding periods per year} \\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> APY </mtext> <mo> = </mo> <mo> ( </mo> <mn> 1 </mn> <mo> + </mo> <mtext> Periodic Rate </mtext> <msup> <mo> ) </mo> <mi> n </mi> </msup> <mo> − </mo> <mn> 1 </mn> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> n </mi> <mo> = </mo> <mtext> Number of compounding periods per year </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\text{APY} = (1 + \text{Periodic Rate} ) ^ n - 1 \\ &amp;\textbf{where:} \\ &amp;n = \text{Number of compounding periods per year} \\ \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">APY</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mopen">(</span><span class="mord">1</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord text"><span class="mord">Periodic Rate</span></span><span class="mclose"><span class="mclose">)</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">n</span></span></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord">1</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord textbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathnormal">n</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Number of compounding periods per year</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> In this case your APY or EAR would be 25.7%: </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"> <span data-value="\begin{aligned} &amp;( ( 1 + .0006273 ) ^ {365} ) - 1 = .257 \\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mo> ( </mo> <mo> ( </mo> <mn> 1 </mn> <mo> + </mo> <mi> . </mi> <mn> 0006273 </mn> <msup> <mo> ) </mo> <mn> 365 </mn> </msup> <mo> ) </mo> <mo> − </mo> <mn> 1 </mn> <mo> = </mo> <mi> . </mi> <mn> 257 </mn> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;( ( 1 + .0006273 ) ^ {365} ) - 1 = .257 \\ \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mopen">((</span><span class="mord">1</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">.0006273</span><span class="mclose"><span class="mclose">)</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mtight">365</span></span></span></span></span></span></span></span></span><span class="mclose">)</span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord">1</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">.257</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> If you only carry a balance on your credit card for one month’s period, you will be charged the equivalent yearly rate of 22.9%. However, if you carry that balance for the year, your effective interest rate becomes 25.7% as a result of compounding each day. </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-apr-vs-nominal-interest-rate-vs-daily-periodic-rate"></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"> APR vs. Nominal Interest Rate vs. Daily Periodic Rate </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> An APR tends to be higher than a loan’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nominal.asp">nominal</a> interest rate. That’s because the nominal interest rate doesn’t account for any other expense accrued by the borrower. The nominal rate may be lower on your mortgage if you don’t account for closing costs, insurance, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/origination-fee.asp">origination fees</a>. If you end up rolling these into your mortgage, your mortgage balance increases, as does your APR. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> The daily periodic rate, on the other hand, is the interest charged on a loan’s balance <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/040315/what-does-it-mean-when-interest-accrues-daily.asp">on a daily basis</a>—the APR divided by 365. Lenders and credit card providers are allowed to represent APR on a monthly basis, though, as long as the full 12-month APR is listed somewhere before the agreement is signed. </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-disadvantages-of-annual-percentage-rate-apr"></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"> Disadvantages of Annual Percentage Rate (APR) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> The APR isn’t always an accurate reflection of the total <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/costofdebt.asp" rel="noopener noreferrer">cost of borrowing</a>. In fact, it may understate the actual cost of a loan. That’s because the calculations assume long-term repayment schedules. The costs and fees are spread too thin with APR calculations for loans that are repaid faster or have shorter repayment periods. For instance, the average annual impact of mortgage closing costs is much smaller when those costs are assumed to have been spread over 30 years instead of seven to 10 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_58-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-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_4-0">Who Calculates APR?</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Lenders have a fair amount of authority to determine how to calculate the APR, including or excluding different fees and charges.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> APR also runs into some trouble with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arm.asp">adjustable-rate mortgages (ARMs)</a>. Estimates always assume a constant rate of interest, and even though APR takes rate <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cap.asp">caps</a> into consideration, the final number is still based on fixed rates. Because the interest rate on an ARM will change when the fixed-rate period is over, APR estimates can severely understate the actual borrowing costs if <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">mortgage rates</a> rise in the future. </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"> Mortgage APRs may or may not include other charges, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appraisal.asp">appraisals</a>, titles, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit reports</a>, applications, life insurance, attorneys and notaries, and document preparation. There are other fees that are deliberately excluded, including late fees and other one-time fees. </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"> All this may make it difficult to compare similar products because the fees included or excluded differ from institution to institution. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/compare-personal-loans-different-lenders-7974017">In order to accurately compare multiple offers</a>, a potential borrower must determine which of these fees are included and, to be thorough, calculate APR using the nominal interest rate and other cost information. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_66-0"><span class="heading-toc" id="toc-why-is-the-annual-percentage-rate-apr-disclosed"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is the Annual Percentage Rate (APR) Disclosed?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Consumer protection laws require companies to disclose the APRs associated with their product offerings in order to prevent companies from misleading customers. For instance, if they were not required to disclose the APR, a company might advertise a low monthly interest rate while implying to customers that it was an annual rate. This could mislead a customer into comparing a seemingly low monthly rate against a seemingly high annual one. By requiring all companies to disclose their APRs, customers are presented with an “apples to apples” comparison.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_68-0"><span class="heading-toc" id="toc-what-is-a-good-apr"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Good APR?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>What counts as a “good” APR will depend on factors such as the competing rates offered in the market, the prime interest rate set by the central bank, and the borrower’s own credit score. When prime rates are low, companies in competitive industries will sometimes offer very low APRs on their credit products, such as the 0% on car loans or lease options. Although these low rates might seem attractive, customers should verify whether these rates last for the full length of the product’s term, or whether they are simply introductory rates that will revert to a higher APR after a certain period has passed. Moreover, low APRs may only be available to customers with especially high credit scores.</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-do-you-calculate-apr"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Calculate APR?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The formula for calculating APR is straightforward. It consists of multiplying the periodic interest rate by the number of periods in a year in which the rate is applied. The exact formula is as follows:</p><p><span data-value="\begin{aligned} &amp;\text{APR} = \left ( \left ( \frac{ \frac{ \text{Fees} + \text{Interest} }{ \text {Principal} } }{ n } \right ) \times 365 \right ) \times 100 \\ &amp;\textbf{where:} \\ &amp;\text{Interest} = \text{Total interest paid over life of the loan} \\ &amp;\text{Principal} = \text{Loan amount} \\ &amp;n = \text{Number of days in loan term} \\ \end{aligned}"><span class="katex"><span class="katex-mathml"><math><semantics><mtable><mtr><mtd><mstyle><mrow></mrow></mstyle></mtd><mtd><mstyle><mrow><mrow></mrow><mtext>APR</mtext><mo>=</mo><mrow><mo>(</mo><mrow><mo>(</mo><mfrac><mfrac><mrow><mtext>Fees</mtext><mo>+</mo><mtext>Interest</mtext></mrow><mtext>Principal</mtext></mfrac><mi>n</mi></mfrac><mo>)</mo></mrow><mo>×</mo><mn>365</mn><mo>)</mo></mrow><mo>×</mo><mn>100</mn></mrow></mstyle></mtd></mtr><mtr><mtd><mstyle><mrow></mrow></mstyle></mtd><mtd><mstyle><mrow><mrow></mrow><mtext>where:</mtext></mrow></mstyle></mtd></mtr><mtr><mtd><mstyle><mrow></mrow></mstyle></mtd><mtd><mstyle><mrow><mrow></mrow><mtext>Interest</mtext><mo>=</mo><mtext>Total interest paid over life of the loan</mtext></mrow></mstyle></mtd></mtr><mtr><mtd><mstyle><mrow></mrow></mstyle></mtd><mtd><mstyle><mrow><mrow></mrow><mtext>Principal</mtext><mo>=</mo><mtext>Loan amount</mtext></mrow></mstyle></mtd></mtr><mtr><mtd><mstyle><mrow></mrow></mstyle></mtd><mtd><mstyle><mrow><mrow></mrow><mi>n</mi><mo>=</mo><mtext>Number of days in loan term</mtext></mrow></mstyle></mtd></mtr></mtable><annotation encoding="application/x-tex">\begin{aligned} &amp;\text{APR} = \left ( \left ( \frac{ \frac{ \text{Fees} + \text{Interest} }{ \text {Principal} } }{ n } \right ) \times 365 \right ) \times 100 \\ &amp;\textbf{where:} \\ &amp;\text{Interest} = \text{Total interest paid over life of the loan} \\ &amp;\text{Principal} = \text{Loan amount} \\ &amp;n = \text{Number of days in loan term} \\ \end{aligned}</annotation></semantics></math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">APR</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="minner"><span class="mopen delimcenter"><span class="delimsizing size4">(</span></span><span class="minner"><span class="mopen delimcenter"><span class="delimsizing size4">(</span></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathdefault">n</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord text mtight"><span class="mord mtight">Principal</span></span></span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord text mtight"><span class="mord mtight">Fees</span></span><span class="mbin mtight">+</span><span class="mord text mtight"><span class="mord mtight">Interest</span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mclose delimcenter"><span class="delimsizing size4">)</span></span></span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">3</span><span class="mord">6</span><span class="mord">5</span><span class="mclose delimcenter"><span class="delimsizing size4">)</span></span></span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">1</span><span class="mord">0</span><span class="mord">0</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord textbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">Interest</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Total interest paid over life of the loan</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">Principal</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Loan amount</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">n</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Number of days in loan term</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> The APR is the basic theoretical cost or benefit of money loaned or borrowed. By calculating only the simple interest without periodic compounding, the APR gives borrowers and lenders a snapshot of how much interest they are earning or paying within a certain period of time. If someone is borrowing money, such as by using a credit card or applying for a mortgage, the APR can be misleading because it only presents the base number of what they are paying without taking time into the equation. Conversely, if someone is looking at the APR on a savings account, it doesn't illustrate the full impact of interest earned over time. </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"> APRs are often a selling point for different financial instruments, such as mortgages or credit cards. When choosing a tool with an APR, be careful to also take into account the APY because it will prove a more accurate number for what you will pay or earn over time. Though the formula for your APR may stay the same, different financial institutions will include different fees in the principal balance. Be aware of what is included in your APR when signing any agreement.<br/> </p></div>

## What Is Annual Percentage Rate (APR)? Annual percentage rate (APR) refers to the yearly interest generated by a sum that's charged to borrowers or paid to investors. APR is expressed as a percentage that represents the actual yearly [cost of funds](https://www.investopedia.com/terms/c/costoffunds.asp) over the term of a loan or income earned on an investment. This includes any fees or additional costs associated with the transaction but does not take [compounding](https://www.investopedia.com/terms/c/compounding.asp) into account. The APR provides consumers with a bottom-line number they can compare among lenders, credit cards, or investment products. [Spanish Translation of Annual Percentage Rate (APR)](https://drive.google.com/file/d/1dcFCXsd9OXR_RBRKtEbGy4xfsp_WwoLX/view?usp=sharing) ### Key Takeaways * An annual percentage rate (APR) is the yearly rate charged for a loan or earned by an investment and includes interest and fees. * Financial institutions must disclose a financial instrument’s APR before any agreement is signed. * The APR provides a consistent basis for presenting annual interest rate information in order to protect consumers from misleading advertising. * An APR may not reflect the actual cost of borrowing because lenders have a fair amount of leeway in calculating it, excluding certain fees. * APR shouldn't be confused with APY (annual percentage yield), a calculation that takes the compounding of interest into account. ## How the Annual Percentage Rate (APR) Works An annual percentage rate is expressed as an [interest rate](https://www.investopedia.com/terms/i/interestrate.asp). It calculates what percentage of the principal you’ll pay each year by taking things such as monthly payments and fees into account. APR is also the annual rate of interest paid on investments without accounting for the compounding of interest within that year. The [Truth in Lending Act (TILA)](https://www.investopedia.com/terms/t/tila.asp) of 1968 mandates that [lenders disclose](https://www.investopedia.com/average-credit-card-interest-rate-5076674) the APR they charge to borrowers. Credit card companies are allowed to advertise interest rates on a monthly basis, but they must clearly report the APR to customers before they sign an agreement. ### Credit card companies can increase your interest rate for new purchases, but not existing balances if they provide you with 45 days' notice first. ### How Is APR Calculated? [APR is calculated](https://www.investopedia.com/terms/y/yearly-rate-of-return-method.asp) by multiplying the [periodic interest rate](https://www.investopedia.com/terms/p/periodic_interest_rate.asp) by the number of periods in a year in which it was applied. It does not indicate how many times the rate is actually applied to the balance. APR = ( ( Fees + Interest Principal n ) × 365 ) × 100 where: Interest = Total interest paid over life of the loan Principal = Loan amount n = Number of days in loan term \begin{aligned} &\text{APR} = \left ( \left ( \frac{ \frac{ \text{Fees} + \text{Interest} }{ \text {Principal} } }{ n } \right ) \times 365 \right ) \times 100 \\ &\textbf{where:} \\ &\text{Interest} = \text{Total interest paid over life of the loan} \\ &\text{Principal} = \text{Loan amount} \\ &n = \text{Number of days in loan term} \\ \end{aligned} ​APR=((nPrincipalFees+Interest​​)×365)×100where:Interest=Total interest paid over life of the loanPrincipal=Loan amountn=Number of days in loan term​ ## Types of APRs Credit card APRs vary based on the type of charge. The credit card issuer may charge one APR for purchases, another for [cash advances](https://www.investopedia.com/terms/c/cashadvance.asp), and yet another for [balance transfers](https://www.investopedia.com/terms/b/balance-transfer-fee.asp) from another card. Issuers also charge high-rate penalty APRs to customers for late payments or violating other terms of the cardholder agreement. There’s also the introductory APR—a low or 0% rate—with which many credit card companies try to entice new customers to sign up for a card. Bank loans generally come with [either fixed or variable APRs](https://www.investopedia.com/ask/answers/07/fixed-variable.asp). A fixed APR loan has an interest rate that is guaranteed not to change during the life of the loan or credit facility. A variable APR loan has an interest rate that may change at any time. The APR borrowers are charged also depends on their credit. The rates offered to [those with excellent credit](https://www.investopedia.com/best-personal-loans-for-excellent-credit-4797495) are significantly lower than those offered to [those with bad credit](https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349). ### Compound Interest or Simple Interest? APR does not take into account the compounding of interest within a specific year: It is based only on [simple interest](https://www.investopedia.com/terms/s/simple_interest.asp). ## APR vs. Annual Percentage Yield (APY) Though an APR only accounts for simple interest, the [annual percentage yield (APY)](https://www.investopedia.com/terms/a/apy.asp) takes compound interest into account. As a result, a loan’s APY is higher than its APR. The higher the interest rate—and to a lesser extent, the smaller the compounding periods—the greater the difference between the APR and APY. Imagine that a loan’s APR is 12%, and the loan compounds once a month. If an individual borrows $10,000, their interest for one month is 1% of the balance, or $100. That effectively increases the balance to $10,100. The following month, 1% interest is assessed on this amount, and the interest payment is $101, slightly higher than it was the previous month. If you carry that balance for the year, your effective interest rate becomes 12.68%. APY includes these small shifts in interest expenses due to compounding, while APR does not. Here's another way to look at it. Say you compare an investment that pays 5% per year with one that pays 5% monthly. For the first month, the APY equals 5%, the same as the APR. But for the second, the APY is 5.12%, reflecting the monthly compounding. Given that an APR and a different APY can represent the same interest rate on a loan or financial product, lenders often [emphasize the more flattering number](https://www.investopedia.com/personal-finance/apr-apy-bank-hopes-cant-tell-difference/), which is why the [Truth in Savings Act of 1991](https://www.investopedia.com/terms/t/truth-in-savings-act.asp) mandated both APR and APY disclosure in ads, contracts, and agreements. A bank will advertise a savings account’s APY in a large font and its corresponding APR in a smaller one, given that the former features a superficially larger number. The opposite happens when the bank acts as the lender and tries to convince its borrowers that it’s charging a low rate. A great resource for comparing both APR and APY rates on a mortgage is a [mortgage calculator](https://www.investopedia.com/mortgage-calculator-5084794). ### APR vs. APY Example Let's say that XYZ Corp. offers a credit card that levies interest of 0.06273% daily. Multiply that by 365, and that’s 22.9% per year, which is the advertised APR. Now, if you were to charge a different $1,000 item to your card every day and waited until the day after the due date (when the issuer started levying interest) to start making payments, you’d owe $1,000.6273 for each thing you bought. To calculate the APY or [effective annual interest rate](https://www.investopedia.com/terms/e/effectiveinterest.asp)—the more typical term for credit cards—add one (that represents the principal) and take that number to the power of the number of compounding periods in a year; subtract one from the result to get the percentage: APY = ( 1 + Periodic Rate ) n − 1 where: n = Number of compounding periods per year \begin{aligned} &\text{APY} = (1 + \text{Periodic Rate} ) ^ n - 1 \\ &\textbf{where:} \\ &n = \text{Number of compounding periods per year} \\ \end{aligned} ​APY=(1+Periodic Rate)n−1where:n=Number of compounding periods per year​ In this case your APY or EAR would be 25.7%: ( ( 1 + . 0006273 ) 365 ) − 1 = . 257 \begin{aligned} &( ( 1 + .0006273 ) ^ {365} ) - 1 = .257 \\ \end{aligned} ​((1+.0006273)365)−1=.257​ If you only carry a balance on your credit card for one month’s period, you will be charged the equivalent yearly rate of 22.9%. However, if you carry that balance for the year, your effective interest rate becomes 25.7% as a result of compounding each day. ## APR vs. Nominal Interest Rate vs. Daily Periodic Rate An APR tends to be higher than a loan’s [nominal](https://www.investopedia.com/terms/n/nominal.asp) interest rate. That’s because the nominal interest rate doesn’t account for any other expense accrued by the borrower. The nominal rate may be lower on your mortgage if you don’t account for closing costs, insurance, and [origination fees](https://www.investopedia.com/terms/o/origination-fee.asp). If you end up rolling these into your mortgage, your mortgage balance increases, as does your APR. The daily periodic rate, on the other hand, is the interest charged on a loan’s balance [on a daily basis](https://www.investopedia.com/ask/answers/040315/what-does-it-mean-when-interest-accrues-daily.asp)—the APR divided by 365. Lenders and credit card providers are allowed to represent APR on a monthly basis, though, as long as the full 12-month APR is listed somewhere before the agreement is signed. ## Disadvantages of Annual Percentage Rate (APR) The APR isn’t always an accurate reflection of the total [cost of borrowing](https://www.investopedia.com/terms/c/costofdebt.asp). In fact, it may understate the actual cost of a loan. That’s because the calculations assume long-term repayment schedules. The costs and fees are spread too thin with APR calculations for loans that are repaid faster or have shorter repayment periods. For instance, the average annual impact of mortgage closing costs is much smaller when those costs are assumed to have been spread over 30 years instead of seven to 10 years. ### Who Calculates APR? Lenders have a fair amount of authority to determine how to calculate the APR, including or excluding different fees and charges. APR also runs into some trouble with [adjustable-rate mortgages (ARMs)](https://www.investopedia.com/terms/a/arm.asp). Estimates always assume a constant rate of interest, and even though APR takes rate [caps](https://www.investopedia.com/terms/c/cap.asp) into consideration, the final number is still based on fixed rates. Because the interest rate on an ARM will change when the fixed-rate period is over, APR estimates can severely understate the actual borrowing costs if [mortgage rates](https://www.investopedia.com/mortgage-rates-5094943) rise in the future. Mortgage APRs may or may not include other charges, such as [appraisals](https://www.investopedia.com/terms/a/appraisal.asp), titles, [credit reports](https://www.investopedia.com/terms/c/creditreport.asp), applications, life insurance, attorneys and notaries, and document preparation. There are other fees that are deliberately excluded, including late fees and other one-time fees. All this may make it difficult to compare similar products because the fees included or excluded differ from institution to institution. [In order to accurately compare multiple offers](https://www.investopedia.com/compare-personal-loans-different-lenders-7974017), a potential borrower must determine which of these fees are included and, to be thorough, calculate APR using the nominal interest rate and other cost information. ## Why Is the Annual Percentage Rate (APR) Disclosed? Consumer protection laws require companies to disclose the APRs associated with their product offerings in order to prevent companies from misleading customers. For instance, if they were not required to disclose the APR, a company might advertise a low monthly interest rate while implying to customers that it was an annual rate. This could mislead a customer into comparing a seemingly low monthly rate against a seemingly high annual one. By requiring all companies to disclose their APRs, customers are presented with an “apples to apples” comparison. ## What Is a Good APR? What counts as a “good” APR will depend on factors such as the competing rates offered in the market, the prime interest rate set by the central bank, and the borrower’s own credit score. When prime rates are low, companies in competitive industries will sometimes offer very low APRs on their credit products, such as the 0% on car loans or lease options. Although these low rates might seem attractive, customers should verify whether these rates last for the full length of the product’s term, or whether they are simply introductory rates that will revert to a higher APR after a certain period has passed. Moreover, low APRs may only be available to customers with especially high credit scores. ## How Do You Calculate APR? The formula for calculating APR is straightforward. It consists of multiplying the periodic interest rate by the number of periods in a year in which the rate is applied. The exact formula is as follows: APR=((Fees+InterestPrincipaln)×365)×100where:Interest=Total interest paid over life of the loanPrincipal=Loan amountn=Number of days in loan term\begin{aligned} &\text{APR} = \left ( \left ( \frac{ \frac{ \text{Fees} + \text{Interest} }{ \text {Principal} } }{ n } \right ) \times 365 \right ) \times 100 \\ &\textbf{where:} \\ &\text{Interest} = \text{Total interest paid over life of the loan} \\ &\text{Principal} = \text{Loan amount} \\ &n = \text{Number of days in loan term} \\ \end{aligned}​APR=((nPrincipalFees+Interest​​)×365)×100where:Interest=Total interest paid over life of the loanPrincipal=Loan amountn=Number of days in loan term​ ## The Bottom Line The APR is the basic theoretical cost or benefit of money loaned or borrowed. By calculating only the simple interest without periodic compounding, the APR gives borrowers and lenders a snapshot of how much interest they are earning or paying within a certain period of time. If someone is borrowing money, such as by using a credit card or applying for a mortgage, the APR can be misleading because it only presents the base number of what they are paying without taking time into the equation. Conversely, if someone is looking at the APR on a savings account, it doesn't illustrate the full impact of interest earned over time. APRs are often a selling point for different financial instruments, such as mortgages or credit cards. When choosing a tool with an APR, be careful to also take into account the APY because it will prove a more accurate number for what you will pay or earn over time. Though the formula for your APR may stay the same, different financial institutions will include different fees in the principal balance. Be aware of what is included in your APR when signing any agreement.

What Is Annual Percentage Rate (APR)? Annual percentage rate (APR) refers to the yearly interest generated by a sum that's charged to borrowers or paid to investors. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan or income earned on an investment. This includes any fees or additional costs associated with the transaction but does not take compounding into account. The APR provides consumers with a bottom-line number they can compare among lenders, credit cards, or investment products. Spanish Translation of Annual Percentage Rate (APR) Key Takeaways An annual percentage rate (APR) is the yearly rate charged for a loan or earned by an investment and includes interest and fees.Financial institutions must disclose a financial instrument’s APR before any agreement is signed.The APR provides a consistent basis for presenting annual interest rate information in order to protect consumers from misleading advertising.An APR may not reflect the actual cost of borrowing because lenders have a fair amount of leeway in calculating it, excluding certain fees.APR shouldn't be confused with APY (annual percentage yield), a calculation that takes the compounding of interest into account. How the Annual Percentage Rate (APR) Works An annual percentage rate is expressed as an interest rate. It calculates what percentage of the principal you’ll pay each year by taking things such as monthly payments and fees into account. APR is also the annual rate of interest paid on investments without accounting for the compounding of interest within that year. The Truth in Lending Act (TILA) of 1968 mandates that lenders disclose the APR they charge to borrowers. Credit card companies are allowed to advertise interest rates on a monthly basis, but they must clearly report the APR to customers before they sign an agreement. Credit card companies can increase your interest rate for new purchases, but not existing balances if they provide you with 45 days' notice first. How Is APR Calculated? APR is calculated by multiplying the periodic interest rate by the number of periods in a year in which it was applied. It does not indicate how many times the rate is actually applied to the balance. APR = ( ( Fees + Interest Principal n ) × 365 ) × 100 where: Interest = Total interest paid over life of the loan Principal = Loan amount n = Number of days in loan term \begin{aligned} &\text{APR} = \left ( \left ( \frac{ \frac{ \text{Fees} + \text{Interest} }{ \text {Principal} } }{ n } \right ) \times 365 \right ) \times 100 \\ &\textbf{where:} \\ &\text{Interest} = \text{Total interest paid over life of the loan} \\ &\text{Principal} = \text{Loan amount} \\ &n = \text{Number of days in loan term} \\ \end{aligned} ​APR=((nPrincipalFees+Interest​​)×365)×100where:Interest=Total interest paid over life of the loanPrincipal=Loan amountn=Number of days in loan term​ Types of APRs Credit card APRs vary based on the type of charge. The credit card issuer may charge one APR for purchases, another for cash advances, and yet another for balance transfers from another card. Issuers also charge high-rate penalty APRs to customers for late payments or violating other terms of the cardholder agreement. There’s also the introductory APR—a low or 0% rate—with which many credit card companies try to entice new customers to sign up for a card. Bank loans generally come with either fixed or variable APRs. A fixed APR loan has an interest rate that is guaranteed not to change during the life of the loan or credit facility. A variable APR loan has an interest rate that may change at any time. The APR borrowers are charged also depends on their credit. The rates offered to those with excellent credit are significantly lower than those offered to those with bad credit. Compound Interest or Simple Interest? APR does not take into account the compounding of interest within a specific year: It is based only on simple interest. APR vs. Annual Percentage Yield (APY) Though an APR only accounts for simple interest, the annual percentage yield (APY) takes compound interest into account. As a result, a loan’s APY is higher than its APR. The higher the interest rate—and to a lesser extent, the smaller the compounding periods—the greater the difference between the APR and APY. Imagine that a loan’s APR is 12%, and the loan compounds once a month. If an individual borrows $10,000, their interest for one month is 1% of the balance, or $100. That effectively increases the balance to $10,100. The following month, 1% interest is assessed on this amount, and the interest payment is $101, slightly higher than it was the previous month. If you carry that balance for the year, your effective interest rate becomes 12.68%. APY includes these small shifts in interest expenses due to compounding, while APR does not. Here's another way to look at it. Say you compare an investment that pays 5% per year with one that pays 5% monthly. For the first month, the APY equals 5%, the same as the APR. But for the second, the APY is 5.12%, reflecting the monthly compounding. Given that an APR and a different APY can represent the same interest rate on a loan or financial product, lenders often emphasize the more flattering number, which is why the Truth in Savings Act of 1991 mandated both APR and APY disclosure in ads, contracts, and agreements. A bank will advertise a savings account’s APY in a large font and its corresponding APR in a smaller one, given that the former features a superficially larger number. The opposite happens when the bank acts as the lender and tries to convince its borrowers that it’s charging a low rate. A great resource for comparing both APR and APY rates on a mortgage is a mortgage calculator. APR vs. APY Example Let's say that XYZ Corp. offers a credit card that levies interest of 0.06273% daily. Multiply that by 365, and that’s 22.9% per year, which is the advertised APR. Now, if you were to charge a different $1,000 item to your card every day and waited until the day after the due date (when the issuer started levying interest) to start making payments, you’d owe $1,000.6273 for each thing you bought. To calculate the APY or effective annual interest rate—the more typical term for credit cards—add one (that represents the principal) and take that number to the power of the number of compounding periods in a year; subtract one from the result to get the percentage: APY = ( 1 + Periodic Rate ) n − 1 where: n = Number of compounding periods per year \begin{aligned} &\text{APY} = (1 + \text{Periodic Rate} ) ^ n - 1 \\ &\textbf{where:} \\ &n = \text{Number of compounding periods per year} \\ \end{aligned} ​APY=(1+Periodic Rate)n−1where:n=Number of compounding periods per year​ In this case your APY or EAR would be 25.7%: ( ( 1 + . 0006273 ) 365 ) − 1 = . 257 \begin{aligned} &( ( 1 + .0006273 ) ^ {365} ) - 1 = .257 \\ \end{aligned} ​((1+.0006273)365)−1=.257​ If you only carry a balance on your credit card for one month’s period, you will be charged the equivalent yearly rate of 22.9%. However, if you carry that balance for the year, your effective interest rate becomes 25.7% as a result of compounding each day. APR vs. Nominal Interest Rate vs. Daily Periodic Rate An APR tends to be higher than a loan’s nominal interest rate. That’s because the nominal interest rate doesn’t account for any other expense accrued by the borrower. The nominal rate may be lower on your mortgage if you don’t account for closing costs, insurance, and origination fees. If you end up rolling these into your mortgage, your mortgage balance increases, as does your APR. The daily periodic rate, on the other hand, is the interest charged on a loan’s balance on a daily basis—the APR divided by 365. Lenders and credit card providers are allowed to represent APR on a monthly basis, though, as long as the full 12-month APR is listed somewhere before the agreement is signed. Disadvantages of Annual Percentage Rate (APR) The APR isn’t always an accurate reflection of the total cost of borrowing. In fact, it may understate the actual cost of a loan. That’s because the calculations assume long-term repayment schedules. The costs and fees are spread too thin with APR calculations for loans that are repaid faster or have shorter repayment periods. For instance, the average annual impact of mortgage closing costs is much smaller when those costs are assumed to have been spread over 30 years instead of seven to 10 years. Who Calculates APR? Lenders have a fair amount of authority to determine how to calculate the APR, including or excluding different fees and charges. APR also runs into some trouble with adjustable-rate mortgages (ARMs). Estimates always assume a constant rate of interest, and even though APR takes rate caps into consideration, the final number is still based on fixed rates. Because the interest rate on an ARM will change when the fixed-rate period is over, APR estimates can severely understate the actual borrowing costs if mortgage rates rise in the future. Mortgage APRs may or may not include other charges, such as appraisals, titles, credit reports, applications, life insurance, attorneys and notaries, and document preparation. There are other fees that are deliberately excluded, including late fees and other one-time fees. All this may make it difficult to compare similar products because the fees included or excluded differ from institution to institution. In order to accurately compare multiple offers, a potential borrower must determine which of these fees are included and, to be thorough, calculate APR using the nominal interest rate and other cost information. Why Is the Annual Percentage Rate (APR) Disclosed? Consumer protection laws require companies to disclose the APRs associated with their product offerings in order to prevent companies from misleading customers. For instance, if they were not required to disclose the APR, a company might advertise a low monthly interest rate while implying to customers that it was an annual rate. This could mislead a customer into comparing a seemingly low monthly rate against a seemingly high annual one. By requiring all companies to disclose their APRs, customers are presented with an “apples to apples” comparison. What Is a Good APR? What counts as a “good” APR will depend on factors such as the competing rates offered in the market, the prime interest rate set by the central bank, and the borrower’s own credit score. When prime rates are low, companies in competitive industries will sometimes offer very low APRs on their credit products, such as the 0% on car loans or lease options. Although these low rates might seem attractive, customers should verify whether these rates last for the full length of the product’s term, or whether they are simply introductory rates that will revert to a higher APR after a certain period has passed. Moreover, low APRs may only be available to customers with especially high credit scores. How Do You Calculate APR? The formula for calculating APR is straightforward. It consists of multiplying the periodic interest rate by the number of periods in a year in which the rate is applied. The exact formula is as follows:APR=((Fees+InterestPrincipaln)×365)×100where:Interest=Total interest paid over life of the loanPrincipal=Loan amountn=Number of days in loan term\begin{aligned} &\text{APR} = \left ( \left ( \frac{ \frac{ \text{Fees} + \text{Interest} }{ \text {Principal} } }{ n } \right ) \times 365 \right ) \times 100 \\ &\textbf{where:} \\ &\text{Interest} = \text{Total interest paid over life of the loan} \\ &\text{Principal} = \text{Loan amount} \\ &n = \text{Number of days in loan term} \\ \end{aligned}​APR=((nPrincipalFees+Interest​​)×365)×100where:Interest=Total interest paid over life of the loanPrincipal=Loan amountn=Number of days in loan term​ The Bottom Line The APR is the basic theoretical cost or benefit of money loaned or borrowed. By calculating only the simple interest without periodic compounding, the APR gives borrowers and lenders a snapshot of how much interest they are earning or paying within a certain period of time. If someone is borrowing money, such as by using a credit card or applying for a mortgage, the APR can be misleading because it only presents the base number of what they are paying without taking time into the equation. Conversely, if someone is looking at the APR on a savings account, it doesn't illustrate the full impact of interest earned over time. APRs are often a selling point for different financial instruments, such as mortgages or credit cards. When choosing a tool with an APR, be careful to also take into account the APY because it will prove a more accurate number for what you will pay or earn over time. Though the formula for your APR may stay the same, different financial institutions will include different fees in the principal balance. Be aware of what is included in your APR when signing any agreement.

https://www.investopedia.com/ai-to-take-center-stage-in-this-week-s-big-tech-earnings-8635742

AI To Take Center Stage in This Week's Big Tech Earnings

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Artificial intelligence (AI) is expected to be a key theme of upcoming big tech earnings.</li><li>Meta Platforms is set to report earnings on Wednesday, while Google parent Alphabet and Microsoft will report on Thursday.</li><li>Analysts anticipate that Meta will give updates on how the company is leveraging AI to power its platform's recommendation and ranking engines, as well as touch on its recent AI assistant expansion, Llama 3, and its new AI chip.</li><li>Google is expected to provide updates on its initiatives like AI monetization across its enterprise offerings as well as other indications of how the company is leveraging AI.</li><li>Microsoft likely will offer investors insights into the company's AI projects through its OpenAI partnership, including Copilot and cloud impacts.</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"> As excitement around <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a> has captured investors' attention, the emerging technology is expected to be top of mind during big tech's impending earnings reports. Meta Platforms (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>) is set to report earnings on Wednesday, while Google parent Alphabet (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL">GOOGL</a>) and Microsoft (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>) will report on Thursday. </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"> Nvidia (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>) has <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nvidia-market-cap-tops-usd2-trillion-8599196#:~:text=Nvidia's%20path%20to%20%242%20trillion,trillion%20took%20just%20270%20days.">established</a> itself as an early leader of the AI era, even recording the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nvidia-added-usd272-billion-in-market-value-thursday-the-largest-one-day-gain-ever-8598861">largest single-day jump</a> in <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketcapitalization.asp#:~:text=Market%20capitalization%20shows%20how%20much,market%20value%20of%20one%20share.">market capitalization</a>, but analysts expect the next wave of AI optimism to benefit a variety of <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-ai-demand-could-drive-up-enterprise-tech-stocks-supporting-growing-ai-ecosystem-8584098">tech stocks</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> "While the first wave of the AI Revolution is being led by the Godfather of AI Jensen and Nvidia along with Nadella/Redmond...now the 2nd/3rd/4th derivatives of this $1 trillion of spending over the next decade is hitting the shores of the tech sector," Wedbush Securities analysts wrote.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The analysts noted that the firm expects that "1Q earnings will be a major positive catalyst for the tech sector," naming Microsoft, Alphabet, and Meta, among others, as standouts.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-ai-powered-recommendation-and-ranking-engines-updates-from-meta-after-ai-assistant-and-chip-news"></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"> AI-Powered Recommendation and Ranking Engines Updates From Meta After AI Assistant and Chip News </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Meta, which is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/meta-q1-fy-2024-earnings-preview-8630822">set to report on Wednesday</a>, is expected to offer updates about its AI-powered recommendation and ranking engines as well as its new AI initiatives. </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"> CFRA analysts wrote that the firm anticipates the company's upcoming earnings report will showcase strong engagement driven by AI.<span class="ql-inline-citation" data-cite="2"></span> "META has a host of opportunities tied to AI," the analysts wrote, highlighting the way the company has leveraged the tech for content discovery on its platforms, its AI model, Llama, and its AI assistant, Meta AI. </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"> Meta <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/meta-announces-ai-assistant-powered-by-llama-3-here-is-what-you-need-to-know-8635515">announced</a> expansions to Meta AI a week ahead of its earnings report. The AI assistant is integrated into Facebook, Instagram, and WhatsApp, and runs on Meta's most advanced AI model, Llama 3. </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 company also <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/meta-unveils-its-latest-ai-chip-here-is-what-you-need-to-know-8629599">recently unveiled</a> its latest custom AI chip, the Next Gen Meta Training and Inference Accelerator (MTIA), which could support its efforts to compete with Microsoft, Google, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-amazon-makes-money-4587523">Amazon</a> (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN">AMZN</a>) in the ongoing AI race.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-google-updates-on-ai-monetization-and-initiatives-like-gemini-and-custom-chips"></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"> Google Updates on AI Monetization and Initiatives Like Gemini and Custom Chips </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Google's parent company, Alphabet, will report on Thursday, with analysts watching for any AI-related updates. </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"> Alphabet shares recently <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/key-takeaways-from-google-cloud-next-keynote-8629022">reached a record high</a> during the Google Cloud Next conference as the company made a flurry of AI-related announcements, including Gemini updates, its new custom chip, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/google-announces-its-first-arm-based-custom-chip-axion-8628764">the Google Axion Processor</a>, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nvidia-google-expand-partnership-with-nvidia-blackwell-coming-to-google-cloud-in-2025-8628792">Nvidia Blackwell coming to Google Cloud</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"> CFRA analysts said they "see incremental opportunities tied to AI monetization" for the company through cloud, search, YouTube, and Google's other businesses.<span class="ql-inline-citation" data-cite="3"></span> AI <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-we-learned-from-big-tech-earnings-enterprise-ai-is-paying-off-8557870">monetization through enterprise business segments</a> was a key theme of big tech's earnings last quarter. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Bank of America analysts said that AI is a tailwind for Google, noting that while "AI use does pose long-term competitive risks for Google," in 2024 "Google (and peers) are likely to see AI monetization improvements."<span class="ql-inline-citation" data-cite="4"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-ai-integrations-expected-to-boost-microsofts-cloud-sales-expand-enterprise-customer-offerings"></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"> AI Integrations Expected to Boost Microsoft's Cloud Sales, Expand Enterprise Customer Offerings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Microsoft also is expected to provide updates about its AI projects and their impacts on the company's financials. The tech giant has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-becomes-second-company-ever-to-hit-usd3-trillion-market-cap-amid-ai-optimism-8549133">positioned</a> itself as an early AI leader with its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-openai-partnership-draws-scrutiny-of-uk-competition-watchdog-8413335">partnership</a> with <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-chatgpt-7094342">ChatGPT</a> maker OpenAI. </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"> Analysts said that they expect a boost coming from AI contributions for Microsoft. CFRA analysts said that the firm anticipates greater AI contributions and momentum, writing that AI "will support double-digit growth through CY 2025 and multiple expansion potential."<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> They added that Microsoft is well-positioned for AI-driven growth, as the company "can monetize AI-related revenue quicker than any other cloud/software provider," especially with the company's OpenAI partnership. </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"> Bank of America analysts said the "next catalyst for the stock will be evidence of key AI product cycles ramping such as M365 copilot in coming quarters," adding that the firm views Microsoft as a "top pick."<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_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Wedbush analysts said that they "strongly view this as Microsoft's 'iPhone Moment' with AI set to change the cloud growth trajectory in Redmond the next few years." They added that they believe deployment of Copilot, Microsoft's AI assistant, could add between $25 billion and $30 billion to the company's top line by 2025. </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 * Artificial intelligence (AI) is expected to be a key theme of upcoming big tech earnings. * Meta Platforms is set to report earnings on Wednesday, while Google parent Alphabet and Microsoft will report on Thursday. * Analysts anticipate that Meta will give updates on how the company is leveraging AI to power its platform's recommendation and ranking engines, as well as touch on its recent AI assistant expansion, Llama 3, and its new AI chip. * Google is expected to provide updates on its initiatives like AI monetization across its enterprise offerings as well as other indications of how the company is leveraging AI. * Microsoft likely will offer investors insights into the company's AI projects through its OpenAI partnership, including Copilot and cloud impacts. As excitement around [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) has captured investors' attention, the emerging technology is expected to be top of mind during big tech's impending earnings reports. Meta Platforms ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)) is set to report earnings on Wednesday, while Google parent Alphabet ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL)) and Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) will report on Thursday. Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)) has [established](https://www.investopedia.com/nvidia-market-cap-tops-usd2-trillion-8599196#:~:text=Nvidia's%20path%20to%20%242%20trillion,trillion%20took%20just%20270%20days.) itself as an early leader of the AI era, even recording the [largest single-day jump](https://www.investopedia.com/nvidia-added-usd272-billion-in-market-value-thursday-the-largest-one-day-gain-ever-8598861) in [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp#:~:text=Market%20capitalization%20shows%20how%20much,market%20value%20of%20one%20share.), but analysts expect the next wave of AI optimism to benefit a variety of [tech stocks](https://www.investopedia.com/how-ai-demand-could-drive-up-enterprise-tech-stocks-supporting-growing-ai-ecosystem-8584098). "While the first wave of the AI Revolution is being led by the Godfather of AI Jensen and Nvidia along with Nadella/Redmond...now the 2nd/3rd/4th derivatives of this $1 trillion of spending over the next decade is hitting the shores of the tech sector," Wedbush Securities analysts wrote. The analysts noted that the firm expects that "1Q earnings will be a major positive catalyst for the tech sector," naming Microsoft, Alphabet, and Meta, among others, as standouts. ## AI-Powered Recommendation and Ranking Engines Updates From Meta After AI Assistant and Chip News Meta, which is [set to report on Wednesday](https://www.investopedia.com/meta-q1-fy-2024-earnings-preview-8630822), is expected to offer updates about its AI-powered recommendation and ranking engines as well as its new AI initiatives. CFRA analysts wrote that the firm anticipates the company's upcoming earnings report will showcase strong engagement driven by AI. "META has a host of opportunities tied to AI," the analysts wrote, highlighting the way the company has leveraged the tech for content discovery on its platforms, its AI model, Llama, and its AI assistant, Meta AI. Meta [announced](https://www.investopedia.com/meta-announces-ai-assistant-powered-by-llama-3-here-is-what-you-need-to-know-8635515) expansions to Meta AI a week ahead of its earnings report. The AI assistant is integrated into Facebook, Instagram, and WhatsApp, and runs on Meta's most advanced AI model, Llama 3. The company also [recently unveiled](https://www.investopedia.com/meta-unveils-its-latest-ai-chip-here-is-what-you-need-to-know-8629599) its latest custom AI chip, the Next Gen Meta Training and Inference Accelerator (MTIA), which could support its efforts to compete with Microsoft, Google, and [Amazon](https://www.investopedia.com/how-amazon-makes-money-4587523) ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN)) in the ongoing AI race. ## Google Updates on AI Monetization and Initiatives Like Gemini and Custom Chips Google's parent company, Alphabet, will report on Thursday, with analysts watching for any AI-related updates. Alphabet shares recently [reached a record high](https://www.investopedia.com/key-takeaways-from-google-cloud-next-keynote-8629022) during the Google Cloud Next conference as the company made a flurry of AI-related announcements, including Gemini updates, its new custom chip, [the Google Axion Processor](https://www.investopedia.com/google-announces-its-first-arm-based-custom-chip-axion-8628764), and [Nvidia Blackwell coming to Google Cloud](https://www.investopedia.com/nvidia-google-expand-partnership-with-nvidia-blackwell-coming-to-google-cloud-in-2025-8628792). CFRA analysts said they "see incremental opportunities tied to AI monetization" for the company through cloud, search, YouTube, and Google's other businesses. AI [monetization through enterprise business segments](https://www.investopedia.com/what-we-learned-from-big-tech-earnings-enterprise-ai-is-paying-off-8557870) was a key theme of big tech's earnings last quarter. Bank of America analysts said that AI is a tailwind for Google, noting that while "AI use does pose long-term competitive risks for Google," in 2024 "Google (and peers) are likely to see AI monetization improvements." ## AI Integrations Expected to Boost Microsoft's Cloud Sales, Expand Enterprise Customer Offerings Microsoft also is expected to provide updates about its AI projects and their impacts on the company's financials. The tech giant has [positioned](https://www.investopedia.com/microsoft-becomes-second-company-ever-to-hit-usd3-trillion-market-cap-amid-ai-optimism-8549133) itself as an early AI leader with its [partnership](https://www.investopedia.com/microsoft-openai-partnership-draws-scrutiny-of-uk-competition-watchdog-8413335) with [ChatGPT](https://www.investopedia.com/what-is-chatgpt-7094342) maker OpenAI. Analysts said that they expect a boost coming from AI contributions for Microsoft. CFRA analysts said that the firm anticipates greater AI contributions and momentum, writing that AI "will support double-digit growth through CY 2025 and multiple expansion potential." They added that Microsoft is well-positioned for AI-driven growth, as the company "can monetize AI-related revenue quicker than any other cloud/software provider," especially with the company's OpenAI partnership. Bank of America analysts said the "next catalyst for the stock will be evidence of key AI product cycles ramping such as M365 copilot in coming quarters," adding that the firm views Microsoft as a "top pick." Wedbush analysts said that they "strongly view this as Microsoft's 'iPhone Moment' with AI set to change the cloud growth trajectory in Redmond the next few years." They added that they believe deployment of Copilot, Microsoft's AI assistant, could add between $25 billion and $30 billion to the company's top line by 2025. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Artificial intelligence (AI) is expected to be a key theme of upcoming big tech earnings.Meta Platforms is set to report earnings on Wednesday, while Google parent Alphabet and Microsoft will report on Thursday.Analysts anticipate that Meta will give updates on how the company is leveraging AI to power its platform's recommendation and ranking engines, as well as touch on its recent AI assistant expansion, Llama 3, and its new AI chip.Google is expected to provide updates on its initiatives like AI monetization across its enterprise offerings as well as other indications of how the company is leveraging AI.Microsoft likely will offer investors insights into the company's AI projects through its OpenAI partnership, including Copilot and cloud impacts. As excitement around artificial intelligence (AI) has captured investors' attention, the emerging technology is expected to be top of mind during big tech's impending earnings reports. Meta Platforms (META) is set to report earnings on Wednesday, while Google parent Alphabet (GOOGL) and Microsoft (MSFT) will report on Thursday. Nvidia (NVDA) has established itself as an early leader of the AI era, even recording the largest single-day jump in market capitalization, but analysts expect the next wave of AI optimism to benefit a variety of tech stocks. "While the first wave of the AI Revolution is being led by the Godfather of AI Jensen and Nvidia along with Nadella/Redmond...now the 2nd/3rd/4th derivatives of this $1 trillion of spending over the next decade is hitting the shores of the tech sector," Wedbush Securities analysts wrote. The analysts noted that the firm expects that "1Q earnings will be a major positive catalyst for the tech sector," naming Microsoft, Alphabet, and Meta, among others, as standouts. AI-Powered Recommendation and Ranking Engines Updates From Meta After AI Assistant and Chip News Meta, which is set to report on Wednesday, is expected to offer updates about its AI-powered recommendation and ranking engines as well as its new AI initiatives. CFRA analysts wrote that the firm anticipates the company's upcoming earnings report will showcase strong engagement driven by AI. "META has a host of opportunities tied to AI," the analysts wrote, highlighting the way the company has leveraged the tech for content discovery on its platforms, its AI model, Llama, and its AI assistant, Meta AI. Meta announced expansions to Meta AI a week ahead of its earnings report. The AI assistant is integrated into Facebook, Instagram, and WhatsApp, and runs on Meta's most advanced AI model, Llama 3. The company also recently unveiled its latest custom AI chip, the Next Gen Meta Training and Inference Accelerator (MTIA), which could support its efforts to compete with Microsoft, Google, and Amazon (AMZN) in the ongoing AI race. Google Updates on AI Monetization and Initiatives Like Gemini and Custom Chips Google's parent company, Alphabet, will report on Thursday, with analysts watching for any AI-related updates. Alphabet shares recently reached a record high during the Google Cloud Next conference as the company made a flurry of AI-related announcements, including Gemini updates, its new custom chip, the Google Axion Processor, and Nvidia Blackwell coming to Google Cloud. CFRA analysts said they "see incremental opportunities tied to AI monetization" for the company through cloud, search, YouTube, and Google's other businesses. AI monetization through enterprise business segments was a key theme of big tech's earnings last quarter. Bank of America analysts said that AI is a tailwind for Google, noting that while "AI use does pose long-term competitive risks for Google," in 2024 "Google (and peers) are likely to see AI monetization improvements." AI Integrations Expected to Boost Microsoft's Cloud Sales, Expand Enterprise Customer Offerings Microsoft also is expected to provide updates about its AI projects and their impacts on the company's financials. The tech giant has positioned itself as an early AI leader with its partnership with ChatGPT maker OpenAI. Analysts said that they expect a boost coming from AI contributions for Microsoft. CFRA analysts said that the firm anticipates greater AI contributions and momentum, writing that AI "will support double-digit growth through CY 2025 and multiple expansion potential." They added that Microsoft is well-positioned for AI-driven growth, as the company "can monetize AI-related revenue quicker than any other cloud/software provider," especially with the company's OpenAI partnership. Bank of America analysts said the "next catalyst for the stock will be evidence of key AI product cycles ramping such as M365 copilot in coming quarters," adding that the firm views Microsoft as a "top pick." Wedbush analysts said that they "strongly view this as Microsoft's 'iPhone Moment' with AI set to change the cloud growth trajectory in Redmond the next few years." They added that they believe deployment of Copilot, Microsoft's AI assistant, could add between $25 billion and $30 billion to the company's top line by 2025. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

What Is a Sukuk? Sharia-Compliant Bond-Like Financial Instruments

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-sukuk"></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 Sukuk? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A <em>sukuk </em>is an Islamic financial certificate, similar to a bond in Western finance, that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/z/zakat.asp">complies with Islamic religious law</a> commonly known as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shariah.asp">Sharia</a>. Since the traditional Western interest-paying bond structure is not permissible, the issuer of a sukuk essentially sells an investor group a certificate, and then uses the proceeds to purchase an asset that the investor group has direct partial ownership interest in. The issuer must also make a contractual promise to buy back the bond at a future date <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/at-par.asp">at par</a> value.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A sukuk is a sharia-compliant bond-like instruments used in Islamic finance.</li><li>Sukuk involves a direct asset ownership interest, while bonds are indirect interest-bearing debt obligations.</li><li>Both sukuk and bonds provide investors with payment streams, however income derived from a sukuk cannot be speculative which would make it no longer <em>halal.</em></li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-sukuk"></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 Sukuk </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> With the rise of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/islamicbanking.asp">Islamic finance</a>, sukuk have become extremely popular since 2000, when the first such products were issued in Malaysia.<span class="ql-inline-citation" data-cite="2"></span> Bahrain followed suit in 2001.<span class="ql-inline-citation" data-cite="3"></span> Fast forward to current times, and sukuk are used by Islamic corporations and state-run organizations alike around the globe, taking up an increasing share of the global fixed-income market.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Islamic law prohibits what's known as "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riba.asp">riba</a>," or what we understand as "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest</a>" in the West.<span class="ql-inline-citation" data-cite="5"></span> Therefore, traditional, Western debt instruments cannot be used as viable investment vehicles or ways to raise capital for a business. To circumvent this, sukuk were created in order to link the returns and cash flows of debt financing to a specific asset being purchased, effectively distributing the benefits of that asset. This allows investors to work around the prohibition outlined under Sharia and still receive the benefits of debt financing. However, because of the way that sukuk are structured, financing can only be raised for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/identifiable_asset.asp">identifiable assets</a>.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Thus, sukuk represent aggregate and undivided shares of ownership in a tangible asset as it relates to a specific project or a specific investment activity. An investor in a sukuk, therefore, does not own a debt obligation owed by the bond issuer, but instead owns a piece of the asset that's linked to the investment. This means that sukuk holders, unlike bond holders, receive a portion of the earnings generated by the associated asset.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-sukuk-vs-traditional-bonds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Sukuk vs. Traditional Bonds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Sukuk and conventional bonds do share similar characteristics, but also have important key differences: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_17-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Similarities</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Both provide investors with payment streams.</p></li> <li><p>Bonds and sukuk are issued to investors and may be used to raise capital for a firm.</p></li> <li><p>Both are considered to be safer investments than equities.</p><p><br/></p></li> <li><p>Sukuk investors receive profit generated by the underlying asset on a periodic basis while bond investors receive periodic interest payments.</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">Key Differences</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Sukuk involves asset ownership while bonds are debt obligations.</p></li> <li><p>If the asset backing a sukuk appreciates then the sukuk can appreciate whereas bond yield is strictly due to its interest rate.</p></li> <li><p>Assets that back sukuk are <em>halal </em>whereas bonds are often riba and may finance non sharia compliant businesses or fuel speculation.</p></li> <li><p>Sukuk valuation is based on the value of the assets backing them while a bonds price is largely determined by its credit rating.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-sukuk-example-trust-certificates"></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"> Sukuk Example: Trust Certificates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The most common type of a sukuk comes in the form of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trust-certificate.asp">trust certificate</a>. These certificates are also governed by Western law, however, the structure of this type of sukuk is more nuanced. The organization raising funds first creates an offshore <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spv.asp">special purpose vehicle (SPV)</a>. The SPV then issues trust certificates to qualified investors and puts the proceeds of the investments toward a funding agreement with the issuing organization. In return, the investors earn a portion of the profits linked to the asset.<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_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Sukuk structured as trust certificates are only applicable if the SPV can be created in an offshore jurisdiction that allows such trusts. This is sometimes not possible. If an SPV and trust certificates can't be created, a sukuk can be structured as an alternative civil-law structure. In this scenario, an asset-leasing company is created in the country of origin, effectively purchasing the asset and leasing it back to the organization in need of financing.<span class="ql-inline-citation" data-cite="6"></span> </p></div>

## What Is a Sukuk? A *sukuk* is an Islamic financial certificate, similar to a bond in Western finance, that [complies with Islamic religious law](https://www.investopedia.com/terms/z/zakat.asp) commonly known as [Sharia](https://www.investopedia.com/terms/s/shariah.asp). Since the traditional Western interest-paying bond structure is not permissible, the issuer of a sukuk essentially sells an investor group a certificate, and then uses the proceeds to purchase an asset that the investor group has direct partial ownership interest in. The issuer must also make a contractual promise to buy back the bond at a future date [at par](https://www.investopedia.com/terms/a/at-par.asp) value. ### Key Takeaways * A sukuk is a sharia-compliant bond-like instruments used in Islamic finance. * Sukuk involves a direct asset ownership interest, while bonds are indirect interest-bearing debt obligations. * Both sukuk and bonds provide investors with payment streams, however income derived from a sukuk cannot be speculative which would make it no longer *halal.* ## Understanding Sukuk With the rise of [Islamic finance](https://www.investopedia.com/terms/i/islamicbanking.asp), sukuk have become extremely popular since 2000, when the first such products were issued in Malaysia. Bahrain followed suit in 2001. Fast forward to current times, and sukuk are used by Islamic corporations and state-run organizations alike around the globe, taking up an increasing share of the global fixed-income market. Islamic law prohibits what's known as "[riba](https://www.investopedia.com/terms/r/riba.asp)," or what we understand as "[interest](https://www.investopedia.com/terms/i/interestrate.asp)" in the West. Therefore, traditional, Western debt instruments cannot be used as viable investment vehicles or ways to raise capital for a business. To circumvent this, sukuk were created in order to link the returns and cash flows of debt financing to a specific asset being purchased, effectively distributing the benefits of that asset. This allows investors to work around the prohibition outlined under Sharia and still receive the benefits of debt financing. However, because of the way that sukuk are structured, financing can only be raised for [identifiable assets](https://www.investopedia.com/terms/i/identifiable_asset.asp). Thus, sukuk represent aggregate and undivided shares of ownership in a tangible asset as it relates to a specific project or a specific investment activity. An investor in a sukuk, therefore, does not own a debt obligation owed by the bond issuer, but instead owns a piece of the asset that's linked to the investment. This means that sukuk holders, unlike bond holders, receive a portion of the earnings generated by the associated asset. ## Sukuk vs. Traditional Bonds Sukuk and conventional bonds do share similar characteristics, but also have important key differences: Similarities * Both provide investors with payment streams. * Bonds and sukuk are issued to investors and may be used to raise capital for a firm. * Both are considered to be safer investments than equities. * Sukuk investors receive profit generated by the underlying asset on a periodic basis while bond investors receive periodic interest payments. Key Differences * Sukuk involves asset ownership while bonds are debt obligations. * If the asset backing a sukuk appreciates then the sukuk can appreciate whereas bond yield is strictly due to its interest rate. * Assets that back sukuk are *halal* whereas bonds are often riba and may finance non sharia compliant businesses or fuel speculation. * Sukuk valuation is based on the value of the assets backing them while a bonds price is largely determined by its credit rating. ## Sukuk Example: Trust Certificates The most common type of a sukuk comes in the form of a [trust certificate](https://www.investopedia.com/terms/t/trust-certificate.asp). These certificates are also governed by Western law, however, the structure of this type of sukuk is more nuanced. The organization raising funds first creates an offshore [special purpose vehicle (SPV)](https://www.investopedia.com/terms/s/spv.asp). The SPV then issues trust certificates to qualified investors and puts the proceeds of the investments toward a funding agreement with the issuing organization. In return, the investors earn a portion of the profits linked to the asset. Sukuk structured as trust certificates are only applicable if the SPV can be created in an offshore jurisdiction that allows such trusts. This is sometimes not possible. If an SPV and trust certificates can't be created, a sukuk can be structured as an alternative civil-law structure. In this scenario, an asset-leasing company is created in the country of origin, effectively purchasing the asset and leasing it back to the organization in need of financing.

What Is a Sukuk? A sukuk is an Islamic financial certificate, similar to a bond in Western finance, that complies with Islamic religious law commonly known as Sharia. Since the traditional Western interest-paying bond structure is not permissible, the issuer of a sukuk essentially sells an investor group a certificate, and then uses the proceeds to purchase an asset that the investor group has direct partial ownership interest in. The issuer must also make a contractual promise to buy back the bond at a future date at par value. Key Takeaways A sukuk is a sharia-compliant bond-like instruments used in Islamic finance.Sukuk involves a direct asset ownership interest, while bonds are indirect interest-bearing debt obligations.Both sukuk and bonds provide investors with payment streams, however income derived from a sukuk cannot be speculative which would make it no longer halal. Understanding Sukuk With the rise of Islamic finance, sukuk have become extremely popular since 2000, when the first such products were issued in Malaysia. Bahrain followed suit in 2001. Fast forward to current times, and sukuk are used by Islamic corporations and state-run organizations alike around the globe, taking up an increasing share of the global fixed-income market. Islamic law prohibits what's known as "riba," or what we understand as "interest" in the West. Therefore, traditional, Western debt instruments cannot be used as viable investment vehicles or ways to raise capital for a business. To circumvent this, sukuk were created in order to link the returns and cash flows of debt financing to a specific asset being purchased, effectively distributing the benefits of that asset. This allows investors to work around the prohibition outlined under Sharia and still receive the benefits of debt financing. However, because of the way that sukuk are structured, financing can only be raised for identifiable assets. Thus, sukuk represent aggregate and undivided shares of ownership in a tangible asset as it relates to a specific project or a specific investment activity. An investor in a sukuk, therefore, does not own a debt obligation owed by the bond issuer, but instead owns a piece of the asset that's linked to the investment. This means that sukuk holders, unlike bond holders, receive a portion of the earnings generated by the associated asset. Sukuk vs. Traditional Bonds Sukuk and conventional bonds do share similar characteristics, but also have important key differences: Similarities Both provide investors with payment streams. Bonds and sukuk are issued to investors and may be used to raise capital for a firm. Both are considered to be safer investments than equities. Sukuk investors receive profit generated by the underlying asset on a periodic basis while bond investors receive periodic interest payments. Key Differences Sukuk involves asset ownership while bonds are debt obligations. If the asset backing a sukuk appreciates then the sukuk can appreciate whereas bond yield is strictly due to its interest rate. Assets that back sukuk are halal whereas bonds are often riba and may finance non sharia compliant businesses or fuel speculation. Sukuk valuation is based on the value of the assets backing them while a bonds price is largely determined by its credit rating. Sukuk Example: Trust Certificates The most common type of a sukuk comes in the form of a trust certificate. These certificates are also governed by Western law, however, the structure of this type of sukuk is more nuanced. The organization raising funds first creates an offshore special purpose vehicle (SPV). The SPV then issues trust certificates to qualified investors and puts the proceeds of the investments toward a funding agreement with the issuing organization. In return, the investors earn a portion of the profits linked to the asset. Sukuk structured as trust certificates are only applicable if the SPV can be created in an offshore jurisdiction that allows such trusts. This is sometimes not possible. If an SPV and trust certificates can't be created, a sukuk can be structured as an alternative civil-law structure. In this scenario, an asset-leasing company is created in the country of origin, effectively purchasing the asset and leasing it back to the organization in need of financing.

https://www.investopedia.com/ask/answers/06/creditcardforex.asp

How Do You Fund a Forex Account?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forex.asp">forex</a> (FX) market is where <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency.asp">currencies</a> from around the world are traded. A foreign exchange account is typically what is used to trade and hold foreign currencies online. Using these accounts is easier than it has ever been in the past. Typically, you will just need to open a new account, deposit the amount of money you choose in your country’s currency, and then you are free to sell and buy currency pairs as you see fit. </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>Forex accounts are used to hold and trade foreign currencies.</li><li>It is easier than ever for individuals to participate in forex trading, due to the development of margin accounts and electronic trading. </li><li>You can invest in forex with as little as $1,000. </li><li>The biggest difference between trading equities and trading on forex is the amount of leverage required.</li><li>Forex accounts can be funded by credit card, wire transfer, personal check, or bank check. </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"> In the past, currency trading was limited to certain individuals and institutions. That's because the funds required to play were significantly higher than for any other investment instrument. However, with the development of electronic trading networks and <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>, requirements have changed. Although nearly 75% of forex trading is still done by large banks and <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>, individuals are now able to invest in forex with as little as $1,000—thanks in large part to the use of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leverage</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Despite these changes, making high returns on highly-leveraged currency trades can be difficult, and will require a good amount of patience and skill.  </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-forex-trading-works"></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 Forex Trading Works  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> By using a margin account, investors essentially borrow money from their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker.asp">brokers</a>. Of course, margin accounts can also be used by investors to trade in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a> securities. The main difference between trading equities and trading forex on margin is the degree of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leverage</a> that is provided. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> For equity securities, brokers usually offer a 2:1 leverage to investors. On the other hand, forex traders are offered between 50:1 and 200:1 leverage. This means that traders need to deposit between $250 and $2,000 to trade positions of $50,000 to $100,000. </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><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-forex-trading-classes-5094837">Learning the ins and outs</a> of investing in a market that contains foreign currencies can be a useful skill to develop in today’s hyper-connected world.</p></div></div></div> <span class="heading-toc" id="toc-how-to-fund-a-forex-account"></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 Fund a Forex Account  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Forex traders are usually given several options when deciding how they will deposit funds into <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tradingaccount.asp">trading accounts</a>. Credit card deposits have by far become the easiest way. Since the development of online payment services, digital credit card payouts have become increasingly efficient and secure. Investors can simply log in to their respective forex accounts, type in their credit card information and the funds will be posted in about one business day. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Investors can also transfer funds into their trading accounts from an existing bank account or send the funds through a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wiretransfer.asp">wire transfer</a> or online check. When choosing to perform a wire transfer, keep in mind that most banks will charge about $30 per wire, and there may be a delay of two to three days before the amount will show in the recipient’s account for the first transfer performed.  </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"> Traders are also usually able to write a personal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/check.asp">check</a> or a bank check directly to their forex brokers. The only problem with using these other methods is the amount of time that is needed to process the payments. For example, paper checks can be held for up to 10 business days (depending on the individual’s bank and the state) before being added to a trading account. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_23-0"><span class="heading-toc" id="toc-what-is-the-best-way-to-fund-a-forex-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Best Way to Fund a Forex Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A digital transaction, such as paying by credit card, transferring from a bank account, paying by wire transfer, or online check is likely the fastest and safest method of payment. However, traders can also put a check in the mail, although this is a slower method and could end up getting lost in transit.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_25-0"><span class="heading-toc" id="toc-do-you-need-a-lot-of-money-to-invest-in-forex"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do You Need a Lot of Money to Invest in Forex?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While big banks and other financial institutions are the biggest players in the forex market, an individual can invest with as little as $1000 to start.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_27-0"><span class="heading-toc" id="toc-can-regular-investors-trade-in-forex"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Regular Investors Trade in Forex?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, roughly 75% of forex trading is done by so-called average investors, thanks in large part to electronic trading platforms and the availability of leverage.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <em>Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.</em><br/> </p></div>

The [forex](https://www.investopedia.com/terms/f/forex.asp) (FX) market is where [currencies](https://www.investopedia.com/terms/c/currency.asp) from around the world are traded. A foreign exchange account is typically what is used to trade and hold foreign currencies online. Using these accounts is easier than it has ever been in the past. Typically, you will just need to open a new account, deposit the amount of money you choose in your country’s currency, and then you are free to sell and buy currency pairs as you see fit. ### Key Takeaways * Forex accounts are used to hold and trade foreign currencies. * It is easier than ever for individuals to participate in forex trading, due to the development of margin accounts and electronic trading. * You can invest in forex with as little as $1,000. * The biggest difference between trading equities and trading on forex is the amount of leverage required. * Forex accounts can be funded by credit card, wire transfer, personal check, or bank check. In the past, currency trading was limited to certain individuals and institutions. That's because the funds required to play were significantly higher than for any other investment instrument. However, with the development of electronic trading networks and [margin accounts](https://www.investopedia.com/terms/m/marginaccount.asp), requirements have changed. Although nearly 75% of forex trading is still done by large banks and [financial institutions](https://www.investopedia.com/terms/f/financialinstitution.asp), individuals are now able to invest in forex with as little as $1,000—thanks in large part to the use of [leverage](https://www.investopedia.com/terms/l/leverage.asp). Despite these changes, making high returns on highly-leveraged currency trades can be difficult, and will require a good amount of patience and skill.  ## How Forex Trading Works By using a margin account, investors essentially borrow money from their [brokers](https://www.investopedia.com/terms/b/broker.asp). Of course, margin accounts can also be used by investors to trade in [equity](https://www.investopedia.com/terms/e/equity.asp) securities. The main difference between trading equities and trading forex on margin is the degree of [leverage](https://www.investopedia.com/terms/l/leverage.asp) that is provided. For equity securities, brokers usually offer a 2:1 leverage to investors. On the other hand, forex traders are offered between 50:1 and 200:1 leverage. This means that traders need to deposit between $250 and $2,000 to trade positions of $50,000 to $100,000. ### [Learning the ins and outs](https://www.investopedia.com/best-online-forex-trading-classes-5094837) of investing in a market that contains foreign currencies can be a useful skill to develop in today’s hyper-connected world. ## How to Fund a Forex Account Forex traders are usually given several options when deciding how they will deposit funds into [trading accounts](https://www.investopedia.com/terms/t/tradingaccount.asp). Credit card deposits have by far become the easiest way. Since the development of online payment services, digital credit card payouts have become increasingly efficient and secure. Investors can simply log in to their respective forex accounts, type in their credit card information and the funds will be posted in about one business day. Investors can also transfer funds into their trading accounts from an existing bank account or send the funds through a [wire transfer](https://www.investopedia.com/terms/w/wiretransfer.asp) or online check. When choosing to perform a wire transfer, keep in mind that most banks will charge about $30 per wire, and there may be a delay of two to three days before the amount will show in the recipient’s account for the first transfer performed.  Traders are also usually able to write a personal [check](https://www.investopedia.com/terms/c/check.asp) or a bank check directly to their forex brokers. The only problem with using these other methods is the amount of time that is needed to process the payments. For example, paper checks can be held for up to 10 business days (depending on the individual’s bank and the state) before being added to a trading account. ## What Is the Best Way to Fund a Forex Account? A digital transaction, such as paying by credit card, transferring from a bank account, paying by wire transfer, or online check is likely the fastest and safest method of payment. However, traders can also put a check in the mail, although this is a slower method and could end up getting lost in transit. ## Do You Need a Lot of Money to Invest in Forex? While big banks and other financial institutions are the biggest players in the forex market, an individual can invest with as little as $1000 to start. ## Can Regular Investors Trade in Forex? Yes, roughly 75% of forex trading is done by so-called average investors, thanks in large part to electronic trading platforms and the availability of leverage. *Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.*

The forex (FX) market is where currencies from around the world are traded. A foreign exchange account is typically what is used to trade and hold foreign currencies online. Using these accounts is easier than it has ever been in the past. Typically, you will just need to open a new account, deposit the amount of money you choose in your country’s currency, and then you are free to sell and buy currency pairs as you see fit. Key Takeaways Forex accounts are used to hold and trade foreign currencies.It is easier than ever for individuals to participate in forex trading, due to the development of margin accounts and electronic trading. You can invest in forex with as little as $1,000. The biggest difference between trading equities and trading on forex is the amount of leverage required.Forex accounts can be funded by credit card, wire transfer, personal check, or bank check.  In the past, currency trading was limited to certain individuals and institutions. That's because the funds required to play were significantly higher than for any other investment instrument. However, with the development of electronic trading networks and margin accounts, requirements have changed. Although nearly 75% of forex trading is still done by large banks and financial institutions, individuals are now able to invest in forex with as little as $1,000—thanks in large part to the use of leverage. Despite these changes, making high returns on highly-leveraged currency trades can be difficult, and will require a good amount of patience and skill.  How Forex Trading Works  By using a margin account, investors essentially borrow money from their brokers. Of course, margin accounts can also be used by investors to trade in equity securities. The main difference between trading equities and trading forex on margin is the degree of leverage that is provided. For equity securities, brokers usually offer a 2:1 leverage to investors. On the other hand, forex traders are offered between 50:1 and 200:1 leverage. This means that traders need to deposit between $250 and $2,000 to trade positions of $50,000 to $100,000. Learning the ins and outs of investing in a market that contains foreign currencies can be a useful skill to develop in today’s hyper-connected world. How to Fund a Forex Account  Forex traders are usually given several options when deciding how they will deposit funds into trading accounts. Credit card deposits have by far become the easiest way. Since the development of online payment services, digital credit card payouts have become increasingly efficient and secure. Investors can simply log in to their respective forex accounts, type in their credit card information and the funds will be posted in about one business day. Investors can also transfer funds into their trading accounts from an existing bank account or send the funds through a wire transfer or online check. When choosing to perform a wire transfer, keep in mind that most banks will charge about $30 per wire, and there may be a delay of two to three days before the amount will show in the recipient’s account for the first transfer performed.  Traders are also usually able to write a personal check or a bank check directly to their forex brokers. The only problem with using these other methods is the amount of time that is needed to process the payments. For example, paper checks can be held for up to 10 business days (depending on the individual’s bank and the state) before being added to a trading account. What Is the Best Way to Fund a Forex Account? A digital transaction, such as paying by credit card, transferring from a bank account, paying by wire transfer, or online check is likely the fastest and safest method of payment. However, traders can also put a check in the mail, although this is a slower method and could end up getting lost in transit. Do You Need a Lot of Money to Invest in Forex? While big banks and other financial institutions are the biggest players in the forex market, an individual can invest with as little as $1000 to start. Can Regular Investors Trade in Forex? Yes, roughly 75% of forex trading is done by so-called average investors, thanks in large part to electronic trading platforms and the availability of leverage. Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.

https://www.investopedia.com/terms/s/stock-etf.asp

Exchange-Traded Fund (ETF) Types and Benefits Explained

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-stock-exchange-traded-fund-etf"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Stock Exchange-Traded Fund (ETF)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The term stock exchange-traded fund (ETF) refers to a security that tracks a particular set of equities. These ETFs <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">trade on exchanges</a> the same way normal stocks do and track <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equities</a> just like an index. They can track stocks in a single industry or an entire index of equities. Investors who purchase shares of stock exchange ETF can gain exposure to a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/basket.asp">basket</a> of equities and limited company-specific risk associated with single stocks, providing them with a cost-effective way to diversify their <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolios</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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 stock exchange-traded fund tracks a set of stocks.</li><li>These ETFs provide investors with immediate diversification within a low cost, easily tradable vehicle.</li><li>Research suggests that passive-investment vehicles like ETFs tend to return more than actively-managed vehicles like mutual funds over the long run.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-stock-exchange-traded-funds-etfs"></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 Stock Exchange-Traded Funds (ETFs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> An exchange-traded fund is an asset that allows investors to track any number of things, such as indexes, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp">commodities</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sector.asp">sectors</a>, or even stocks. Investors can purchase shares in these securities, which trade on stock exchanges. Prices change regularly through the course of a trading day, just like stocks. They are generally considered a more cost-effective and more liquid investment compared to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/how-pick-best-mutual-fund/">mutual funds</a>.<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_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> As mentioned above, ETFs can also track stocks. These are called stock exchange-traded funds. These securities allow investors to gain exposure to a basket of equities in a specific sector or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/index.asp">index</a> without purchasing individual stocks.<span class="ql-inline-citation" data-cite="17"></span><span class="ql-inline-citation" data-cite="18"></span> For instance, these ETFs can track stocks in the energy sector or an entire index of equities like the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500</a>. Other tracking methods include the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/021315/what-difference-between-stochastic-oscillator-stochastic-momentum-index.asp">Stochastic Oscillator and the Stochastic Momentum Index</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> There is also a group of ETFs that bet against the success of an index or sector, meaning the asset performs well when the underlying asset struggles.<span class="ql-inline-citation" data-cite="19"></span> Unlike a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/110314/key-differences-between-etfs-and-mutual-funds.asp">mutual fund, a stock ETF</a> charges minimal management fees and carries low expense ratios.<span class="ql-inline-citation" data-cite="12"></span> This makes it an ideal tool for investors of any skill level looking to maintain low costs and generate consistent <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">returns</a>.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The original purpose of investing in ETFs was to meet long-term goals, but they can be traded like any other stock in that investors can short or buy on margin.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Since they give investors access to a broad range of equities or indexes makes these (and others), stock ETFs are generally considered very diversified assets. This instant diversification limits some of the unsystematic risk associated with company stocks and comes in a simple, low-cost, and tax-efficient tool that can be accessed through most online <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-brokers-for-etfs-4587875" rel="noopener noreferrer">brokerages</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-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 with-title" id="mntl-sc-block-callout-heading_3-0">2,408</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The number of stock ETFs that are trading in the United States, as of 2024, giving investors a huge number of potential funds to choose from.<span class="ql-inline-citation" data-cite="15"></span></p></div></div></div> <span class="heading-toc" id="toc-benefits-of-stock-exchange-traded-funds-etfs"></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"> Benefits of Stock Exchange-Traded Funds (ETFs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Stock ETFs offer investors a wealth of benefits so it makes sense that fund inflows have increased. In fact, as of January 2024, the ETF market in the United States holds $6.254 trillion in assets under management.<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_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The broad advantages cannot go understated. They are an excellent option for investors who want to diversify their portfolio in a flexible, low cost, and tax-efficient manner. In fact, a growing body of research suggests passive investments like stock ETFs tend to outperform actively managed funds over a long time frame.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-types-of-stock-exchange-traded-funds-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Types of Stock Exchange-Traded Funds (ETFs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The more popular stock ETFs track benchmark indexes like the S&amp;P 500 or Dow 30. For instance, the SPDR S&amp;P 500 (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=spy">SPY</a>) is consistently the most active asset with an average daily volume exceeding 80 million shares in the 30 days preceding January 12, 2024.<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Other styles of stock ETFs adopt a factor-based strategy that accounts for specific attributes like <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>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/momentum.asp">momentum</a>, and value. This subset is a popular strategy known as <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smart-beta.asp">Smart Beta</a>, which attempts to deliver better risk-adjusted returns than a conventional market capitalization-weighted index. </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"> Sector funds are another popular ETF category that tracks the stocks of a specific industry like energy, financials, and technology. </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"> Here's a breakdown of the various types of ETFs. </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>Passive ETFs </strong>aim to replicate the performance of a broader index or trend</li><li><strong>Actively Managed ETFs</strong> have portfolio managers making decisions about which securities to include in the fund</li><li><strong>Bond ETFs</strong> do not have a maturity date, but can provide regular income to investors, depending on the performance of the underlying bonds</li><li>Stock ETFs comprise a basket of stocks (both high performers and growth stocks) to track a single industry or sector</li><li><strong>Industry/Sector ETFs</strong> focus on a specific sector or industry to gain exposure to the upside of that industry</li><li><strong>Commodity ETFs</strong> invest in commodities without the insurance or storage costs of the physical assets</li><li><strong>Currency ETFs</strong> track the performance of currency pairs consisting of domestic and foreign currencies</li><li><strong>Bitcoin ETFs</strong>, including spot bitcoin ETFs and bitcoin futures ETFs, offer investors exposure to the crypto market without the need to purchase and store a crypto wallet</li><li><strong>Inverse ETFs</strong> aim to earn games from stock declines by shorting stocks</li><li><strong>Leveraged ETFs</strong> seek to return some multiples on the return of the underlying investment</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-are-etfs-a-good-investment"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are ETFs a Good Investment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Exchange-traded funds are often recommended for retail investors because they offer exposure to a broad sector of the market, without requiring the investor to actively manage a portfolio. But like other securities, they do require some research and they may lose money in a market downturn.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-what-is-the-difference-between-an-index-fund-and-an-etf"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between an Index Fund and an ETF?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>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> is a fund that invests in a basket of securities that tracks the performance of a market index, such as the S&amp;P 500. Most exchange-traded funds are also index funds. The main difference is that ETFs can be bought and sold throughout the trading day, while trades in other funds are only executed at the end of a trading day.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_39-0"><span class="heading-toc" id="toc-how-do-you-choose-the-best-etfs"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Choose the Best ETFs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can research the different kinds of ETFs through the website of any major brokerage, such as Fidelity or Charles Schwab. Simply look for a section titled "ETF Screener" and select the characteristics that you are looking for in an ETF.</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"> Exchange-traded funds are similar to mutual funds, in that they represent a basket of securities with exposure to a cross-section of the market. Unlike other types of funds, ETFs can be traded throughout the trading day, providing additional flexibility,<br/> </p></div>

## What Is a Stock Exchange-Traded Fund (ETF)? The term stock exchange-traded fund (ETF) refers to a security that tracks a particular set of equities. These ETFs [trade on exchanges](https://www.investopedia.com/terms/e/etf.asp) the same way normal stocks do and track [equities](https://www.investopedia.com/terms/e/equity.asp) just like an index. They can track stocks in a single industry or an entire index of equities. Investors who purchase shares of stock exchange ETF can gain exposure to a [basket](https://www.investopedia.com/terms/b/basket.asp) of equities and limited company-specific risk associated with single stocks, providing them with a cost-effective way to diversify their [portfolios](https://www.investopedia.com/terms/p/portfolio.asp). ### Key Takeaways * A stock exchange-traded fund tracks a set of stocks. * These ETFs provide investors with immediate diversification within a low cost, easily tradable vehicle. * Research suggests that passive-investment vehicles like ETFs tend to return more than actively-managed vehicles like mutual funds over the long run. ## Understanding Stock Exchange-Traded Funds (ETFs) An exchange-traded fund is an asset that allows investors to track any number of things, such as indexes, [commodities](https://www.investopedia.com/terms/c/commodity.asp), [sectors](https://www.investopedia.com/terms/s/sector.asp), or even stocks. Investors can purchase shares in these securities, which trade on stock exchanges. Prices change regularly through the course of a trading day, just like stocks. They are generally considered a more cost-effective and more liquid investment compared to [mutual funds](https://www.investopedia.com/investing/how-pick-best-mutual-fund/). As mentioned above, ETFs can also track stocks. These are called stock exchange-traded funds. These securities allow investors to gain exposure to a basket of equities in a specific sector or [index](https://www.investopedia.com/terms/i/index.asp) without purchasing individual stocks. For instance, these ETFs can track stocks in the energy sector or an entire index of equities like the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp). Other tracking methods include the [Stochastic Oscillator and the Stochastic Momentum Index](https://www.investopedia.com/ask/answers/021315/what-difference-between-stochastic-oscillator-stochastic-momentum-index.asp). There is also a group of ETFs that bet against the success of an index or sector, meaning the asset performs well when the underlying asset struggles. Unlike a [mutual fund, a stock ETF](https://www.investopedia.com/articles/investing/110314/key-differences-between-etfs-and-mutual-funds.asp) charges minimal management fees and carries low expense ratios. This makes it an ideal tool for investors of any skill level looking to maintain low costs and generate consistent [returns](https://www.investopedia.com/terms/r/return.asp).  ### The original purpose of investing in ETFs was to meet long-term goals, but they can be traded like any other stock in that investors can short or buy on margin. Since they give investors access to a broad range of equities or indexes makes these (and others), stock ETFs are generally considered very diversified assets. This instant diversification limits some of the unsystematic risk associated with company stocks and comes in a simple, low-cost, and tax-efficient tool that can be accessed through most online [brokerages](https://www.investopedia.com/best-brokers-for-etfs-4587875). ### 2,408 The number of stock ETFs that are trading in the United States, as of 2024, giving investors a huge number of potential funds to choose from. ## Benefits of Stock Exchange-Traded Funds (ETFs) Stock ETFs offer investors a wealth of benefits so it makes sense that fund inflows have increased. In fact, as of January 2024, the ETF market in the United States holds $6.254 trillion in assets under management. The broad advantages cannot go understated. They are an excellent option for investors who want to diversify their portfolio in a flexible, low cost, and tax-efficient manner. In fact, a growing body of research suggests passive investments like stock ETFs tend to outperform actively managed funds over a long time frame. ## Types of Stock Exchange-Traded Funds (ETFs) The more popular stock ETFs track benchmark indexes like the S&P 500 or Dow 30. For instance, the SPDR S&P 500 ([SPY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=spy)) is consistently the most active asset with an average daily volume exceeding 80 million shares in the 30 days preceding January 12, 2024. Other styles of stock ETFs adopt a factor-based strategy that accounts for specific attributes like [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp), [momentum](https://www.investopedia.com/terms/m/momentum.asp), and value. This subset is a popular strategy known as [Smart Beta](https://www.investopedia.com/terms/s/smart-beta.asp), which attempts to deliver better risk-adjusted returns than a conventional market capitalization-weighted index. Sector funds are another popular ETF category that tracks the stocks of a specific industry like energy, financials, and technology. Here's a breakdown of the various types of ETFs. * **Passive ETFs** aim to replicate the performance of a broader index or trend * **Actively Managed ETFs** have portfolio managers making decisions about which securities to include in the fund * **Bond ETFs** do not have a maturity date, but can provide regular income to investors, depending on the performance of the underlying bonds * Stock ETFs comprise a basket of stocks (both high performers and growth stocks) to track a single industry or sector * **Industry/Sector ETFs** focus on a specific sector or industry to gain exposure to the upside of that industry * **Commodity ETFs** invest in commodities without the insurance or storage costs of the physical assets * **Currency ETFs** track the performance of currency pairs consisting of domestic and foreign currencies * **Bitcoin ETFs**, including spot bitcoin ETFs and bitcoin futures ETFs, offer investors exposure to the crypto market without the need to purchase and store a crypto wallet * **Inverse ETFs** aim to earn games from stock declines by shorting stocks * **Leveraged ETFs** seek to return some multiples on the return of the underlying investment ## Are ETFs a Good Investment? Exchange-traded funds are often recommended for retail investors because they offer exposure to a broad sector of the market, without requiring the investor to actively manage a portfolio. But like other securities, they do require some research and they may lose money in a market downturn. ## What Is the Difference Between an Index Fund and an ETF? An [index fund](https://www.investopedia.com/terms/i/indexfund.asp) is a fund that invests in a basket of securities that tracks the performance of a market index, such as the S&P 500. Most exchange-traded funds are also index funds. The main difference is that ETFs can be bought and sold throughout the trading day, while trades in other funds are only executed at the end of a trading day. ## How Do You Choose the Best ETFs? You can research the different kinds of ETFs through the website of any major brokerage, such as Fidelity or Charles Schwab. Simply look for a section titled "ETF Screener" and select the characteristics that you are looking for in an ETF. ## The Bottom Line Exchange-traded funds are similar to mutual funds, in that they represent a basket of securities with exposure to a cross-section of the market. Unlike other types of funds, ETFs can be traded throughout the trading day, providing additional flexibility,

What Is a Stock Exchange-Traded Fund (ETF)? The term stock exchange-traded fund (ETF) refers to a security that tracks a particular set of equities. These ETFs trade on exchanges the same way normal stocks do and track equities just like an index. They can track stocks in a single industry or an entire index of equities. Investors who purchase shares of stock exchange ETF can gain exposure to a basket of equities and limited company-specific risk associated with single stocks, providing them with a cost-effective way to diversify their portfolios. Key Takeaways A stock exchange-traded fund tracks a set of stocks.These ETFs provide investors with immediate diversification within a low cost, easily tradable vehicle.Research suggests that passive-investment vehicles like ETFs tend to return more than actively-managed vehicles like mutual funds over the long run. Understanding Stock Exchange-Traded Funds (ETFs) An exchange-traded fund is an asset that allows investors to track any number of things, such as indexes, commodities, sectors, or even stocks. Investors can purchase shares in these securities, which trade on stock exchanges. Prices change regularly through the course of a trading day, just like stocks. They are generally considered a more cost-effective and more liquid investment compared to mutual funds. As mentioned above, ETFs can also track stocks. These are called stock exchange-traded funds. These securities allow investors to gain exposure to a basket of equities in a specific sector or index without purchasing individual stocks. For instance, these ETFs can track stocks in the energy sector or an entire index of equities like the S&P 500. Other tracking methods include the Stochastic Oscillator and the Stochastic Momentum Index. There is also a group of ETFs that bet against the success of an index or sector, meaning the asset performs well when the underlying asset struggles. Unlike a mutual fund, a stock ETF charges minimal management fees and carries low expense ratios. This makes it an ideal tool for investors of any skill level looking to maintain low costs and generate consistent returns.  The original purpose of investing in ETFs was to meet long-term goals, but they can be traded like any other stock in that investors can short or buy on margin. Since they give investors access to a broad range of equities or indexes makes these (and others), stock ETFs are generally considered very diversified assets. This instant diversification limits some of the unsystematic risk associated with company stocks and comes in a simple, low-cost, and tax-efficient tool that can be accessed through most online brokerages. 2,408 The number of stock ETFs that are trading in the United States, as of 2024, giving investors a huge number of potential funds to choose from. Benefits of Stock Exchange-Traded Funds (ETFs) Stock ETFs offer investors a wealth of benefits so it makes sense that fund inflows have increased. In fact, as of January 2024, the ETF market in the United States holds $6.254 trillion in assets under management. The broad advantages cannot go understated. They are an excellent option for investors who want to diversify their portfolio in a flexible, low cost, and tax-efficient manner. In fact, a growing body of research suggests passive investments like stock ETFs tend to outperform actively managed funds over a long time frame. Types of Stock Exchange-Traded Funds (ETFs) The more popular stock ETFs track benchmark indexes like the S&P 500 or Dow 30. For instance, the SPDR S&P 500 (SPY) is consistently the most active asset with an average daily volume exceeding 80 million shares in the 30 days preceding January 12, 2024. Other styles of stock ETFs adopt a factor-based strategy that accounts for specific attributes like market capitalization, momentum, and value. This subset is a popular strategy known as Smart Beta, which attempts to deliver better risk-adjusted returns than a conventional market capitalization-weighted index. Sector funds are another popular ETF category that tracks the stocks of a specific industry like energy, financials, and technology. Here's a breakdown of the various types of ETFs. Passive ETFs aim to replicate the performance of a broader index or trendActively Managed ETFs have portfolio managers making decisions about which securities to include in the fundBond ETFs do not have a maturity date, but can provide regular income to investors, depending on the performance of the underlying bondsStock ETFs comprise a basket of stocks (both high performers and growth stocks) to track a single industry or sectorIndustry/Sector ETFs focus on a specific sector or industry to gain exposure to the upside of that industryCommodity ETFs invest in commodities without the insurance or storage costs of the physical assetsCurrency ETFs track the performance of currency pairs consisting of domestic and foreign currenciesBitcoin ETFs, including spot bitcoin ETFs and bitcoin futures ETFs, offer investors exposure to the crypto market without the need to purchase and store a crypto walletInverse ETFs aim to earn games from stock declines by shorting stocksLeveraged ETFs seek to return some multiples on the return of the underlying investment Are ETFs a Good Investment? Exchange-traded funds are often recommended for retail investors because they offer exposure to a broad sector of the market, without requiring the investor to actively manage a portfolio. But like other securities, they do require some research and they may lose money in a market downturn. What Is the Difference Between an Index Fund and an ETF? An index fund is a fund that invests in a basket of securities that tracks the performance of a market index, such as the S&P 500. Most exchange-traded funds are also index funds. The main difference is that ETFs can be bought and sold throughout the trading day, while trades in other funds are only executed at the end of a trading day. How Do You Choose the Best ETFs? You can research the different kinds of ETFs through the website of any major brokerage, such as Fidelity or Charles Schwab. Simply look for a section titled "ETF Screener" and select the characteristics that you are looking for in an ETF. The Bottom Line Exchange-traded funds are similar to mutual funds, in that they represent a basket of securities with exposure to a cross-section of the market. Unlike other types of funds, ETFs can be traded throughout the trading day, providing additional flexibility,

https://www.investopedia.com/cds-vs-crypto-5235450

CDs vs. Crypto: 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-cds-vs-crypto-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"> CDs vs. Crypto: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> In the hierarchy of investment instruments regarding risk and return, traditional saving accounts have the lowest risk and reward. A small step up from a savings account is a certificate of deposit. This is an account you place your money in at a bank or other financial institution, with a promise not to withdraw it. The bank pays you interest for lending them money and returns it when the CD matures. </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"> On the other hand, crypto is a digital asset with several uses. As an investment, it experiences wide price fluctuations and is very susceptible to external influences. This volatility gives it a very high amount of risk but the possibility of high returns. </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>Certificates of deposit (CDs) are basically loans to a bank that pays you interest. You lose access to these funds until the CD matures.</li><li>Cryptocurrencies are digital assets in a much newer market and experience more price volatility than CDs.</li><li>Cryptocurrencies are more liquid than CDs but come with much more risk and a chance for high returns.</li></ul></div></div></div> <span class="heading-toc" id="toc-certificates-of-deposit"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Certificates of Deposit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> First and foremost, CDs are a loan to a financial institution. It is a commitment to leave the funds with it to do what it wants with it until the lending period is over. You receive regular interest payments from the bank and get your money back when the CD matures. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-subheading__text"> Risk </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> CDs are one of the safest places you can put your money and expect any growth. They are considered safe because your combined bank accounts at one institution are insured up to at least $250,000 per account per ownership category (i.e., single, joint, retirement 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_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> CDs are a low-risk investing option because it's very likely you'll get your money back along with the interest the bank owes you unless the bank fails and you exceed the insurance limits. </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"> Ideal Length of Investment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Certificates of deposit are generally considered suitable for short- or medium-term (one to five years) investing because of the terms offered and the guaranteed returns. </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"> Many investors use CDs to reallocate their portfolios as they transition from growth to preservation strategies because of the guaranteed returns and shorter timelines. They take funds from more risky investments and use them in income-generating strategies like a CD ladder, where CDs mature at regular intervals, leading to a regular source of income. </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"> Liquidity </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> While CDs are one of the more safe investments you can make, they don't have much flexibility due to how they are designed. Banks use the money you lock into a CD in loans to other customers and earn interest—interest is how banks make money. If you pull your money out before the CD matures, you'll pay early withdrawal penalties that can be steep because withdrawing it causes complications for the bank. </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"> Locking your money up means you can't access it if you need it, so CDs are much less liquid than crypto and some equities, bonds, or other instruments.<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"> Returns </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The returns you get from a CD are generally guaranteed by the bank, making them less risky. Because of the low risk, there is less reward in the form of low interest rates that don't match the possible returns of a more risky investment. </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-cryptocurrency"></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"> Cryptocurrency </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> One of the newest asset classes in many years, cryptocurrency emerged in 2008 not as an investment but as an alternate payment method. It soon caught on with investors once it was realized there was a market for them and people were making money. </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"> Crypto became popular with investors who accept more risk. Its volatility has caused some to lose thousands of dollars while others were able to make tremendous gains. </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"> Risk </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Crypto is an asset that experiences wide and quick price fluctuations. There are several reasons behind this, but the most prevalent is that there is nothing backing a cryptocurrency's market price except sentiment, fear of missing out, speculation, hope, greed, hype, and other human beliefs and behaviors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> This makes it highly susceptible to regulatory actions, news events, and public or popular figure influences. The emotional investing behind crypto introduces risks that an average investor's bank account generally can't tolerate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_39-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_40-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>As seen in the image below, on Oct. 16, 2023, Bitcoin's price jumped nearly $2,000 between 9:20 a.m. and 9:35 a.m. By 9:50 a.m., its price had dropped below its previous price. A media employee at a popular crypto news website had mistakenly tweeted that the Securities and Exchange Commission had approved a Bitcoin Spot ETF.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_41-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:54.7%;"> <img alt="Bitcoin price jump 16 Oct 2023" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/3EHDnJZepQ1FqUC0JqwoZ5GruXg=/1475x0/filters:no_upscale():max_bytes(150000):strip_icc()/Bitcoinpricejump16Oct-fdcd1cbb09c945b0b51cb09b97b48202.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/OLtLsyTJqrvX-Ak0NGgr_TgiFUY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Bitcoinpricejump16Oct-fdcd1cbb09c945b0b51cb09b97b48202.jpg" data-srcset="https://www.investopedia.com/thmb/_GcIrLBLjxtZJqQ-Fimk5IW82Ms=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Bitcoinpricejump16Oct-fdcd1cbb09c945b0b51cb09b97b48202.jpg 750w" data-tracking-container="true" height="808" id="mntl-sc-block-image_1-0" width="1475"/> <noscript> <img alt="Bitcoin price jump 16 Oct 2023" class="img--noscript universal-image__image" height="808" sizes="750px" src="https://www.investopedia.com/thmb/OLtLsyTJqrvX-Ak0NGgr_TgiFUY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Bitcoinpricejump16Oct-fdcd1cbb09c945b0b51cb09b97b48202.jpg" srcset="https://www.investopedia.com/thmb/_GcIrLBLjxtZJqQ-Fimk5IW82Ms=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Bitcoinpricejump16Oct-fdcd1cbb09c945b0b51cb09b97b48202.jpg 750w" width="1475"/> </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>CoinMarketCap</p></span> </figcaption></figure> <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"> Ideal Length of Investment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Since crypto has only been around since 2008, it is difficult to tell how long it should be held. Some fans say you should never sell your crypto, while others use it to day trade and try to profit from the price fluctuations.<br/> </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"> Liquidity </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> One of the advantages crypto has over CDs is that it is much more liquid—you can cash it in at almost any time. However, if prices are dropping, you run the risk of experiencing slippage. Slippage occurs because some blockchains take more time to process transactions than others, so depending on the cryptocurrency and market conditions, its price could drop between the time you make the transaction and the time you receive your money—resulting in less than you expected. But, the reverse is also true—you may get more than you thought if its price rises.<br/> </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"> Returns </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> You've likely seen or heard of the tremendous returns experienced by some crypto investors who jumped on board early. Those who held on through 2023 have made enormous gains. However, as mentioned, the fact that crypto prices can change drastically in a matter of minutes makes it a very risky investment. </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-which-is-a-better-investment-cds-or-crypto"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Is a Better Investment, CDs or Crypto?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Which is better depends on your tolerance for risk, investment goals, and strategy. CDs might be better if you can't afford to lose what you invest.</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-which-are-safer-cds-or-crypto"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Are Safer, CDs or Crypto?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>CDs are much safer due to the guarantees behind them; Crypto has nothing backing it other than market sentiment, so they are one of the least safe investments.</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-are-cds-a-good-long-term-investment"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are CDs a Good Long-Term Investment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>CDs are good for short- to medium-term investing. Over the long term, you will likely earn better returns by putting your money into stocks or other assets.</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"> Certificates of deposit (CDs) and cryptocurrencies are polar opposites as investments. CDs are useful for preserving capital, income planning, and slow growth. Cryptocurrencies, because they are still a new asset class and prone to wild price swings, are useful for risk-tolerant speculators. Which is best for you depends on your financial circumstances, risk tolerance, and investment strategy. </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"> <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="externalLink" href="https://www.google.com/url?q=https://www.investopedia.com/legal-4768893%23toc-warranty-and-liability-disclaimer&amp;sa=D&amp;source=editors&amp;ust=1697898479685553&amp;usg=AOvVaw0iMs9ct--3SIWi8ZFLpk2n"> </a><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.google.com/url?q=https://www.investopedia.com/legal-4768893%23toc-warranty-and-liability-disclaimer&amp;sa=D&amp;source=editors&amp;ust=1697898479685687&amp;usg=AOvVaw3bNftlRRQTqcAndAfeCgor">warranty and liability disclaimer</a> for more info. As of the date this article was written, the author does not own cryptocurrency.</em><br/> </p></div>

## CDs vs. Crypto: An Overview In the hierarchy of investment instruments regarding risk and return, traditional saving accounts have the lowest risk and reward. A small step up from a savings account is a certificate of deposit. This is an account you place your money in at a bank or other financial institution, with a promise not to withdraw it. The bank pays you interest for lending them money and returns it when the CD matures. On the other hand, crypto is a digital asset with several uses. As an investment, it experiences wide price fluctuations and is very susceptible to external influences. This volatility gives it a very high amount of risk but the possibility of high returns. ### Key Takeaways * Certificates of deposit (CDs) are basically loans to a bank that pays you interest. You lose access to these funds until the CD matures. * Cryptocurrencies are digital assets in a much newer market and experience more price volatility than CDs. * Cryptocurrencies are more liquid than CDs but come with much more risk and a chance for high returns. ## Certificates of Deposit First and foremost, CDs are a loan to a financial institution. It is a commitment to leave the funds with it to do what it wants with it until the lending period is over. You receive regular interest payments from the bank and get your money back when the CD matures. ### Risk CDs are one of the safest places you can put your money and expect any growth. They are considered safe because your combined bank accounts at one institution are insured up to at least $250,000 per account per ownership category (i.e., single, joint, retirement accounts). CDs are a low-risk investing option because it's very likely you'll get your money back along with the interest the bank owes you unless the bank fails and you exceed the insurance limits. ### Ideal Length of Investment Certificates of deposit are generally considered suitable for short- or medium-term (one to five years) investing because of the terms offered and the guaranteed returns. Many investors use CDs to reallocate their portfolios as they transition from growth to preservation strategies because of the guaranteed returns and shorter timelines. They take funds from more risky investments and use them in income-generating strategies like a CD ladder, where CDs mature at regular intervals, leading to a regular source of income. ### Liquidity While CDs are one of the more safe investments you can make, they don't have much flexibility due to how they are designed. Banks use the money you lock into a CD in loans to other customers and earn interest—interest is how banks make money. If you pull your money out before the CD matures, you'll pay early withdrawal penalties that can be steep because withdrawing it causes complications for the bank. Locking your money up means you can't access it if you need it, so CDs are much less liquid than crypto and some equities, bonds, or other instruments. ### Returns The returns you get from a CD are generally guaranteed by the bank, making them less risky. Because of the low risk, there is less reward in the form of low interest rates that don't match the possible returns of a more risky investment. ## Cryptocurrency One of the newest asset classes in many years, cryptocurrency emerged in 2008 not as an investment but as an alternate payment method. It soon caught on with investors once it was realized there was a market for them and people were making money. Crypto became popular with investors who accept more risk. Its volatility has caused some to lose thousands of dollars while others were able to make tremendous gains. ### Risk Crypto is an asset that experiences wide and quick price fluctuations. There are several reasons behind this, but the most prevalent is that there is nothing backing a cryptocurrency's market price except sentiment, fear of missing out, speculation, hope, greed, hype, and other human beliefs and behaviors. This makes it highly susceptible to regulatory actions, news events, and public or popular figure influences. The emotional investing behind crypto introduces risks that an average investor's bank account generally can't tolerate. ### As seen in the image below, on Oct. 16, 2023, Bitcoin's price jumped nearly $2,000 between 9:20 a.m. and 9:35 a.m. By 9:50 a.m., its price had dropped below its previous price. A media employee at a popular crypto news website had mistakenly tweeted that the Securities and Exchange Commission had approved a Bitcoin Spot ETF. ![Bitcoin price jump 16 Oct 2023]() :max_bytes(150000):strip_icc()/Bitcoinpricejump16Oct-fdcd1cbb09c945b0b51cb09b97b48202.jpg) CoinMarketCap ### Ideal Length of Investment Since crypto has only been around since 2008, it is difficult to tell how long it should be held. Some fans say you should never sell your crypto, while others use it to day trade and try to profit from the price fluctuations. ### Liquidity One of the advantages crypto has over CDs is that it is much more liquid—you can cash it in at almost any time. However, if prices are dropping, you run the risk of experiencing slippage. Slippage occurs because some blockchains take more time to process transactions than others, so depending on the cryptocurrency and market conditions, its price could drop between the time you make the transaction and the time you receive your money—resulting in less than you expected. But, the reverse is also true—you may get more than you thought if its price rises. ### Returns You've likely seen or heard of the tremendous returns experienced by some crypto investors who jumped on board early. Those who held on through 2023 have made enormous gains. However, as mentioned, the fact that crypto prices can change drastically in a matter of minutes makes it a very risky investment. ## Which Is a Better Investment, CDs or Crypto? Which is better depends on your tolerance for risk, investment goals, and strategy. CDs might be better if you can't afford to lose what you invest. ## Which Are Safer, CDs or Crypto? CDs are much safer due to the guarantees behind them; Crypto has nothing backing it other than market sentiment, so they are one of the least safe investments. ## Are CDs a Good Long-Term Investment? CDs are good for short- to medium-term investing. Over the long term, you will likely earn better returns by putting your money into stocks or other assets. ## The Bottom Line Certificates of deposit (CDs) and cryptocurrencies are polar opposites as investments. CDs are useful for preserving capital, income planning, and slow growth. Cryptocurrencies, because they are still a new asset class and prone to wild price swings, are useful for risk-tolerant speculators. Which is best for you depends on your financial circumstances, risk tolerance, and investment strategy. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our[warranty and liability disclaimer](https://www.google.com/url?q=https://www.investopedia.com/legal-4768893%23toc-warranty-and-liability-disclaimer&sa=D&source=editors&ust=1697898479685687&usg=AOvVaw3bNftlRRQTqcAndAfeCgor) for more info. As of the date this article was written, the author does not own cryptocurrency.*

CDs vs. Crypto: An Overview In the hierarchy of investment instruments regarding risk and return, traditional saving accounts have the lowest risk and reward. A small step up from a savings account is a certificate of deposit. This is an account you place your money in at a bank or other financial institution, with a promise not to withdraw it. The bank pays you interest for lending them money and returns it when the CD matures. On the other hand, crypto is a digital asset with several uses. As an investment, it experiences wide price fluctuations and is very susceptible to external influences. This volatility gives it a very high amount of risk but the possibility of high returns. Key Takeaways Certificates of deposit (CDs) are basically loans to a bank that pays you interest. You lose access to these funds until the CD matures.Cryptocurrencies are digital assets in a much newer market and experience more price volatility than CDs.Cryptocurrencies are more liquid than CDs but come with much more risk and a chance for high returns. Certificates of Deposit First and foremost, CDs are a loan to a financial institution. It is a commitment to leave the funds with it to do what it wants with it until the lending period is over. You receive regular interest payments from the bank and get your money back when the CD matures. Risk CDs are one of the safest places you can put your money and expect any growth. They are considered safe because your combined bank accounts at one institution are insured up to at least $250,000 per account per ownership category (i.e., single, joint, retirement accounts). CDs are a low-risk investing option because it's very likely you'll get your money back along with the interest the bank owes you unless the bank fails and you exceed the insurance limits. Ideal Length of Investment Certificates of deposit are generally considered suitable for short- or medium-term (one to five years) investing because of the terms offered and the guaranteed returns. Many investors use CDs to reallocate their portfolios as they transition from growth to preservation strategies because of the guaranteed returns and shorter timelines. They take funds from more risky investments and use them in income-generating strategies like a CD ladder, where CDs mature at regular intervals, leading to a regular source of income. Liquidity While CDs are one of the more safe investments you can make, they don't have much flexibility due to how they are designed. Banks use the money you lock into a CD in loans to other customers and earn interest—interest is how banks make money. If you pull your money out before the CD matures, you'll pay early withdrawal penalties that can be steep because withdrawing it causes complications for the bank. Locking your money up means you can't access it if you need it, so CDs are much less liquid than crypto and some equities, bonds, or other instruments. Returns The returns you get from a CD are generally guaranteed by the bank, making them less risky. Because of the low risk, there is less reward in the form of low interest rates that don't match the possible returns of a more risky investment. Cryptocurrency One of the newest asset classes in many years, cryptocurrency emerged in 2008 not as an investment but as an alternate payment method. It soon caught on with investors once it was realized there was a market for them and people were making money. Crypto became popular with investors who accept more risk. Its volatility has caused some to lose thousands of dollars while others were able to make tremendous gains. Risk Crypto is an asset that experiences wide and quick price fluctuations. There are several reasons behind this, but the most prevalent is that there is nothing backing a cryptocurrency's market price except sentiment, fear of missing out, speculation, hope, greed, hype, and other human beliefs and behaviors. This makes it highly susceptible to regulatory actions, news events, and public or popular figure influences. The emotional investing behind crypto introduces risks that an average investor's bank account generally can't tolerate. As seen in the image below, on Oct. 16, 2023, Bitcoin's price jumped nearly $2,000 between 9:20 a.m. and 9:35 a.m. By 9:50 a.m., its price had dropped below its previous price. A media employee at a popular crypto news website had mistakenly tweeted that the Securities and Exchange Commission had approved a Bitcoin Spot ETF. CoinMarketCap Ideal Length of Investment Since crypto has only been around since 2008, it is difficult to tell how long it should be held. Some fans say you should never sell your crypto, while others use it to day trade and try to profit from the price fluctuations. Liquidity One of the advantages crypto has over CDs is that it is much more liquid—you can cash it in at almost any time. However, if prices are dropping, you run the risk of experiencing slippage. Slippage occurs because some blockchains take more time to process transactions than others, so depending on the cryptocurrency and market conditions, its price could drop between the time you make the transaction and the time you receive your money—resulting in less than you expected. But, the reverse is also true—you may get more than you thought if its price rises. Returns You've likely seen or heard of the tremendous returns experienced by some crypto investors who jumped on board early. Those who held on through 2023 have made enormous gains. However, as mentioned, the fact that crypto prices can change drastically in a matter of minutes makes it a very risky investment. Which Is a Better Investment, CDs or Crypto? Which is better depends on your tolerance for risk, investment goals, and strategy. CDs might be better if you can't afford to lose what you invest. Which Are Safer, CDs or Crypto? CDs are much safer due to the guarantees behind them; Crypto has nothing backing it other than market sentiment, so they are one of the least safe investments. Are CDs a Good Long-Term Investment? CDs are good for short- to medium-term investing. Over the long term, you will likely earn better returns by putting your money into stocks or other assets. The Bottom Line Certificates of deposit (CDs) and cryptocurrencies are polar opposites as investments. CDs are useful for preserving capital, income planning, and slow growth. Cryptocurrencies, because they are still a new asset class and prone to wild price swings, are useful for risk-tolerant speculators. Which is best for you depends on your financial circumstances, risk tolerance, and investment strategy. 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 cryptocurrency.

https://www.investopedia.com/how-to-use-a-personal-loan-to-buy-a-car-7643631

Can I Use a Personal Loan to Buy a Car?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 get 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> from a bank, an online lender, or a credit union, and you can use it to buy almost anything, including a car. </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"> Though it’s more common to use an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/auto-loans-4689734">auto loan</a> to buy a car, taking out a personal loan can make sense in some circumstances. For example, you may want to use a personal loan if you don’t want to make a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/down_payment.asp">down payment</a> or are buying from a private seller. Look for a personal loan that has a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">low interest rate</a> and a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/loan-terms-5075341">repayment schedule</a> that works for you, and is with a <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lender</a> that you trust.<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>You can use a personal loan to make many types of purchases, including a car.</li><li>Auto loans tend to have lower interest rates than personal loans, and longer repayment periods.</li><li>Auto loans generally have lower interest rates because they use your car as collateral.</li><li>Using a personal loan to buy a car typically only makes financial sense in specific circumstances.<br/></li><li>If you are buying a car from a private seller or can’t afford a down payment, then a personal loan might be your only option.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-to-use-a-personal-loan-to-buy-a-car"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> How to Use a Personal Loan to Buy a Car </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A personal loan is typically an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredloan.asp">unsecured loan</a> that you can use for a variety of purposes. You may use a personal loan to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtconsolidation.asp">consolidate debt</a>, pay for home renovations, or buy a car. </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 can be offered by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank.asp">banks</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditunion.asp">credit unions</a>, or online lenders. The money you borrow must be <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repaid</a> over time, typically with <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a>, and <a class="pseudoStyle" data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a> can vary depending on your lender and <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a>. Some lenders may also charge fees. </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"> An auto loan works in a similar way, but with some key differences. Auto loans are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secured-loans-5076025">secured</a>, which means they require some type of collateral. In this case, your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a> is your new car—if you fail to pay back the loan, your lender can repossess your car to recoup the cost of the loan. In addition, auto loans can only be used to buy a car, and most can only be used to buy a car less than 10 years old.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-pros-and-cons-of-using-a-personal-loan-to-buy-a-car"></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"> Pros and Cons of Using a Personal Loan to Buy a Car </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_16-0"> <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>Flexibility</p></li> <li><p>Fast access</p></li> <li><p>No collateral</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Higher interest rates</p></li> <li><p>Shorter terms</p></li> <li><p>Limited availability for borrowers with bad credit</p></li> </ul> </div> </div></div> <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"> Pros Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> <li><strong>Flexibility</strong>: Auto loans are generally only available if you’re buying a car from a dealership. If you want to buy a car from a private seller, you can use a personal loan to cover the cost.</li><li><strong>Fast access</strong>: You can generally receive the funding for a personal loan within a few days if you are approved for the loan.</li><li><strong>No collateral</strong>: Since personal loans are unsecured, your car is not at risk if you fail to pay back your loan. If you are worried about not being to repay the loan and are looking to avoid repossession, however, then taking out a personal loan is not a good idea. Failing to pay back a personal loan can also have serious financial consequences.<span class="ql-inline-citation" data-cite="3"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Cons Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li><strong>Higher interest rates</strong>: Because personal loans are unsecured, they are a greater risk for your lender. This risk is mitigated by higher interest rates for personal loans compared to auto loans.</li> <li><strong>Shorter terms</strong>: It’s common for auto loans to have terms of five years or more, whereas personal loans generally have shorter terms. This means your monthly repayments will likely be higher.</li> <li><strong>Limited availability for borrowers with bad credit</strong>: Because auto loans are secured, they are less risky, so lenders can offer them to borrowers with bad credit. To get a personal loan with a reasonable interest rate, you’ll generally need a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/111615/are-personal-loans-bad-your-credit-score.asp">credit score of 670</a> or above, although credit requirements vary by lender.<span class="ql-inline-citation" data-cite="3"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-personal-loan-vs-auto-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"> Personal Loan vs. Auto Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> For most borrowers looking to finance a vehicle purchase, an auto loan will be the better option. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">Auto loans</a> generally have lower interest rates than personal loans, longer repayment periods, and lower monthly repayments.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_27-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_28-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you want to buy a vehicle from a private seller, using a personal loan might be a good option because you can access the cash quickly.</p></div></div></div> <span class="heading-toc" id="toc-how-to-use-a-personal-loan-for-a-car"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> How to Use a Personal Loan for a Car </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Using a personal loan for a car is a fairly straightforward process that begins with shopping for a car and a lender. Here is a step-by-step summary of how to use a personal loan to buy a car.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-subheading__text"> Step 1: Shop for a New Car </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> To apply for a loan, you’ll first need to know how much you need to borrow, so consider which car you want to buy before applying for the loan. That way, you know the price of the car and how much to apply to borrow. </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"> Step 2: Compare Lenders </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Next, shop around for the best loan deal. You should look for the loan with the lowest annual percentage rate (APR), and with monthly repayments that you can easily afford. Your interest rate and other terms will be determined by your credit score, so it’s a good idea to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrating.asp">check your credit score</a> before applying for a loan. You can often get <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prequalification.asp">pre-qualified</a> with a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soft-inquiry.asp">soft credit check</a>, which can help you compare which loans you are eligible for. </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"> Step 3: Apply </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> You can apply for a personal loan with a bank, an online lender, or a credit union. Most lenders will allow you to apply online, though credit unions will <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-join-a-credit-union-7495339">require you to become a member</a> first.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The application process will entail providing your financial information and personal information such as your Social Security number and address. This information will help the financial institution run a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-inquiry.asp">credit check</a> and assess your risk as a borrower. </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"> Step 4: Use Loan to Purchase a Car </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> If the lender approves your application, you should receive your money in your bank account within a few days. You can then use this money to buy your new car through whatever forms of payments the dealer accepts, such as a cashier’s check, a personal check, or a credit card payment. </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"> Step 5: Make Payments </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> After you’ve taken out your personal loan, you’ll need to make monthly repayments on it according to the terms of the agreement. If you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-happens-dont-pay-back-personal-loan-7555464">fail to make the payments</a> on time, your lender will likely charge you <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/late-fee.asp">late fees</a>. In addition, missed payments can damage your credit score, which will impact your ability to qualify for future loans.<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_48-0"></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_49-0"> <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_50-0"> 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_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_52-0"><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_53-0"></div> <span class="heading-toc" id="toc-when-could-using-a-personal-loan-for-a-car-make-sense"></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"> When Could Using a Personal Loan for a Car Make Sense? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> An auto loan is generally the best option to finance a car purchase because it offers the lowest rates, as it uses the car as collateral. However, in some circumstances, a personal loan might make more sense. These include situations such as if you are buying from a private seller or have a low credit score. </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"> Buying from a Private Seller </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Auto loans are available at financial institutions and dealerships. You can use an auto loan from a bank or credit union to buy a loan from a private seller, but not all financial institutions offer private-party auto loans. So, if you are buying a vehicle from a private seller, then a personal loan might be a good option. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_60-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_61-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>If you can wait a few months and save up for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-down-payment-is-needed-for-a-car-5184453">down payment on a car</a>, you can likely get a loan with lower rates.</p></div></div></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"> Having a Low Credit Score </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 a low credit score, you might not be able to get an auto loan. You will likely have a more difficult time getting a personal loan as well. However, some lenders specialize in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349">personal loans for people with bad credit</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"> The downside to getting a personal loan with a low credit score is that you will face higher interest rates, which can make the loan very expensive. </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"> If you can, consider delaying your car purchase and work on improving your credit score by paying down debt and making timely payments before you apply for either a car loan or a personal loan.<span class="ql-inline-citation" data-cite="2"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-can-you-use-a-personal-loan-for-a-car-purchase"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Use a Personal Loan for a Car Purchase?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can use a personal loan for almost any purpose, including for a car purchase. An auto loan is likely to be the better option for most people, because it offers lower rates by using your car as collateral.</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-credit-score-is-needed-for-a-personal-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Credit Score Is Needed for a Personal Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The credit score you need to get a personal loan will depend on the lender. Commonly, you’ll need a credit score of at least 670 to be considered <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-worthiness.asp">creditworthy</a> to get a personal loan with a reasonable interest rate.<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_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-you-qualify-for-a-personal-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Qualify for a Personal Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Personal loan lenders will look at your credit score and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a> when you apply for a loan, but you don’t need to make a down payment. Most personal loans do not require collateral.</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-does-a-personal-loan-affect-your-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does a Personal Loan Affect Your Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When you apply for a personal loan, your lender will check your credit with a <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-inquiry.asp">hard credit check</a>. This can temporarily reduce your credit score, but this effect will disappear as you pay back the loan. If you pay it back on time, then your credit score will likely eventually improve.<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_76-0"></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_77-0"> <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_78-0"> You can use a personal loan to buy a car, but this typically only makes sense in specific circumstances. Auto loans tend to have lower interest rates than personal loans, and longer repayment periods. However, if you are buying a car from a private seller, then a personal loan might be a good option. </p></div>

You can get a [personal loan](https://www.investopedia.com/personal-loan-5076027) from a bank, an online lender, or a credit union, and you can use it to buy almost anything, including a car. Though it’s more common to use an [auto loan](https://www.investopedia.com/auto-loans-4689734) to buy a car, taking out a personal loan can make sense in some circumstances. For example, you may want to use a personal loan if you don’t want to make a [down payment](https://www.investopedia.com/terms/d/down_payment.asp) or are buying from a private seller. Look for a personal loan that has a [low interest rate](https://www.investopedia.com/terms/a/apr.asp) and a [repayment schedule](https://www.investopedia.com/loan-terms-5075341) that works for you, and is with a [lender](https://www.investopedia.com/terms/l/lender.asp) that you trust.  ### Key Takeaways * You can use a personal loan to make many types of purchases, including a car. * Auto loans tend to have lower interest rates than personal loans, and longer repayment periods. * Auto loans generally have lower interest rates because they use your car as collateral. * Using a personal loan to buy a car typically only makes financial sense in specific circumstances. * If you are buying a car from a private seller or can’t afford a down payment, then a personal loan might be your only option. ## How to Use a Personal Loan to Buy a Car A personal loan is typically an [unsecured loan](https://www.investopedia.com/terms/u/unsecuredloan.asp) that you can use for a variety of purposes. You may use a personal loan to [consolidate debt](https://www.investopedia.com/terms/d/debtconsolidation.asp), pay for home renovations, or buy a car. Personal loans can be offered by [banks](https://www.investopedia.com/terms/b/bank.asp), [credit unions](https://www.investopedia.com/terms/c/creditunion.asp), or online lenders. The money you borrow must be [repaid](https://www.investopedia.com/terms/r/repayment.asp) over time, typically with [interest](https://www.investopedia.com/terms/i/interest.asp), and [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) can vary depending on your lender and [credit score](https://www.investopedia.com/terms/c/credit_score.asp). Some lenders may also charge fees. An auto loan works in a similar way, but with some key differences. Auto loans are [secured](https://www.investopedia.com/secured-loans-5076025), which means they require some type of collateral. In this case, your [collateral](https://www.investopedia.com/terms/c/collateral.asp) is your new car—if you fail to pay back the loan, your lender can repossess your car to recoup the cost of the loan. In addition, auto loans can only be used to buy a car, and most can only be used to buy a car less than 10 years old. ## Pros and Cons of Using a Personal Loan to Buy a Car Pros * Flexibility * Fast access * No collateral Cons * Higher interest rates * Shorter terms * Limited availability for borrowers with bad credit ### Pros Explained * **Flexibility**: Auto loans are generally only available if you’re buying a car from a dealership. If you want to buy a car from a private seller, you can use a personal loan to cover the cost. * **Fast access**: You can generally receive the funding for a personal loan within a few days if you are approved for the loan. * **No collateral**: Since personal loans are unsecured, your car is not at risk if you fail to pay back your loan. If you are worried about not being to repay the loan and are looking to avoid repossession, however, then taking out a personal loan is not a good idea. Failing to pay back a personal loan can also have serious financial consequences. ### Cons Explained * **Higher interest rates**: Because personal loans are unsecured, they are a greater risk for your lender. This risk is mitigated by higher interest rates for personal loans compared to auto loans. * **Shorter terms**: It’s common for auto loans to have terms of five years or more, whereas personal loans generally have shorter terms. This means your monthly repayments will likely be higher. * **Limited availability for borrowers with bad credit**: Because auto loans are secured, they are less risky, so lenders can offer them to borrowers with bad credit. To get a personal loan with a reasonable interest rate, you’ll generally need a [credit score of 670](https://www.investopedia.com/ask/answers/111615/are-personal-loans-bad-your-credit-score.asp) or above, although credit requirements vary by lender. ## Personal Loan vs. Auto Loans For most borrowers looking to finance a vehicle purchase, an auto loan will be the better option. [Auto loans](https://www.investopedia.com/best-auto-loan-rates-4846394) generally have lower interest rates than personal loans, longer repayment periods, and lower monthly repayments. ### If you want to buy a vehicle from a private seller, using a personal loan might be a good option because you can access the cash quickly. ## How to Use a Personal Loan for a Car Using a personal loan for a car is a fairly straightforward process that begins with shopping for a car and a lender. Here is a step-by-step summary of how to use a personal loan to buy a car. ### Step 1: Shop for a New Car To apply for a loan, you’ll first need to know how much you need to borrow, so consider which car you want to buy before applying for the loan. That way, you know the price of the car and how much to apply to borrow. ### Step 2: Compare Lenders Next, shop around for the best loan deal. You should look for the loan with the lowest annual percentage rate (APR), and with monthly repayments that you can easily afford. Your interest rate and other terms will be determined by your credit score, so it’s a good idea to [check your credit score](https://www.investopedia.com/terms/c/creditrating.asp) before applying for a loan. You can often get [pre-qualified](https://www.investopedia.com/terms/p/prequalification.asp) with a [soft credit check](https://www.investopedia.com/terms/s/soft-inquiry.asp), which can help you compare which loans you are eligible for. ### Step 3: Apply You can apply for a personal loan with a bank, an online lender, or a credit union. Most lenders will allow you to apply online, though credit unions will [require you to become a member](https://www.investopedia.com/how-to-join-a-credit-union-7495339) first. The application process will entail providing your financial information and personal information such as your Social Security number and address. This information will help the financial institution run a [credit check](https://www.investopedia.com/terms/c/credit-inquiry.asp) and assess your risk as a borrower. ### Step 4: Use Loan to Purchase a Car If the lender approves your application, you should receive your money in your bank account within a few days. You can then use this money to buy your new car through whatever forms of payments the dealer accepts, such as a cashier’s check, a personal check, or a credit card payment. ### Step 5: Make Payments After you’ve taken out your personal loan, you’ll need to make monthly repayments on it according to the terms of the agreement. If you [fail to make the payments](https://www.investopedia.com/what-happens-dont-pay-back-personal-loan-7555464) on time, your lender will likely charge you [late fees](https://www.investopedia.com/terms/l/late-fee.asp). In addition, missed payments can damage your credit score, which will impact your ability to qualify for future loans. ## 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. ## When Could Using a Personal Loan for a Car Make Sense? An auto loan is generally the best option to finance a car purchase because it offers the lowest rates, as it uses the car as collateral. However, in some circumstances, a personal loan might make more sense. These include situations such as if you are buying from a private seller or have a low credit score. ### Buying from a Private Seller Auto loans are available at financial institutions and dealerships. You can use an auto loan from a bank or credit union to buy a loan from a private seller, but not all financial institutions offer private-party auto loans. So, if you are buying a vehicle from a private seller, then a personal loan might be a good option. ### If you can wait a few months and save up for a [down payment on a car](https://www.investopedia.com/how-much-down-payment-is-needed-for-a-car-5184453), you can likely get a loan with lower rates. ### Having a Low Credit Score If you have a low credit score, you might not be able to get an auto loan. You will likely have a more difficult time getting a personal loan as well. However, some lenders specialize in [personal loans for people with bad credit](https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349). The downside to getting a personal loan with a low credit score is that you will face higher interest rates, which can make the loan very expensive. If you can, consider delaying your car purchase and work on improving your credit score by paying down debt and making timely payments before you apply for either a car loan or a personal loan. ## Can You Use a Personal Loan for a Car Purchase? You can use a personal loan for almost any purpose, including for a car purchase. An auto loan is likely to be the better option for most people, because it offers lower rates by using your car as collateral. ## What Credit Score Is Needed for a Personal Loan? The credit score you need to get a personal loan will depend on the lender. Commonly, you’ll need a credit score of at least 670 to be considered [creditworthy](https://www.investopedia.com/terms/c/credit-worthiness.asp) to get a personal loan with a reasonable interest rate. ## How Do You Qualify for a Personal Loan? Personal loan lenders will look at your credit score and [credit history](https://www.investopedia.com/terms/c/credit-history.asp) when you apply for a loan, but you don’t need to make a down payment. Most personal loans do not require collateral. ## Does a Personal Loan Affect Your Credit Score? When you apply for a personal loan, your lender will check your credit with a [hard credit check](https://www.investopedia.com/terms/h/hard-inquiry.asp). This can temporarily reduce your credit score, but this effect will disappear as you pay back the loan. If you pay it back on time, then your credit score will likely eventually improve. ## The Bottom Line You can use a personal loan to buy a car, but this typically only makes sense in specific circumstances. Auto loans tend to have lower interest rates than personal loans, and longer repayment periods. However, if you are buying a car from a private seller, then a personal loan might be a good option.

You can get a personal loan from a bank, an online lender, or a credit union, and you can use it to buy almost anything, including a car. Though it’s more common to use an auto loan to buy a car, taking out a personal loan can make sense in some circumstances. For example, you may want to use a personal loan if you don’t want to make a down payment or are buying from a private seller. Look for a personal loan that has a low interest rate and a repayment schedule that works for you, and is with a lender that you trust.  Key Takeaways You can use a personal loan to make many types of purchases, including a car.Auto loans tend to have lower interest rates than personal loans, and longer repayment periods.Auto loans generally have lower interest rates because they use your car as collateral.Using a personal loan to buy a car typically only makes financial sense in specific circumstances.If you are buying a car from a private seller or can’t afford a down payment, then a personal loan might be your only option. How to Use a Personal Loan to Buy a Car A personal loan is typically an unsecured loan that you can use for a variety of purposes. You may use a personal loan to consolidate debt, pay for home renovations, or buy a car. Personal loans can be offered by banks, credit unions, or online lenders. The money you borrow must be repaid over time, typically with interest, and interest rates can vary depending on your lender and credit score. Some lenders may also charge fees. An auto loan works in a similar way, but with some key differences. Auto loans are secured, which means they require some type of collateral. In this case, your collateral is your new car—if you fail to pay back the loan, your lender can repossess your car to recoup the cost of the loan. In addition, auto loans can only be used to buy a car, and most can only be used to buy a car less than 10 years old. Pros and Cons of Using a Personal Loan to Buy a Car Pros Flexibility Fast access No collateral Cons Higher interest rates Shorter terms Limited availability for borrowers with bad credit Pros Explained Flexibility: Auto loans are generally only available if you’re buying a car from a dealership. If you want to buy a car from a private seller, you can use a personal loan to cover the cost.Fast access: You can generally receive the funding for a personal loan within a few days if you are approved for the loan.No collateral: Since personal loans are unsecured, your car is not at risk if you fail to pay back your loan. If you are worried about not being to repay the loan and are looking to avoid repossession, however, then taking out a personal loan is not a good idea. Failing to pay back a personal loan can also have serious financial consequences. Cons Explained Higher interest rates: Because personal loans are unsecured, they are a greater risk for your lender. This risk is mitigated by higher interest rates for personal loans compared to auto loans. Shorter terms: It’s common for auto loans to have terms of five years or more, whereas personal loans generally have shorter terms. This means your monthly repayments will likely be higher. Limited availability for borrowers with bad credit: Because auto loans are secured, they are less risky, so lenders can offer them to borrowers with bad credit. To get a personal loan with a reasonable interest rate, you’ll generally need a credit score of 670 or above, although credit requirements vary by lender. Personal Loan vs. Auto Loans For most borrowers looking to finance a vehicle purchase, an auto loan will be the better option. Auto loans generally have lower interest rates than personal loans, longer repayment periods, and lower monthly repayments. If you want to buy a vehicle from a private seller, using a personal loan might be a good option because you can access the cash quickly. How to Use a Personal Loan for a Car Using a personal loan for a car is a fairly straightforward process that begins with shopping for a car and a lender. Here is a step-by-step summary of how to use a personal loan to buy a car. Step 1: Shop for a New Car To apply for a loan, you’ll first need to know how much you need to borrow, so consider which car you want to buy before applying for the loan. That way, you know the price of the car and how much to apply to borrow. Step 2: Compare Lenders Next, shop around for the best loan deal. You should look for the loan with the lowest annual percentage rate (APR), and with monthly repayments that you can easily afford. Your interest rate and other terms will be determined by your credit score, so it’s a good idea to check your credit score before applying for a loan. You can often get pre-qualified with a soft credit check, which can help you compare which loans you are eligible for. Step 3: Apply You can apply for a personal loan with a bank, an online lender, or a credit union. Most lenders will allow you to apply online, though credit unions will require you to become a member first. The application process will entail providing your financial information and personal information such as your Social Security number and address. This information will help the financial institution run a credit check and assess your risk as a borrower. Step 4: Use Loan to Purchase a Car If the lender approves your application, you should receive your money in your bank account within a few days. You can then use this money to buy your new car through whatever forms of payments the dealer accepts, such as a cashier’s check, a personal check, or a credit card payment. Step 5: Make Payments After you’ve taken out your personal loan, you’ll need to make monthly repayments on it according to the terms of the agreement. If you fail to make the payments on time, your lender will likely charge you late fees. In addition, missed payments can damage your credit score, which will impact your ability to qualify for future loans. 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. When Could Using a Personal Loan for a Car Make Sense? An auto loan is generally the best option to finance a car purchase because it offers the lowest rates, as it uses the car as collateral. However, in some circumstances, a personal loan might make more sense. These include situations such as if you are buying from a private seller or have a low credit score. Buying from a Private Seller Auto loans are available at financial institutions and dealerships. You can use an auto loan from a bank or credit union to buy a loan from a private seller, but not all financial institutions offer private-party auto loans. So, if you are buying a vehicle from a private seller, then a personal loan might be a good option. If you can wait a few months and save up for a down payment on a car, you can likely get a loan with lower rates. Having a Low Credit Score If you have a low credit score, you might not be able to get an auto loan. You will likely have a more difficult time getting a personal loan as well. However, some lenders specialize in personal loans for people with bad credit. The downside to getting a personal loan with a low credit score is that you will face higher interest rates, which can make the loan very expensive. If you can, consider delaying your car purchase and work on improving your credit score by paying down debt and making timely payments before you apply for either a car loan or a personal loan. Can You Use a Personal Loan for a Car Purchase? You can use a personal loan for almost any purpose, including for a car purchase. An auto loan is likely to be the better option for most people, because it offers lower rates by using your car as collateral. What Credit Score Is Needed for a Personal Loan? The credit score you need to get a personal loan will depend on the lender. Commonly, you’ll need a credit score of at least 670 to be considered creditworthy to get a personal loan with a reasonable interest rate. How Do You Qualify for a Personal Loan? Personal loan lenders will look at your credit score and credit history when you apply for a loan, but you don’t need to make a down payment. Most personal loans do not require collateral. Does a Personal Loan Affect Your Credit Score? When you apply for a personal loan, your lender will check your credit with a hard credit check. This can temporarily reduce your credit score, but this effect will disappear as you pay back the loan. If you pay it back on time, then your credit score will likely eventually improve. The Bottom Line You can use a personal loan to buy a car, but this typically only makes sense in specific circumstances. Auto loans tend to have lower interest rates than personal loans, and longer repayment periods. However, if you are buying a car from a private seller, then a personal loan might be a good option.

https://www.investopedia.com/terms/e/exposure-netting.asp

Exposure Netting: What it is, How it Works, Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-exposure-netting"></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 Exposure Netting? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Exposure netting is a method of hedging <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currencyrisk.asp">currency risk</a> by offsetting exposure in one currency with exposure in the same or another similar currency. </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>Netting offsets the value of multiple positions or payments due to be exchanged between two or more parties.</li><li>Exposure netting is achieved within a firm where it can find offsetting position in two or more currencies or other risk factors within various segments of the firm.</li><li>Netting reduces a firm's cost and eases risk management as offsetting positions do not need to be individually hedged for risk exposures.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-exposure-netting"></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 Exposure Netting </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Exposure <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/netting.asp">netting</a> has the objective of reducing a company’s exposure to exchange rate (currency) risk. It is especially applicable in the case of a large multinational company, whose various currency exposures can be managed as a single portfolio; it is often challenging and costly to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedge</a> each and every currency risk of a client individually when dealing with many international clients. </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 firm’s exposure netting strategy depends on a number of factors, including the currencies and amounts involved in its payments and receipts, the corporate policy with regard to hedging currency risk, and the potential correlations between the different currencies to which it has exposure. </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"> Exposure netting allows companies to manage their currency risk more holistically. If a company finds that correlation between exposure currencies is positive, the company would adopt a long-short strategy for exposure netting. The reason for doing so is that with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/positive-correlation.asp">positive correlation</a> between two currencies, a long-short approach would result in gains from one currency position offsetting losses from the other. Conversely, if the correlation is negative, a long-long strategy would result in an effective hedge in the event of currency movement. </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"> Exposure netting can also be done to offset counterbalancing risks of a large portfolio or financial firm among its portfolios. As an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/enterprise-risk-management.asp">enterprise risk management (ERM)</a> strategy, if portfolio A for a bank is long 1,000 shares 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>) stock and another portfolio B is short 1,000 of Apple, the positions and the exposure to Apple price can be netted out at the managerial level. </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"> Exposure netting usually refers to netting that happens within an organization among its various units, projects, or portfolios, making it a unilateral netting. </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>Netting with another party (e.g., in the case of a currency swap), would be considered <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bilateral-netting.asp">bilateral</a>, or even <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/multilateral-netting.asp">multilateral netting</a>.</p></div></div></div> <span class="heading-toc" id="toc-exposure-netting-example"></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"> Exposure Netting Example </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Assume Widget Co., located in Canada, has imported machinery from the United States and regularly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/export.asp">exports</a> to Europe. The company must pay $10 million to its U.S. machinery supplier in three months, at which time it is also expecting a receipt of EUR 5 million and CHF 1 million for its exports. The spot rate is EUR 1 = USD 1.35, and CHF 1 = USD 1.10. How can Widget Co. use exposure netting to hedge itself? </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 company’s net currency exposure is USD $2.15 million (i.e., USD $10 million - [(5 x 1.35) + (1 x 1.10)]). If Widget Co. is confident that the Canadian dollar will appreciate over the next three months, it would do nothing, since a stronger Canadian dollar would result in U.S. dollars becoming cheaper in three months. On the other hand, if the company is concerned the Canadian dollar may depreciate against the U.S. dollar, it may elect to lock in its exchange rate in three months through a forward contract or a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currencyoption.asp">currency option</a>. Exposure netting is thus a more efficient way of managing currency exposure by viewing it as a portfolio, rather than hedging each currency exposure separately. </p></div>

## What Is Exposure Netting? Exposure netting is a method of hedging [currency risk](https://www.investopedia.com/terms/c/currencyrisk.asp) by offsetting exposure in one currency with exposure in the same or another similar currency. ### Key Takeaways * Netting offsets the value of multiple positions or payments due to be exchanged between two or more parties. * Exposure netting is achieved within a firm where it can find offsetting position in two or more currencies or other risk factors within various segments of the firm. * Netting reduces a firm's cost and eases risk management as offsetting positions do not need to be individually hedged for risk exposures. ## Understanding Exposure Netting Exposure [netting](https://www.investopedia.com/terms/n/netting.asp) has the objective of reducing a company’s exposure to exchange rate (currency) risk. It is especially applicable in the case of a large multinational company, whose various currency exposures can be managed as a single portfolio; it is often challenging and costly to [hedge](https://www.investopedia.com/terms/h/hedge.asp) each and every currency risk of a client individually when dealing with many international clients. A firm’s exposure netting strategy depends on a number of factors, including the currencies and amounts involved in its payments and receipts, the corporate policy with regard to hedging currency risk, and the potential correlations between the different currencies to which it has exposure. Exposure netting allows companies to manage their currency risk more holistically. If a company finds that correlation between exposure currencies is positive, the company would adopt a long-short strategy for exposure netting. The reason for doing so is that with a [positive correlation](https://www.investopedia.com/terms/p/positive-correlation.asp) between two currencies, a long-short approach would result in gains from one currency position offsetting losses from the other. Conversely, if the correlation is negative, a long-long strategy would result in an effective hedge in the event of currency movement. Exposure netting can also be done to offset counterbalancing risks of a large portfolio or financial firm among its portfolios. As an [enterprise risk management (ERM)](https://www.investopedia.com/terms/e/enterprise-risk-management.asp) strategy, if portfolio A for a bank is long 1,000 shares of Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) stock and another portfolio B is short 1,000 of Apple, the positions and the exposure to Apple price can be netted out at the managerial level. Exposure netting usually refers to netting that happens within an organization among its various units, projects, or portfolios, making it a unilateral netting. ### Netting with another party (e.g., in the case of a currency swap), would be considered [bilateral](https://www.investopedia.com/terms/b/bilateral-netting.asp), or even [multilateral netting](https://www.investopedia.com/terms/m/multilateral-netting.asp). ## Exposure Netting Example Assume Widget Co., located in Canada, has imported machinery from the United States and regularly [exports](https://www.investopedia.com/terms/e/export.asp) to Europe. The company must pay $10 million to its U.S. machinery supplier in three months, at which time it is also expecting a receipt of EUR 5 million and CHF 1 million for its exports. The spot rate is EUR 1 = USD 1.35, and CHF 1 = USD 1.10. How can Widget Co. use exposure netting to hedge itself? The company’s net currency exposure is USD $2.15 million (i.e., USD $10 million - [(5 x 1.35) + (1 x 1.10)]). If Widget Co. is confident that the Canadian dollar will appreciate over the next three months, it would do nothing, since a stronger Canadian dollar would result in U.S. dollars becoming cheaper in three months. On the other hand, if the company is concerned the Canadian dollar may depreciate against the U.S. dollar, it may elect to lock in its exchange rate in three months through a forward contract or a [currency option](https://www.investopedia.com/terms/c/currencyoption.asp). Exposure netting is thus a more efficient way of managing currency exposure by viewing it as a portfolio, rather than hedging each currency exposure separately.

What Is Exposure Netting? Exposure netting is a method of hedging currency risk by offsetting exposure in one currency with exposure in the same or another similar currency. Key Takeaways Netting offsets the value of multiple positions or payments due to be exchanged between two or more parties.Exposure netting is achieved within a firm where it can find offsetting position in two or more currencies or other risk factors within various segments of the firm.Netting reduces a firm's cost and eases risk management as offsetting positions do not need to be individually hedged for risk exposures. Understanding Exposure Netting Exposure netting has the objective of reducing a company’s exposure to exchange rate (currency) risk. It is especially applicable in the case of a large multinational company, whose various currency exposures can be managed as a single portfolio; it is often challenging and costly to hedge each and every currency risk of a client individually when dealing with many international clients. A firm’s exposure netting strategy depends on a number of factors, including the currencies and amounts involved in its payments and receipts, the corporate policy with regard to hedging currency risk, and the potential correlations between the different currencies to which it has exposure. Exposure netting allows companies to manage their currency risk more holistically. If a company finds that correlation between exposure currencies is positive, the company would adopt a long-short strategy for exposure netting. The reason for doing so is that with a positive correlation between two currencies, a long-short approach would result in gains from one currency position offsetting losses from the other. Conversely, if the correlation is negative, a long-long strategy would result in an effective hedge in the event of currency movement. Exposure netting can also be done to offset counterbalancing risks of a large portfolio or financial firm among its portfolios. As an enterprise risk management (ERM) strategy, if portfolio A for a bank is long 1,000 shares of Apple (AAPL) stock and another portfolio B is short 1,000 of Apple, the positions and the exposure to Apple price can be netted out at the managerial level. Exposure netting usually refers to netting that happens within an organization among its various units, projects, or portfolios, making it a unilateral netting. Netting with another party (e.g., in the case of a currency swap), would be considered bilateral, or even multilateral netting. Exposure Netting Example Assume Widget Co., located in Canada, has imported machinery from the United States and regularly exports to Europe. The company must pay $10 million to its U.S. machinery supplier in three months, at which time it is also expecting a receipt of EUR 5 million and CHF 1 million for its exports. The spot rate is EUR 1 = USD 1.35, and CHF 1 = USD 1.10. How can Widget Co. use exposure netting to hedge itself? The company’s net currency exposure is USD $2.15 million (i.e., USD $10 million - [(5 x 1.35) + (1 x 1.10)]). If Widget Co. is confident that the Canadian dollar will appreciate over the next three months, it would do nothing, since a stronger Canadian dollar would result in U.S. dollars becoming cheaper in three months. On the other hand, if the company is concerned the Canadian dollar may depreciate against the U.S. dollar, it may elect to lock in its exchange rate in three months through a forward contract or a currency option. Exposure netting is thus a more efficient way of managing currency exposure by viewing it as a portfolio, rather than hedging each currency exposure separately.

https://www.investopedia.com/how-to-get-a-usd200-thousand-personal-loan-8410202

Need a $200k Personal Loan? Here's How to Borrow a Lot of 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"> Lenders have different minimum and maximum amounts for borrowing a personal loan. Personal loans for $200,000 are very rare. If you find a lender that offers a six-figure personal loan, it’s usually capped at $100,000. In most cases, lenders cap the amount you can borrow with one personal loan at $40,000 or $50,000. However, there are ways you can potentially get a loan for $200,000 using other loan products. Learn more about your options for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">borrowing large amounts of money</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Personal loans for $200,000 are very rare, but some lenders offer $100,000 maximums.</li> <li>Many lenders cap their maximum loan amount at $40,000 or $50,000.</li> <li>The higher your credit score, the more likely you are to qualify for a large personal loan, though it is still possible to get a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349">bad credit loan</a> for up to $100,000.</li> <li>If you aren't eligible for a large personal loan, you could potentially get multiple smaller personal loans or get a co-signer to help you qualify.</li> <li>If you have enough home equity, you could potentially get a home equity loan for $200,000.</li> </ul></div></div></div> <span class="heading-toc" id="toc-how-to-get-a-large-personal-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"> How to Get a Large Personal Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> While you could get a $200,000 mortgage or refinance loan, you will not likely find a personal loan for that amount. Unlike home loans, personal loans are typically unsecured, meaning they are not backed by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a>. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/110614/what-difference-between-secured-and-unsecured-debts.asp">Unsecured loans</a> are a higher risk for lenders, so they're typically not willing to lend as much as they would for a secured loan. </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"> In general, the more money you want to borrow, the better 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> needs to be. You'll need a strong <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> and sufficient income. Here are the main steps you need to take to get a large personal loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-subheading__text"> 1. Check Your Credit Score </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The higher your credit score, the more likely lenders are to approve you for the loan amount you request (up to their maximum limit). Excellent credit tells lenders you’re responsible with credit and less likely to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a> on a loan. </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"> 2. Compare Lenders </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Compare lenders based on factors like the maximum loan amount they offer, repayment terms, <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 any fees they may charge. If you need a $200,000 loan, make sure you can afford to make the monthly payments. Longer repayment terms mean lower monthly payments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You can compare loans from different lenders through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prequalification.asp">pre-qualification</a>. This requires a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soft-inquiry.asp">soft credit</a> check and doesn’t hurt your credit score.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-subheading__text"> 3. Gather Documentation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Once you’ve gotten pre-qualified with a lender whose loans meet your needs, prepare the documents you'll need to complete a full application. These can include a copy of your driver’s license or other government-issued identification, your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssn.asp">Social Security number (SSN)</a>, proof of address, and employment verification, among other paperwork. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> You’ll also likely need key financial documents, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-statement.asp">bank statements</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxreturn.asp">tax returns</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/w2form.asp">W-2s</a>, and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-read-your-paycheck-5094518">pay stubs</a>, to verify your income and that you have the means to repay your 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"> 4. Apply </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Most personal loan lenders let you apply online, and you’ll know right away if you’re approved or not. After you apply and get approved, you can accept loan terms and set up banking information. </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"> Every <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disbursement.asp">disbursement</a> time is different, depending on the lender, but in most cases, you'll typically receive your funds in as little as a day or up to a week. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-where-to-get-large-personal-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"> Where to Get Large Personal Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Not all personal loan lenders offer large loans, but there are a couple that do, such 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><strong>LightStream</strong>: <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 and long repayment terms, upwards of 12 years. LightStream's loans are generally for borrowers with good or excellent credit and feature a larger-than-average <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/automatic-bill-payment.asp">autopay</a> discount with no fees.</li> <li><strong>SoFi</strong>:<strong> </strong>You can also get up to $100,000 at <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sofi-personal-loans-review-4797398">SoFi</a>. There are no fees and you can get your funds the same day you’re approved.</li> </ul> <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-how-to-get-a-large-personal-loan-with-bad-credit"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> How to Get a Large Personal Loan With Bad Credit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> If you don’t have great credit, you might have a harder time qualifying for a personal loan or getting the full amount you need. But there are some ways you can get a large personal loan even with bad credit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> If you have a low or average credit score, taking time to improve your credit can increase your chances of getting approved for a loan. Try to pay off debt and make sure you make all payments on time to creditors. If you see errors on your credit report, call your creditors to get them to correct the error with the credit bureaus. You can check your credit report for free each year through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.annualcreditreport.com/index.action" rel="sponsored nofollow">AnnualCreditReport.com</a>.<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_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> You can also consider getting a secured personal loan. These loans use assets like your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">savings account</a> to back the loan. Because the collateral reduces the lender's risk, you may be able to get a secured loan if you can’t qualify for an unsecured loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> If you don’t qualify for a large loan on your own, consider <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/082115/what-are-cosigners-liable-responsible.asp">getting a co-signer</a> on the loan. A lender will also look at your co-signer's credit and financial situation when it decides whether to approve you for a loan. A co-signer signs onto your loan and is responsible for making payments if you fail to do so, which also reduces the risk for the lender. </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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>A co-signer can be helpful if you need a personal loan immediately and don’t have the time or resources to build up your credit in the short term.</p></div></div></div> <span class="heading-toc" id="toc-alternatives-to-personal-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-heading__text"> Alternatives to Personal Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> If you don’t qualify for a large personal loan or you want to explore your options, you have a few alternatives to consider, including several different personal loans, credit cards, and home equity loans. </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"> Multiple Personal Loans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> If you have decent credit and can find lenders to borrow from, you can apply for several different personal loans to get the full $200,000 you need. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> While there’s no limit to how many personal loans you can have at once from multiple lenders, some lenders might limit how many personal loans you can have with them. Along with that, the more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-inquiry.asp">hard inquiries</a> listed on your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a>, which are added when you complete a loan application, the more your credit score drops. </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"> Credit Cards </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-cards-4801582">credit cards</a> have limits based on how much you earn and if you can responsibly repay your minimum balance every month. But some credit cards have high <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_limit.asp">credit limits</a>, and if you qualify, you can use those cards to pay for your needs. Just keep in mind that credit cards often have higher interest rates than personal loans. </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"> Home Equity Loan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> If you own your home and have built up <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a>, you may be able to borrow against the equity for a larger amount than you can get with a personal loan. </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 <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> is a type of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lump-sum-payment.asp">lump-sum</a> loan often referred to as a second mortgage, as you may be making payments on your regular mortgage as well as a home equity loan at the same time when repayment begins. A <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/heloc/">home equity line of credit (HELOC)</a> also uses your equity to back the loan, but with this loan, you only take out what you need. After you repay the funds you use from a HELOC, you can reuse the funds again, just as you would with a credit card.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Interest rates on home equity loans and HELOCs tend to be lower than personal loans because you’re using your home as collateral. This reduces the risk for the lender, as they can recoup lost funds should you fail to repay the loan by selling your home. </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-warning" 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" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>With home equity loans and HELOCs, you risk losing your home to foreclosure if you fail to make payments.</p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_64-0"><span class="heading-toc" id="toc-what-is-the-largest-personal-loan-you-can-get"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Largest Personal Loan You Can Get?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most personal loans cap the amount you can get to around $40,000 or $50,000. In a couple of cases, you can borrow up to $100,000. However, only a few lenders offer this, and it’s normally reserved for borrowers with excellent credit.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_66-0"><span class="heading-toc" id="toc-what-credit-score-do-you-need-for-a-200k-personal-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Credit Score Do You Need for a $200k Personal Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Since you likely can’t get a $200,000 loan from one lender, you’ll need to take out multiple loans from a few different lenders to get this amount. The higher your credit score, the more likely you can qualify for the amount you need with the lowest interest rates offered. If you don’t have excellent credit, consider applying with a co-signer who has excellent credit to secure the highest amount offered.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_68-0"><span class="heading-toc" id="toc-how-many-personal-loans-can-you-have-at-once"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Many Personal Loans Can You Have at Once?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There’s no real limit to how many personal loans you can have at once, so long as they are with different lenders. Some lenders have limits to how many personal loans you can have at once with them.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_70-0"><span class="heading-toc" id="toc-what-is-a-good-personal-loan-interest-rate"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Good Personal Loan Interest Rate?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A good personal loan interest rate is the lowest interest rate offered among the lenders you're considering. Interest rates are always fluctuating, so it’s important to see what offers are available before completing a loan application.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Large personal loans aren’t common, but a few lenders do offer them, some for as high as $100,000. While you likely won’t find lenders that offer $200,000 personal loans, you can still find ways to fund major expenses with other loan solutions. Consider borrowing from multiple lenders, using credit cards, or tapping into your home's equity through a loan or line of credit, if you have the means. Try to improve your credit report by paying down debt and making your payments on time before applying for a large personal loan. </p></div>

Lenders have different minimum and maximum amounts for borrowing a personal loan. Personal loans for $200,000 are very rare. If you find a lender that offers a six-figure personal loan, it’s usually capped at $100,000. In most cases, lenders cap the amount you can borrow with one personal loan at $40,000 or $50,000. However, there are ways you can potentially get a loan for $200,000 using other loan products. Learn more about your options for [borrowing large amounts of money](https://www.investopedia.com/best-personal-loans-4773300). ### Key Takeaways * Personal loans for $200,000 are very rare, but some lenders offer $100,000 maximums. * Many lenders cap their maximum loan amount at $40,000 or $50,000. * The higher your credit score, the more likely you are to qualify for a large personal loan, though it is still possible to get a [bad credit loan](https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349) for up to $100,000. * If you aren't eligible for a large personal loan, you could potentially get multiple smaller personal loans or get a co-signer to help you qualify. * If you have enough home equity, you could potentially get a home equity loan for $200,000. ## How to Get a Large Personal Loan While you could get a $200,000 mortgage or refinance loan, you will not likely find a personal loan for that amount. Unlike home loans, personal loans are typically unsecured, meaning they are not backed by [collateral](https://www.investopedia.com/terms/c/collateral.asp). [Unsecured loans](https://www.investopedia.com/ask/answers/110614/what-difference-between-secured-and-unsecured-debts.asp) are a higher risk for lenders, so they're typically not willing to lend as much as they would for a secured loan. In general, the more money you want to borrow, the better your [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp) needs to be. You'll need a strong [credit score](https://www.investopedia.com/terms/c/credit_score.asp) and sufficient income. Here are the main steps you need to take to get a large personal loan. ### 1. Check Your Credit Score The higher your credit score, the more likely lenders are to approve you for the loan amount you request (up to their maximum limit). Excellent credit tells lenders you’re responsible with credit and less likely to [default](https://www.investopedia.com/terms/d/default2.asp) on a loan. ### 2. Compare Lenders Compare lenders based on factors like the maximum loan amount they offer, repayment terms, [interest rates](https://www.investopedia.com/terms/i/interestrate.asp), and any fees they may charge. If you need a $200,000 loan, make sure you can afford to make the monthly payments. Longer repayment terms mean lower monthly payments. ### You can compare loans from different lenders through [pre-qualification](https://www.investopedia.com/terms/p/prequalification.asp). This requires a [soft credit](https://www.investopedia.com/terms/s/soft-inquiry.asp) check and doesn’t hurt your credit score. ### 3. Gather Documentation Once you’ve gotten pre-qualified with a lender whose loans meet your needs, prepare the documents you'll need to complete a full application. These can include a copy of your driver’s license or other government-issued identification, your [Social Security number (SSN)](https://www.investopedia.com/terms/s/ssn.asp), proof of address, and employment verification, among other paperwork. You’ll also likely need key financial documents, such as [bank statements](https://www.investopedia.com/terms/b/bank-statement.asp), [tax returns](https://www.investopedia.com/terms/t/taxreturn.asp), [W-2s](https://www.investopedia.com/terms/w/w2form.asp), and [pay stubs](https://www.investopedia.com/how-to-read-your-paycheck-5094518), to verify your income and that you have the means to repay your loan. ### 4. Apply Most personal loan lenders let you apply online, and you’ll know right away if you’re approved or not. After you apply and get approved, you can accept loan terms and set up banking information. Every [disbursement](https://www.investopedia.com/terms/d/disbursement.asp) time is different, depending on the lender, but in most cases, you'll typically receive your funds in as little as a day or up to a week. ## Where to Get Large Personal Loans Not all personal loan lenders offer large loans, but there are a couple that do, such as: * **LightStream**: [LightStream](https://www.investopedia.com/lightstream-personal-loans-review-4800841) offers loans up to $100,000 and long repayment terms, upwards of 12 years. LightStream's loans are generally for borrowers with good or excellent credit and feature a larger-than-average [autopay](https://www.investopedia.com/terms/a/automatic-bill-payment.asp) discount with no fees. * **SoFi**:You can also get up to $100,000 at [SoFi](https://www.investopedia.com/sofi-personal-loans-review-4797398). There are no fees and you can get your funds the same day you’re approved. ## How to Get a Large Personal Loan With Bad Credit If you don’t have great credit, you might have a harder time qualifying for a personal loan or getting the full amount you need. But there are some ways you can get a large personal loan even with bad credit. If you have a low or average credit score, taking time to improve your credit can increase your chances of getting approved for a loan. Try to pay off debt and make sure you make all payments on time to creditors. If you see errors on your credit report, call your creditors to get them to correct the error with the credit bureaus. You can check your credit report for free each year through [AnnualCreditReport.com](https://www.annualcreditreport.com/index.action). You can also consider getting a secured personal loan. These loans use assets like your [savings account](https://www.investopedia.com/terms/s/savingsaccount.asp) to back the loan. Because the collateral reduces the lender's risk, you may be able to get a secured loan if you can’t qualify for an unsecured loan. If you don’t qualify for a large loan on your own, consider [getting a co-signer](https://www.investopedia.com/articles/personal-finance/082115/what-are-cosigners-liable-responsible.asp) on the loan. A lender will also look at your co-signer's credit and financial situation when it decides whether to approve you for a loan. A co-signer signs onto your loan and is responsible for making payments if you fail to do so, which also reduces the risk for the lender. ### A co-signer can be helpful if you need a personal loan immediately and don’t have the time or resources to build up your credit in the short term. ## Alternatives to Personal Loans If you don’t qualify for a large personal loan or you want to explore your options, you have a few alternatives to consider, including several different personal loans, credit cards, and home equity loans. ### Multiple Personal Loans If you have decent credit and can find lenders to borrow from, you can apply for several different personal loans to get the full $200,000 you need. While there’s no limit to how many personal loans you can have at once from multiple lenders, some lenders might limit how many personal loans you can have with them. Along with that, the more [hard inquiries](https://www.investopedia.com/terms/h/hard-inquiry.asp) listed on your [credit report](https://www.investopedia.com/terms/c/creditreport.asp), which are added when you complete a loan application, the more your credit score drops. ### Credit Cards Most [credit cards](https://www.investopedia.com/best-credit-cards-4801582) have limits based on how much you earn and if you can responsibly repay your minimum balance every month. But some credit cards have high [credit limits](https://www.investopedia.com/terms/c/credit_limit.asp), and if you qualify, you can use those cards to pay for your needs. Just keep in mind that credit cards often have higher interest rates than personal loans. ### Home Equity Loan If you own your home and have built up [equity](https://www.investopedia.com/terms/e/equity.asp), you may be able to borrow against the equity for a larger amount than you can get with a personal loan. A [home equity loan](https://www.investopedia.com/terms/h/homeequityloan.asp) is a type of [lump-sum](https://www.investopedia.com/terms/l/lump-sum-payment.asp) loan often referred to as a second mortgage, as you may be making payments on your regular mortgage as well as a home equity loan at the same time when repayment begins. A [home equity line of credit (HELOC)](https://www.investopedia.com/mortgage/heloc/) also uses your equity to back the loan, but with this loan, you only take out what you need. After you repay the funds you use from a HELOC, you can reuse the funds again, just as you would with a credit card. Interest rates on home equity loans and HELOCs tend to be lower than personal loans because you’re using your home as collateral. This reduces the risk for the lender, as they can recoup lost funds should you fail to repay the loan by selling your home. ### With home equity loans and HELOCs, you risk losing your home to foreclosure if you fail to make payments. ## What Is the Largest Personal Loan You Can Get? Most personal loans cap the amount you can get to around $40,000 or $50,000. In a couple of cases, you can borrow up to $100,000. However, only a few lenders offer this, and it’s normally reserved for borrowers with excellent credit. ## What Credit Score Do You Need for a $200k Personal Loan? Since you likely can’t get a $200,000 loan from one lender, you’ll need to take out multiple loans from a few different lenders to get this amount. The higher your credit score, the more likely you can qualify for the amount you need with the lowest interest rates offered. If you don’t have excellent credit, consider applying with a co-signer who has excellent credit to secure the highest amount offered. ## How Many Personal Loans Can You Have at Once? There’s no real limit to how many personal loans you can have at once, so long as they are with different lenders. Some lenders have limits to how many personal loans you can have at once with them. ## What Is a Good Personal Loan Interest Rate? A good personal loan interest rate is the lowest interest rate offered among the lenders you're considering. Interest rates are always fluctuating, so it’s important to see what offers are available before completing a loan application. ## The Bottom Line Large personal loans aren’t common, but a few lenders do offer them, some for as high as $100,000. While you likely won’t find lenders that offer $200,000 personal loans, you can still find ways to fund major expenses with other loan solutions. Consider borrowing from multiple lenders, using credit cards, or tapping into your home's equity through a loan or line of credit, if you have the means. Try to improve your credit report by paying down debt and making your payments on time before applying for a large personal loan.

Lenders have different minimum and maximum amounts for borrowing a personal loan. Personal loans for $200,000 are very rare. If you find a lender that offers a six-figure personal loan, it’s usually capped at $100,000. In most cases, lenders cap the amount you can borrow with one personal loan at $40,000 or $50,000. However, there are ways you can potentially get a loan for $200,000 using other loan products. Learn more about your options for borrowing large amounts of money. Key Takeaways Personal loans for $200,000 are very rare, but some lenders offer $100,000 maximums. Many lenders cap their maximum loan amount at $40,000 or $50,000. The higher your credit score, the more likely you are to qualify for a large personal loan, though it is still possible to get a bad credit loan for up to $100,000. If you aren't eligible for a large personal loan, you could potentially get multiple smaller personal loans or get a co-signer to help you qualify. If you have enough home equity, you could potentially get a home equity loan for $200,000. How to Get a Large Personal Loan While you could get a $200,000 mortgage or refinance loan, you will not likely find a personal loan for that amount. Unlike home loans, personal loans are typically unsecured, meaning they are not backed by collateral. Unsecured loans are a higher risk for lenders, so they're typically not willing to lend as much as they would for a secured loan. In general, the more money you want to borrow, the better your creditworthiness needs to be. You'll need a strong credit score and sufficient income. Here are the main steps you need to take to get a large personal loan. 1. Check Your Credit Score The higher your credit score, the more likely lenders are to approve you for the loan amount you request (up to their maximum limit). Excellent credit tells lenders you’re responsible with credit and less likely to default on a loan. 2. Compare Lenders Compare lenders based on factors like the maximum loan amount they offer, repayment terms, interest rates, and any fees they may charge. If you need a $200,000 loan, make sure you can afford to make the monthly payments. Longer repayment terms mean lower monthly payments. You can compare loans from different lenders through pre-qualification. This requires a soft credit check and doesn’t hurt your credit score. 3. Gather Documentation Once you’ve gotten pre-qualified with a lender whose loans meet your needs, prepare the documents you'll need to complete a full application. These can include a copy of your driver’s license or other government-issued identification, your Social Security number (SSN), proof of address, and employment verification, among other paperwork. You’ll also likely need key financial documents, such as bank statements, tax returns, W-2s, and pay stubs, to verify your income and that you have the means to repay your loan. 4. Apply Most personal loan lenders let you apply online, and you’ll know right away if you’re approved or not. After you apply and get approved, you can accept loan terms and set up banking information. Every disbursement time is different, depending on the lender, but in most cases, you'll typically receive your funds in as little as a day or up to a week. Where to Get Large Personal Loans Not all personal loan lenders offer large loans, but there are a couple that do, such as: LightStream: LightStream offers loans up to $100,000 and long repayment terms, upwards of 12 years. LightStream's loans are generally for borrowers with good or excellent credit and feature a larger-than-average autopay discount with no fees. SoFi: You can also get up to $100,000 at SoFi. There are no fees and you can get your funds the same day you’re approved. How to Get a Large Personal Loan With Bad Credit If you don’t have great credit, you might have a harder time qualifying for a personal loan or getting the full amount you need. But there are some ways you can get a large personal loan even with bad credit. If you have a low or average credit score, taking time to improve your credit can increase your chances of getting approved for a loan. Try to pay off debt and make sure you make all payments on time to creditors. If you see errors on your credit report, call your creditors to get them to correct the error with the credit bureaus. You can check your credit report for free each year through AnnualCreditReport.com. You can also consider getting a secured personal loan. These loans use assets like your savings account to back the loan. Because the collateral reduces the lender's risk, you may be able to get a secured loan if you can’t qualify for an unsecured loan. If you don’t qualify for a large loan on your own, consider getting a co-signer on the loan. A lender will also look at your co-signer's credit and financial situation when it decides whether to approve you for a loan. A co-signer signs onto your loan and is responsible for making payments if you fail to do so, which also reduces the risk for the lender. A co-signer can be helpful if you need a personal loan immediately and don’t have the time or resources to build up your credit in the short term. Alternatives to Personal Loans If you don’t qualify for a large personal loan or you want to explore your options, you have a few alternatives to consider, including several different personal loans, credit cards, and home equity loans. Multiple Personal Loans If you have decent credit and can find lenders to borrow from, you can apply for several different personal loans to get the full $200,000 you need. While there’s no limit to how many personal loans you can have at once from multiple lenders, some lenders might limit how many personal loans you can have with them. Along with that, the more hard inquiries listed on your credit report, which are added when you complete a loan application, the more your credit score drops. Credit Cards Most credit cards have limits based on how much you earn and if you can responsibly repay your minimum balance every month. But some credit cards have high credit limits, and if you qualify, you can use those cards to pay for your needs. Just keep in mind that credit cards often have higher interest rates than personal loans. Home Equity Loan If you own your home and have built up equity, you may be able to borrow against the equity for a larger amount than you can get with a personal loan. A home equity loan is a type of lump-sum loan often referred to as a second mortgage, as you may be making payments on your regular mortgage as well as a home equity loan at the same time when repayment begins. A home equity line of credit (HELOC) also uses your equity to back the loan, but with this loan, you only take out what you need. After you repay the funds you use from a HELOC, you can reuse the funds again, just as you would with a credit card. Interest rates on home equity loans and HELOCs tend to be lower than personal loans because you’re using your home as collateral. This reduces the risk for the lender, as they can recoup lost funds should you fail to repay the loan by selling your home. With home equity loans and HELOCs, you risk losing your home to foreclosure if you fail to make payments. What Is the Largest Personal Loan You Can Get? Most personal loans cap the amount you can get to around $40,000 or $50,000. In a couple of cases, you can borrow up to $100,000. However, only a few lenders offer this, and it’s normally reserved for borrowers with excellent credit. What Credit Score Do You Need for a $200k Personal Loan? Since you likely can’t get a $200,000 loan from one lender, you’ll need to take out multiple loans from a few different lenders to get this amount. The higher your credit score, the more likely you can qualify for the amount you need with the lowest interest rates offered. If you don’t have excellent credit, consider applying with a co-signer who has excellent credit to secure the highest amount offered. How Many Personal Loans Can You Have at Once? There’s no real limit to how many personal loans you can have at once, so long as they are with different lenders. Some lenders have limits to how many personal loans you can have at once with them. What Is a Good Personal Loan Interest Rate? A good personal loan interest rate is the lowest interest rate offered among the lenders you're considering. Interest rates are always fluctuating, so it’s important to see what offers are available before completing a loan application. The Bottom Line Large personal loans aren’t common, but a few lenders do offer them, some for as high as $100,000. While you likely won’t find lenders that offer $200,000 personal loans, you can still find ways to fund major expenses with other loan solutions. Consider borrowing from multiple lenders, using credit cards, or tapping into your home's equity through a loan or line of credit, if you have the means. Try to improve your credit report by paying down debt and making your payments on time before applying for a large personal loan.

https://www.investopedia.com/tech/what-are-legal-risks-cryptocurrency-investors/

What Are the Legal Risks to Cryptocurrency Investors?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Along with the explosion of interest in cryptocurrency, there is a growing need for clarity regarding the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/121515/bitcoin-legal-us.asp">legal implications of these new currencies</a> and the technologies that drive them. Regulatory agencies, tax authorities, and central banks around the world all are working to understand the nature and meaning of digital currencies. Meanwhile, individual investors can make a great deal of money <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing-in-cryptocurrency-5215269">investing in them</a>, but they also assume certain legal risks when they buy and sell cryptocurrencies. </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"> Much of the murkiness of the legal standing of cryptocurrency is due to its newness relative to more traditional currency and payment systems. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The regulation of cryptocurrencies remains in an unsettled state.</li><li>The wise cryptocurrency investor should consider reporting their holdings as foreign assets, although the requirements remain unclear.</li><li>One fact is definite: Profits in cryptocurrency trading are taxable as capital gains in the U.S.</li><li>The lack of a centralized authority can be a legal and financial risk to cryptocurrency owners.</li></ul></div></div></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Owners of cryptocurrency wallets may soon be required to file FinCEN Form 114, the report required of U.S. taxpayers with substantial holdings in foreign bank accounts.<span class="ql-inline-citation" data-cite="8"></span></p></div></div></div> <span class="heading-toc" id="toc-cryptocurrencies-and-taxes"></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"> Cryptocurrencies and Taxes </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 critical legal considerations for a cryptocurrency investor has to do with the way that government tax authorities view cryptocurrency holdings. In fact, their views are evolving, and cryptocurrency investors need to keep an eye on their latest pronouncements. </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"> Capital Gains and Cryptocurrency </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> In the U.S., the IRS has defined cryptocurrencies as property rather than currencies. This means that individual investors are subject to <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> laws when it comes to reporting cryptocurrency profits and expenses on their annual tax returns, regardless of where they purchased digital coins.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Note that the above is true for investors who buy and sell cryptocurrencies. If you are an employee and receive cryptocurrency as salary, it is taxable as income. The amount is based on the value in U.S. dollars of the cryptocurrency at the time it was paid.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <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"> Cryptocurrency and Foreign Bank Account Regulations </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Cryptocurrency trading frequently involves holding cryptocurrency in a foreign account. As of August 2023, federal law does not view a foreign cryptocurrency account as a type of "reportable account." That is, cryptocurrency account holders are not required to file disclosures of their foreign accounts to the Financial Crimes Enforcement Network (FinCEN), an agency of the U.S. Treasury Department.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Commonly called an FBAR, for Foreign Bank Account Report, this is FinCEN Form 114, and it must be filed by holders of substantial overseas accounts.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Cryptocurrency wallets are not included in that requirement but that could change at any time. FinCEN intends to propose amending the filing requirements regarding foreign bank accounts to include cryptocurrency holdings.<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> <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"> Cryptocurrency and the IRS </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> IRS Form 8938, known as FATCA, is the tax agency's version of FinCEN's FBAR. Taxpayers with substantial assets in foreign accounts are required to file this Statement of Specified Foreign Financial Assets as well as the FBAR. </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 of August 2023, the IRS has not definitively ruled on the subject. The question of whether cryptocurrency wallet owners must report their holdings using Form 8938 is unclear. Blogs for lawyers, accountants, and cryptocurrency investors are awash in the debate over whether a wallet is a financial institution, or whether the IRS thinks it is. </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"> Keep in mind, given the severe penalties for failing to file an FBAR, a FATCA, or both, owners of cryptocurrency wallets should file both forms. Infractions are punishable with a $10,000 fine or half the account value, and criminal penalties are possible.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> At the very least, consult a tax professional who has some familiarity with cryptocurrency when it comes time to file your taxes. </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-cryptocurrencys-decentralized-status"></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's Decentralized Status </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> One of the great draws of many digital currencies is also a potential risk factor for the individual investor. Cryptocurrencies by definition are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/decentralizedmarket.asp">decentralized</a>, meaning that they have no physical presence and are not backed by a central authority. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> While governments around the world have stepped in to assert their regulatory power in various ways, BTC and other digital currencies like it remain unattached to any jurisdiction or institution. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> On one hand, this frees investors from being beholden to those institutions. On the other hand, this status could result in legal complications. </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"> When There's No Central Authority </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The value of digital currencies is dependent entirely upon the value that other owners and investors ascribe to them; this is true across all currencies, digital or fiat. Without a central authority backing the value of a digital currency, investors may be left in the lurch should complications with transactions or ownership arise. </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"> Another potential risk associated with cryptocurrencies as a result of their decentralized status has to do with the particulars of transactions. In most other transactions, currency with a physical presence changes hands. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> In the case of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/electronic-money.asp">electronic transactions,</a> a trusted financial institution is involved in creating and settling deposits and debt claims. Neither of these concepts applies to cryptocurrency transactions. </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"> Because of this fundamental difference, legal confusion between parties in various types of digital currency transactions is a real possibility. Once again, because of the decentralized state of these currencies, the path of legal recourse in these situations can be difficult to assess. </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-cryptocurrency-registration-and-licensing"></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"> Cryptocurrency Registration and Licensing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> A growing number of businesses are taking digital currencies as a form of payment. In 2023, you could spend your Bitcoin at Microsoft's Xbox Store, Home Depot, and Whole Foods.<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_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> As in other financial areas, businesses may eventually be required to register and obtain licenses for particular jurisdictions and activities. However, due to digital currencies ' complex and evolving legal status, this area is significantly less clear for businesses operating in the cryptocurrency market. </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"> Companies that only accept cryptocurrencies, for example, may not need to register or obtain licenses at all. On the other hand, they may be required to submit to special considerations depending upon their jurisdiction. </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"> The onus of responsibility falls on business owners and managers to ensure that they follow proper legal procedures for their operations at both the local and state levels. </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"> For example, at the federal level, financial institutions must maintain certain protection activities against <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneylaundering.asp">money laundering</a> and fraud, the transmission of funds, and more. Considerations like these also apply to businesses dealing with digital currencies. </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-fraud-and-money-laundering"></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"> Fraud and Money Laundering </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> There is a widespread belief that cryptocurrencies provide criminal organizations with a new means of committing fraud, money laundering, and a host of other financial crimes. This may not directly impact most cryptocurrency investors who do not intend to use this new technology to commit such crimes. However, investors who find themselves in the unfortunate position of being a victim of financial crime do not likely have the same legal options as traditional victims of fraud. </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"> This issue also relates to the decentralized status of digital currencies. When a cryptocurrency exchange is hacked and customers' holdings are stolen, for instance, there is frequently no standard practice for recovering the missing funds. </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"> Digital currency investors thus take on a certain amount of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/beware-9m-are-lost-each-day-crypto-scams/">risk by purchasing and holding</a> cryptocurrency assets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_67-0"> <span class="mntl-sc-block-subheading__text"> The Digital Security Issue </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> This is why developers and startups related to digital currency have focused a great deal of attention on creating secure means of holding digital coins and tokens. Still, while new types of wallets are being released all the time, and while cryptocurrency exchanges are always improving their security measures, investors have so far not been able to fully eliminate the legal risks associated with owning cryptocurrencies, and it's likely that they never will. </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"> <em>Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. </em> </p></div>

Along with the explosion of interest in cryptocurrency, there is a growing need for clarity regarding the [legal implications of these new currencies](https://www.investopedia.com/ask/answers/121515/bitcoin-legal-us.asp) and the technologies that drive them. Regulatory agencies, tax authorities, and central banks around the world all are working to understand the nature and meaning of digital currencies. Meanwhile, individual investors can make a great deal of money [investing in them](https://www.investopedia.com/investing-in-cryptocurrency-5215269), but they also assume certain legal risks when they buy and sell cryptocurrencies. Much of the murkiness of the legal standing of cryptocurrency is due to its newness relative to more traditional currency and payment systems. ### Key Takeaways * The regulation of cryptocurrencies remains in an unsettled state. * The wise cryptocurrency investor should consider reporting their holdings as foreign assets, although the requirements remain unclear. * One fact is definite: Profits in cryptocurrency trading are taxable as capital gains in the U.S. * The lack of a centralized authority can be a legal and financial risk to cryptocurrency owners. ### Owners of cryptocurrency wallets may soon be required to file FinCEN Form 114, the report required of U.S. taxpayers with substantial holdings in foreign bank accounts. ## Cryptocurrencies and Taxes One of the most critical legal considerations for a cryptocurrency investor has to do with the way that government tax authorities view cryptocurrency holdings. In fact, their views are evolving, and cryptocurrency investors need to keep an eye on their latest pronouncements. ### Capital Gains and Cryptocurrency In the U.S., the IRS has defined cryptocurrencies as property rather than currencies. This means that individual investors are subject to [capital gains tax](https://www.investopedia.com/terms/c/capital_gains_tax.asp) laws when it comes to reporting cryptocurrency profits and expenses on their annual tax returns, regardless of where they purchased digital coins. Note that the above is true for investors who buy and sell cryptocurrencies. If you are an employee and receive cryptocurrency as salary, it is taxable as income. The amount is based on the value in U.S. dollars of the cryptocurrency at the time it was paid. ### Cryptocurrency and Foreign Bank Account Regulations Cryptocurrency trading frequently involves holding cryptocurrency in a foreign account. As of August 2023, federal law does not view a foreign cryptocurrency account as a type of "reportable account." That is, cryptocurrency account holders are not required to file disclosures of their foreign accounts to the Financial Crimes Enforcement Network (FinCEN), an agency of the U.S. Treasury Department. Commonly called an FBAR, for Foreign Bank Account Report, this is FinCEN Form 114, and it must be filed by holders of substantial overseas accounts. Cryptocurrency wallets are not included in that requirement but that could change at any time. FinCEN intends to propose amending the filing requirements regarding foreign bank accounts to include cryptocurrency holdings. ### Cryptocurrency and the IRS IRS Form 8938, known as FATCA, is the tax agency's version of FinCEN's FBAR. Taxpayers with substantial assets in foreign accounts are required to file this Statement of Specified Foreign Financial Assets as well as the FBAR. As of August 2023, the IRS has not definitively ruled on the subject. The question of whether cryptocurrency wallet owners must report their holdings using Form 8938 is unclear. Blogs for lawyers, accountants, and cryptocurrency investors are awash in the debate over whether a wallet is a financial institution, or whether the IRS thinks it is. Keep in mind, given the severe penalties for failing to file an FBAR, a FATCA, or both, owners of cryptocurrency wallets should file both forms. Infractions are punishable with a $10,000 fine or half the account value, and criminal penalties are possible. At the very least, consult a tax professional who has some familiarity with cryptocurrency when it comes time to file your taxes. ## Cryptocurrency's Decentralized Status One of the great draws of many digital currencies is also a potential risk factor for the individual investor. Cryptocurrencies by definition are [decentralized](https://www.investopedia.com/terms/d/decentralizedmarket.asp), meaning that they have no physical presence and are not backed by a central authority. While governments around the world have stepped in to assert their regulatory power in various ways, BTC and other digital currencies like it remain unattached to any jurisdiction or institution. On one hand, this frees investors from being beholden to those institutions. On the other hand, this status could result in legal complications. ### When There's No Central Authority The value of digital currencies is dependent entirely upon the value that other owners and investors ascribe to them; this is true across all currencies, digital or fiat. Without a central authority backing the value of a digital currency, investors may be left in the lurch should complications with transactions or ownership arise. Another potential risk associated with cryptocurrencies as a result of their decentralized status has to do with the particulars of transactions. In most other transactions, currency with a physical presence changes hands. In the case of [electronic transactions,](https://www.investopedia.com/terms/e/electronic-money.asp) a trusted financial institution is involved in creating and settling deposits and debt claims. Neither of these concepts applies to cryptocurrency transactions. Because of this fundamental difference, legal confusion between parties in various types of digital currency transactions is a real possibility. Once again, because of the decentralized state of these currencies, the path of legal recourse in these situations can be difficult to assess. ## Cryptocurrency Registration and Licensing A growing number of businesses are taking digital currencies as a form of payment. In 2023, you could spend your Bitcoin at Microsoft's Xbox Store, Home Depot, and Whole Foods. As in other financial areas, businesses may eventually be required to register and obtain licenses for particular jurisdictions and activities. However, due to digital currencies ' complex and evolving legal status, this area is significantly less clear for businesses operating in the cryptocurrency market. Companies that only accept cryptocurrencies, for example, may not need to register or obtain licenses at all. On the other hand, they may be required to submit to special considerations depending upon their jurisdiction. The onus of responsibility falls on business owners and managers to ensure that they follow proper legal procedures for their operations at both the local and state levels. For example, at the federal level, financial institutions must maintain certain protection activities against [money laundering](https://www.investopedia.com/terms/m/moneylaundering.asp) and fraud, the transmission of funds, and more. Considerations like these also apply to businesses dealing with digital currencies. ## Fraud and Money Laundering There is a widespread belief that cryptocurrencies provide criminal organizations with a new means of committing fraud, money laundering, and a host of other financial crimes. This may not directly impact most cryptocurrency investors who do not intend to use this new technology to commit such crimes. However, investors who find themselves in the unfortunate position of being a victim of financial crime do not likely have the same legal options as traditional victims of fraud. This issue also relates to the decentralized status of digital currencies. When a cryptocurrency exchange is hacked and customers' holdings are stolen, for instance, there is frequently no standard practice for recovering the missing funds. Digital currency investors thus take on a certain amount of [risk by purchasing and holding](https://www.investopedia.com/news/beware-9m-are-lost-each-day-crypto-scams/) cryptocurrency assets. ### The Digital Security Issue This is why developers and startups related to digital currency have focused a great deal of attention on creating secure means of holding digital coins and tokens. Still, while new types of wallets are being released all the time, and while cryptocurrency exchanges are always improving their security measures, investors have so far not been able to fully eliminate the legal risks associated with owning cryptocurrencies, and it's likely that they never will. *Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.*

Along with the explosion of interest in cryptocurrency, there is a growing need for clarity regarding the legal implications of these new currencies and the technologies that drive them. Regulatory agencies, tax authorities, and central banks around the world all are working to understand the nature and meaning of digital currencies. Meanwhile, individual investors can make a great deal of money investing in them, but they also assume certain legal risks when they buy and sell cryptocurrencies. Much of the murkiness of the legal standing of cryptocurrency is due to its newness relative to more traditional currency and payment systems. Key Takeaways The regulation of cryptocurrencies remains in an unsettled state.The wise cryptocurrency investor should consider reporting their holdings as foreign assets, although the requirements remain unclear.One fact is definite: Profits in cryptocurrency trading are taxable as capital gains in the U.S.The lack of a centralized authority can be a legal and financial risk to cryptocurrency owners. Owners of cryptocurrency wallets may soon be required to file FinCEN Form 114, the report required of U.S. taxpayers with substantial holdings in foreign bank accounts. Cryptocurrencies and Taxes One of the most critical legal considerations for a cryptocurrency investor has to do with the way that government tax authorities view cryptocurrency holdings. In fact, their views are evolving, and cryptocurrency investors need to keep an eye on their latest pronouncements. Capital Gains and Cryptocurrency In the U.S., the IRS has defined cryptocurrencies as property rather than currencies. This means that individual investors are subject to capital gains tax laws when it comes to reporting cryptocurrency profits and expenses on their annual tax returns, regardless of where they purchased digital coins. Note that the above is true for investors who buy and sell cryptocurrencies. If you are an employee and receive cryptocurrency as salary, it is taxable as income. The amount is based on the value in U.S. dollars of the cryptocurrency at the time it was paid. Cryptocurrency and Foreign Bank Account Regulations Cryptocurrency trading frequently involves holding cryptocurrency in a foreign account. As of August 2023, federal law does not view a foreign cryptocurrency account as a type of "reportable account." That is, cryptocurrency account holders are not required to file disclosures of their foreign accounts to the Financial Crimes Enforcement Network (FinCEN), an agency of the U.S. Treasury Department. Commonly called an FBAR, for Foreign Bank Account Report, this is FinCEN Form 114, and it must be filed by holders of substantial overseas accounts. Cryptocurrency wallets are not included in that requirement but that could change at any time. FinCEN intends to propose amending the filing requirements regarding foreign bank accounts to include cryptocurrency holdings. Cryptocurrency and the IRS IRS Form 8938, known as FATCA, is the tax agency's version of FinCEN's FBAR. Taxpayers with substantial assets in foreign accounts are required to file this Statement of Specified Foreign Financial Assets as well as the FBAR. As of August 2023, the IRS has not definitively ruled on the subject. The question of whether cryptocurrency wallet owners must report their holdings using Form 8938 is unclear. Blogs for lawyers, accountants, and cryptocurrency investors are awash in the debate over whether a wallet is a financial institution, or whether the IRS thinks it is. Keep in mind, given the severe penalties for failing to file an FBAR, a FATCA, or both, owners of cryptocurrency wallets should file both forms. Infractions are punishable with a $10,000 fine or half the account value, and criminal penalties are possible. At the very least, consult a tax professional who has some familiarity with cryptocurrency when it comes time to file your taxes. Cryptocurrency's Decentralized Status One of the great draws of many digital currencies is also a potential risk factor for the individual investor. Cryptocurrencies by definition are decentralized, meaning that they have no physical presence and are not backed by a central authority. While governments around the world have stepped in to assert their regulatory power in various ways, BTC and other digital currencies like it remain unattached to any jurisdiction or institution. On one hand, this frees investors from being beholden to those institutions. On the other hand, this status could result in legal complications. When There's No Central Authority The value of digital currencies is dependent entirely upon the value that other owners and investors ascribe to them; this is true across all currencies, digital or fiat. Without a central authority backing the value of a digital currency, investors may be left in the lurch should complications with transactions or ownership arise. Another potential risk associated with cryptocurrencies as a result of their decentralized status has to do with the particulars of transactions. In most other transactions, currency with a physical presence changes hands. In the case of electronic transactions, a trusted financial institution is involved in creating and settling deposits and debt claims. Neither of these concepts applies to cryptocurrency transactions. Because of this fundamental difference, legal confusion between parties in various types of digital currency transactions is a real possibility. Once again, because of the decentralized state of these currencies, the path of legal recourse in these situations can be difficult to assess. Cryptocurrency Registration and Licensing A growing number of businesses are taking digital currencies as a form of payment. In 2023, you could spend your Bitcoin at Microsoft's Xbox Store, Home Depot, and Whole Foods. As in other financial areas, businesses may eventually be required to register and obtain licenses for particular jurisdictions and activities. However, due to digital currencies ' complex and evolving legal status, this area is significantly less clear for businesses operating in the cryptocurrency market. Companies that only accept cryptocurrencies, for example, may not need to register or obtain licenses at all. On the other hand, they may be required to submit to special considerations depending upon their jurisdiction. The onus of responsibility falls on business owners and managers to ensure that they follow proper legal procedures for their operations at both the local and state levels. For example, at the federal level, financial institutions must maintain certain protection activities against money laundering and fraud, the transmission of funds, and more. Considerations like these also apply to businesses dealing with digital currencies. Fraud and Money Laundering There is a widespread belief that cryptocurrencies provide criminal organizations with a new means of committing fraud, money laundering, and a host of other financial crimes. This may not directly impact most cryptocurrency investors who do not intend to use this new technology to commit such crimes. However, investors who find themselves in the unfortunate position of being a victim of financial crime do not likely have the same legal options as traditional victims of fraud. This issue also relates to the decentralized status of digital currencies. When a cryptocurrency exchange is hacked and customers' holdings are stolen, for instance, there is frequently no standard practice for recovering the missing funds. Digital currency investors thus take on a certain amount of risk by purchasing and holding cryptocurrency assets. The Digital Security Issue This is why developers and startups related to digital currency have focused a great deal of attention on creating secure means of holding digital coins and tokens. Still, while new types of wallets are being released all the time, and while cryptocurrency exchanges are always improving their security measures, investors have so far not been able to fully eliminate the legal risks associated with owning cryptocurrencies, and it's likely that they never will. Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. 

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

What Is T-Distribution in Probability? How Do You Use It?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-t-distribution"></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 T-Distribution? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The t-distribution, also known as the Student’s t-distribution, is a type of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/probabilitydistribution.asp">probability distribution</a> that is similar to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/normaldistribution.asp">normal distribution</a> with its bell shape but has heavier tails. It is used for estimating population parameters for small sample sizes or unknown variances. T-distributions have a greater chance for extreme values than normal distributions, and as a result have fatter tails. </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 t-distribution is the basis for computing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/t-test.asp">t-tests</a> in statistics. </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 t-distribution is a continuous probability distribution of the z-score when the estimated standard deviation is used in the denominator rather than the true standard deviation.</li><li>The t-distribution, like the normal distribution, is bell-shaped and symmetric, but it has heavier tails, which means that it tends to produce values that fall far from its mean.</li><li>T-tests are used in statistics to estimate significance.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-does-a-t-distribution-tell-you"></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"> What Does a T-Distribution Tell You?  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Tail heaviness is determined by a parameter of the t-distribution called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/degrees-of-freedom.asp">degrees of freedom</a>, with smaller values giving heavier tails, and with higher values making the t-distribution resemble a standard normal distribution with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mean.asp">mean</a> of 0 and a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/standarddeviation.asp">standard deviation</a> of 1.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_11-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:61.4%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/uFKB6BYv9O2eIUkFFPFHW6qZV6k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_T_Distribution_Definition_Oct_2020-01-fdfa54d385de4cfca5957da94bbab89f.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/uFKB6BYv9O2eIUkFFPFHW6qZV6k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_T_Distribution_Definition_Oct_2020-01-fdfa54d385de4cfca5957da94bbab89f.jpg" data-srcset="https://www.investopedia.com/thmb/omlOkOSBqKNVT_SHmJTBnwLcMns=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_T_Distribution_Definition_Oct_2020-01-fdfa54d385de4cfca5957da94bbab89f.jpg 750w" data-tracking-container="true" height="3383" id="mntl-sc-block-image_1-0" width="5505"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3383" sizes="750px" src="https://www.investopedia.com/thmb/uFKB6BYv9O2eIUkFFPFHW6qZV6k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_T_Distribution_Definition_Oct_2020-01-fdfa54d385de4cfca5957da94bbab89f.jpg" srcset="https://www.investopedia.com/thmb/omlOkOSBqKNVT_SHmJTBnwLcMns=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_T_Distribution_Definition_Oct_2020-01-fdfa54d385de4cfca5957da94bbab89f.jpg 750w" width="5505"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Image by Sabrina Jiang © Investopedia 2020</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> When a sample of n observations is taken from a normally distributed population having mean M and standard deviation D, the sample mean, m, and the sample standard deviation, d, will differ from M and D because of the randomness of the sample. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/z/zscore.asp">z-score can be calculated</a> with the population standard deviation as Z = (x – M)/D, and this value has the normal distribution with mean 0 and standard deviation 1. But when using the estimated standard deviation, a t-score is calculated as T = (m – M)/{d/sqrt(n)}, and the difference between d and D makes the distribution a t-distribution with (n - 1) degrees of freedom rather than the normal distribution with mean 0 and standard deviation 1.  </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-example-of-how-to-use-a-t-distribution"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Example of How to Use a T-Distribution </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Take the following example for how t-distributions are put to use in statistical analysis. First, remember that a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/confidenceinterval.asp">confidence interval</a> for the mean is a range of values, calculated from the data, meant to capture a “population” mean. This interval is m +- t*d/sqrt(n), where t is a critical value from the t-distribution.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> For instance, a 95% confidence interval for the mean return of the Dow Jones Industrial Average (DJIA) in the 27 trading days prior to Sept. 11, 2001, is -0.33%, (+/- 2.055) * 1.07 / sqrt(27), giving a (persistent) mean return as some number between -0.75% and +0.09%. The number 2.055, the amount of standard errors to adjust by, is found from the t-distribution. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_21-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_22-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Because the t-distribution has fatter tails than a normal distribution, it can be used as a model for financial returns that exhibit excess <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/k/kurtosis.asp">kurtosis</a>, which will allow for a more realistic calculation of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/var.asp">Value at Risk (VaR)</a> in such cases.</p></div></div></div> <span class="heading-toc" id="toc-t-distribution-vs-normal-distribution"></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"> T-Distribution vs. Normal Distribution  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Normal distributions are used when the population distribution is assumed to be normal. The t-distribution is similar to the normal distribution, just with fatter tails. Both assume a normally distributed population. T-distributions thus have higher kurtosis than normal distributions. The probability of getting values very far from the mean is larger with a t-distribution than a normal distribution.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <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_26-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:91.8%;"> <img alt="Normal vs. T-Distribution" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/Db3QBJcfEFvfbj6U0BmdAididYA=/1024x0/filters:no_upscale():max_bytes(150000):strip_icc()/norm_vs_t2-1024x941-f3559a8fd4e947d49723541273a7d162.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/ZzCZM3d2gR-OtbCmN5ift5xBrww=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/norm_vs_t2-1024x941-f3559a8fd4e947d49723541273a7d162.png" data-srcset="https://www.investopedia.com/thmb/Un8BVthRFD6II9ocMnuZyCBiejw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/norm_vs_t2-1024x941-f3559a8fd4e947d49723541273a7d162.png 750w" data-tracking-container="true" height="941" id="mntl-sc-block-image_2-0" width="1024"/> <noscript> <img alt="Normal vs. T-Distribution" class="img--noscript universal-image__image" height="941" sizes="750px" src="https://www.investopedia.com/thmb/ZzCZM3d2gR-OtbCmN5ift5xBrww=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/norm_vs_t2-1024x941-f3559a8fd4e947d49723541273a7d162.png" srcset="https://www.investopedia.com/thmb/Un8BVthRFD6II9ocMnuZyCBiejw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/norm_vs_t2-1024x941-f3559a8fd4e947d49723541273a7d162.png 750w" width="1024"/> </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">Normal vs. t-distribution.</span> </figcaption></figure> <span class="heading-toc" id="toc-limitations-of-using-a-t-distribution"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Limitations of Using a T-Distribution  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The t-distribution can skew exactness relative to the normal distribution. Its shortcoming only arises when there’s a need for perfect normality. The t-distribution should only be used when the population standard deviation is not known. If the population standard deviation is known and the sample size is large enough, the normal distribution should be used for better results. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_30-0"><span class="heading-toc" id="toc-what-is-the-t-distribution-in-statistics"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is the t-distribution in statistics?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The t-distribution is used in statistics to estimate the population parameters for small sample sizes or undetermined variances. It is also referred to as the Student’s t-distribution.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-when-should-the-t-distribution-be-used"></span> <h2 class="mntl-sc-block-questionandanswer__question">When should the t-distribution be used?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The t-distribution should be used if the population sample size is small and the standard deviation is unknown. If not, then the normal distribution should be used.</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-does-normal-distribution-mean"></span> <h2 class="mntl-sc-block-questionandanswer__question">What does normal distribution mean?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Normal distribution is a term for a probability <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bell-curve.asp">bell curve</a>. It is also called the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/10/gaussian-models-statistics.asp">Gaussian distribution</a>.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The t-distribution is used in statistics to estimate the significance of population parameters for small sample sizes or unknown variations. Like the normal distribution, it is bell-shaped and symmetric. Unlike normal distributions, it has heavier tails, which result in a greater chance for extreme values. </p></div>

## What Is a T-Distribution? The t-distribution, also known as the Student’s t-distribution, is a type of [probability distribution](https://www.investopedia.com/terms/p/probabilitydistribution.asp) that is similar to the [normal distribution](https://www.investopedia.com/terms/n/normaldistribution.asp) with its bell shape but has heavier tails. It is used for estimating population parameters for small sample sizes or unknown variances. T-distributions have a greater chance for extreme values than normal distributions, and as a result have fatter tails. The t-distribution is the basis for computing [t-tests](https://www.investopedia.com/terms/t/t-test.asp) in statistics. ### Key Takeaways * The t-distribution is a continuous probability distribution of the z-score when the estimated standard deviation is used in the denominator rather than the true standard deviation. * The t-distribution, like the normal distribution, is bell-shaped and symmetric, but it has heavier tails, which means that it tends to produce values that fall far from its mean. * T-tests are used in statistics to estimate significance. ## What Does a T-Distribution Tell You? Tail heaviness is determined by a parameter of the t-distribution called [degrees of freedom](https://www.investopedia.com/terms/d/degrees-of-freedom.asp), with smaller values giving heavier tails, and with higher values making the t-distribution resemble a standard normal distribution with a [mean](https://www.investopedia.com/terms/m/mean.asp) of 0 and a [standard deviation](https://www.investopedia.com/terms/s/standarddeviation.asp) of 1. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_T_Distribution_Definition_Oct_2020-01-fdfa54d385de4cfca5957da94bbab89f.jpg) Image by Sabrina Jiang © Investopedia 2020 When a sample of n observations is taken from a normally distributed population having mean M and standard deviation D, the sample mean, m, and the sample standard deviation, d, will differ from M and D because of the randomness of the sample. A [z-score can be calculated](https://www.investopedia.com/terms/z/zscore.asp) with the population standard deviation as Z = (x – M)/D, and this value has the normal distribution with mean 0 and standard deviation 1. But when using the estimated standard deviation, a t-score is calculated as T = (m – M)/{d/sqrt(n)}, and the difference between d and D makes the distribution a t-distribution with (n - 1) degrees of freedom rather than the normal distribution with mean 0 and standard deviation 1.  ## Example of How to Use a T-Distribution Take the following example for how t-distributions are put to use in statistical analysis. First, remember that a [confidence interval](https://www.investopedia.com/terms/c/confidenceinterval.asp) for the mean is a range of values, calculated from the data, meant to capture a “population” mean. This interval is m +- t\*d/sqrt(n), where t is a critical value from the t-distribution. For instance, a 95% confidence interval for the mean return of the Dow Jones Industrial Average (DJIA) in the 27 trading days prior to Sept. 11, 2001, is -0.33%, (+/- 2.055) \* 1.07 / sqrt(27), giving a (persistent) mean return as some number between -0.75% and +0.09%. The number 2.055, the amount of standard errors to adjust by, is found from the t-distribution. ### Because the t-distribution has fatter tails than a normal distribution, it can be used as a model for financial returns that exhibit excess [kurtosis](https://www.investopedia.com/terms/k/kurtosis.asp), which will allow for a more realistic calculation of [Value at Risk (VaR)](https://www.investopedia.com/terms/v/var.asp) in such cases. ## T-Distribution vs. Normal Distribution Normal distributions are used when the population distribution is assumed to be normal. The t-distribution is similar to the normal distribution, just with fatter tails. Both assume a normally distributed population. T-distributions thus have higher kurtosis than normal distributions. The probability of getting values very far from the mean is larger with a t-distribution than a normal distribution. ![Normal vs. T-Distribution]() :max_bytes(150000):strip_icc()/norm_vs_t2-1024x941-f3559a8fd4e947d49723541273a7d162.png) Normal vs. t-distribution. ## Limitations of Using a T-Distribution The t-distribution can skew exactness relative to the normal distribution. Its shortcoming only arises when there’s a need for perfect normality. The t-distribution should only be used when the population standard deviation is not known. If the population standard deviation is known and the sample size is large enough, the normal distribution should be used for better results. ## What is the t-distribution in statistics? The t-distribution is used in statistics to estimate the population parameters for small sample sizes or undetermined variances. It is also referred to as the Student’s t-distribution. ## When should the t-distribution be used? The t-distribution should be used if the population sample size is small and the standard deviation is unknown. If not, then the normal distribution should be used. ## What does normal distribution mean? Normal distribution is a term for a probability [bell curve](https://www.investopedia.com/terms/b/bell-curve.asp). It is also called the [Gaussian distribution](https://www.investopedia.com/articles/financial-theory/10/gaussian-models-statistics.asp). ## The Bottom Line The t-distribution is used in statistics to estimate the significance of population parameters for small sample sizes or unknown variations. Like the normal distribution, it is bell-shaped and symmetric. Unlike normal distributions, it has heavier tails, which result in a greater chance for extreme values.

What Is a T-Distribution? The t-distribution, also known as the Student’s t-distribution, is a type of probability distribution that is similar to the normal distribution with its bell shape but has heavier tails. It is used for estimating population parameters for small sample sizes or unknown variances. T-distributions have a greater chance for extreme values than normal distributions, and as a result have fatter tails. The t-distribution is the basis for computing t-tests in statistics. Key Takeaways The t-distribution is a continuous probability distribution of the z-score when the estimated standard deviation is used in the denominator rather than the true standard deviation.The t-distribution, like the normal distribution, is bell-shaped and symmetric, but it has heavier tails, which means that it tends to produce values that fall far from its mean.T-tests are used in statistics to estimate significance. What Does a T-Distribution Tell You?  Tail heaviness is determined by a parameter of the t-distribution called degrees of freedom, with smaller values giving heavier tails, and with higher values making the t-distribution resemble a standard normal distribution with a mean of 0 and a standard deviation of 1. Image by Sabrina Jiang © Investopedia 2020 When a sample of n observations is taken from a normally distributed population having mean M and standard deviation D, the sample mean, m, and the sample standard deviation, d, will differ from M and D because of the randomness of the sample. A z-score can be calculated with the population standard deviation as Z = (x – M)/D, and this value has the normal distribution with mean 0 and standard deviation 1. But when using the estimated standard deviation, a t-score is calculated as T = (m – M)/{d/sqrt(n)}, and the difference between d and D makes the distribution a t-distribution with (n - 1) degrees of freedom rather than the normal distribution with mean 0 and standard deviation 1.  Example of How to Use a T-Distribution Take the following example for how t-distributions are put to use in statistical analysis. First, remember that a confidence interval for the mean is a range of values, calculated from the data, meant to capture a “population” mean. This interval is m +- t*d/sqrt(n), where t is a critical value from the t-distribution. For instance, a 95% confidence interval for the mean return of the Dow Jones Industrial Average (DJIA) in the 27 trading days prior to Sept. 11, 2001, is -0.33%, (+/- 2.055) * 1.07 / sqrt(27), giving a (persistent) mean return as some number between -0.75% and +0.09%. The number 2.055, the amount of standard errors to adjust by, is found from the t-distribution. Because the t-distribution has fatter tails than a normal distribution, it can be used as a model for financial returns that exhibit excess kurtosis, which will allow for a more realistic calculation of Value at Risk (VaR) in such cases. T-Distribution vs. Normal Distribution  Normal distributions are used when the population distribution is assumed to be normal. The t-distribution is similar to the normal distribution, just with fatter tails. Both assume a normally distributed population. T-distributions thus have higher kurtosis than normal distributions. The probability of getting values very far from the mean is larger with a t-distribution than a normal distribution. Normal vs. t-distribution. Limitations of Using a T-Distribution  The t-distribution can skew exactness relative to the normal distribution. Its shortcoming only arises when there’s a need for perfect normality. The t-distribution should only be used when the population standard deviation is not known. If the population standard deviation is known and the sample size is large enough, the normal distribution should be used for better results. What is the t-distribution in statistics? The t-distribution is used in statistics to estimate the population parameters for small sample sizes or undetermined variances. It is also referred to as the Student’s t-distribution. When should the t-distribution be used? The t-distribution should be used if the population sample size is small and the standard deviation is unknown. If not, then the normal distribution should be used. What does normal distribution mean? Normal distribution is a term for a probability bell curve. It is also called the Gaussian distribution. The Bottom Line The t-distribution is used in statistics to estimate the significance of population parameters for small sample sizes or unknown variations. Like the normal distribution, it is bell-shaped and symmetric. Unlike normal distributions, it has heavier tails, which result in a greater chance for extreme values.

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

Stare Decisis: What It Means in Law, With Examples

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-stare-decisis"></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 Stare Decisis? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Stare decisis is a legal doctrine that obligates courts to follow historical cases when making a ruling on a similar case. Stare decisis ensures that cases with similar scenarios and facts are approached in the same way. Simply put, it binds courts to follow legal precedents set by previous decisions.<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_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Stare decisis is a Latin term meaning "to stand by that which is decided."<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_5-0"></div> <span class="heading-toc" id="toc-understanding-stare-decisis"></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 Stare Decisis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The U.S. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/common-law.asp">common law</a> structure has a unified system of deciding legal matters with the principle of stare decisis at its core, making the concept of legal precedent extremely important. A prior ruling or judgment on any case is known as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/condition-precedent.asp">precedent</a>. Stare decisis dictates that courts look to precedents when overseeing an ongoing case with similar circumstances. </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>Stare decisis is a legal doctrine that obligates courts to follow historical cases when making a ruling on a similar case.</li><li>Stare decisis requires that cases follow the precedents of other similar cases in similar jurisdictions.</li><li>The U.S. Supreme Court is the nation’s highest court; therefore, all states rely on Supreme Court precedents.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_11-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="Stare Decisis" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/lQWoRY0v3KAjVxBMjICDEwvmQkY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/stare_decisis.asp_final-6d4689880426446e9178372281e95a49.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/lQWoRY0v3KAjVxBMjICDEwvmQkY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/stare_decisis.asp_final-6d4689880426446e9178372281e95a49.png" data-srcset="https://www.investopedia.com/thmb/3II2IubiAj5HK7K_cuyzFPthZZk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/stare_decisis.asp_final-6d4689880426446e9178372281e95a49.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Stare Decisis" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/lQWoRY0v3KAjVxBMjICDEwvmQkY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/stare_decisis.asp_final-6d4689880426446e9178372281e95a49.png" srcset="https://www.investopedia.com/thmb/3II2IubiAj5HK7K_cuyzFPthZZk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/stare_decisis.asp_final-6d4689880426446e9178372281e95a49.png 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Nez Riaz</p></span> </figcaption></figure> <span class="heading-toc" id="toc-what-makes-a-precedent"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> What Makes a Precedent? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> A unique case with hardly any past reference material may become a precedent when the judge makes a ruling on it. Also, the new ruling on a similar present case replaces any precedent that has been overruled in a current case. Under the rule of stare decisis, courts are obligated to uphold their previous rulings or the rulings made by higher courts within the same court system.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> For example, the Kansas state <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appellate-courts.asp">appellate courts</a> will follow their precedent, the Kansas Supreme Court precedent, and the U.S. Supreme Court precedent. Kansas is not obligated to follow precedents from the appellate courts of other states, say California. However, when faced with a unique case, Kansas may refer to the precedent of California or any other state that has an established ruling as a guide in setting its precedent. </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 effect, all courts are bound to follow the rulings of the Supreme Court, as the highest court in the country.<span class="ql-inline-citation" data-cite="12"></span> Therefore, decisions that the highest court makes become binding precedent or obligatory stare decisis for the lower courts in the system. When the Supreme Court overturns a precedent made by courts below it in the legal hierarchy, the new ruling will become stare decisis on similar court hearings. If a case ruled in a Kansas court, which has abided by a certain precedent for decades, is taken to the U.S. Supreme Court and is then overturned by that court, the Supreme Court’s overrule replaces the former precedent, and Kansas courts would need to adapt to the new rule as precedent. </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-overturning-a-precedent"></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"> Overturning a Precedent </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In rare cases, the Supreme Court has reversed its own previous rulings—David Schultz, professor of law at the University of Minnesota and professor of political science at Hamline University, reports that between1 789 to 2020, the Court did so 145 times out of "25,544 Supreme Court opinions and judgments after oral arguments." This amounts to barely one-half of one percent.<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"> The most famous reversal to date, Schultz notes, is 1954's Brown v. Board of Education.That decision reversed the separate-but-equal doctrine ruling of Plessy v. Ferguson in 1896, which supported segregation.<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"> The most recent and controversial overturning of a precedent occurred on June 24, 2022, when the Court reversed Roe v. Wade, the 1973 ruling that legalized abortion, making the Dobbs v. Jackson Women's Health Organization the next major case to depart from stare decesis.<span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-real-world-examples"></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 Examples </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insidertrading.asp">Insider trading</a> in the securities industry is the misuse of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/materialinsiderinformation.asp">material nonpublic information</a> for financial gain. The insider can trade the information for their portfolio or sell the information to an outsider for a cost. The precedent looked to by courts when dealing with insider trading is the 1983 case of Dirks v. SEC. In this case, the U.S. Supreme Court ruled that insiders are guilty if they directly or indirectly received material benefits from disclosing the information to someone who acts on it.<span class="ql-inline-citation" data-cite="1"></span> In addition, exploiting confidential information exists when the information is gifted to a relative or friend. This decision became precedent and is upheld by courts dealing with financial crimes that are similar in nature. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-subheading__text"> Using stare decisis </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> In the 2016 ruling of Salman v. the United States, the Supreme Court used stare decisis to make the ruling. Bassam Salman made an estimated $1.5 million from insider information that he received indirectly from his brother-in-law, Maher Kara, then a Citigroup investment banker. While Salman’s counsel believed that he should be convicted only if he compensated his brother-in-law in cash or kind, the Supreme Court judge ruled that insiders do not have to get something in return for divulging company secrets. Based on stare decisis, the confidential information given to Salman was considered a gift—as Dirks v. SEC makes it clear that fiduciary duty is breached when a tipper gives confidential information as a gift. Salman was therefore found guilty of insider 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_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"> Considering precedent </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> In 2014, the U.S. Court of Appeals for the Second Circuit in New York overturned the insider trading conviction of two <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedgefund.asp">hedge fund</a> managers, Todd Newman and Anthony Chiasson, stating an insider can be convicted only if the misappropriated information produced a real personal benefit.<span class="ql-inline-citation" data-cite="3"></span> When Bassam Salam appealed his 2013 conviction using the Second Circuit's ruling as precedent, the U.S. Court of Appeals for the Ninth Circuit based in San Francisco did not abide by the Second Circuit’s precedent, which it was not obligated to uphold. The Appeals Court upheld the conviction ruling on Salman.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> As noted above, Salman appealed that decision to the U.S. Supreme Court, stating that the Second Circuit’s ruling was inconsistent with the Supreme Court precedent set about by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dirks-test.asp">Dirks</a> v. SEC and the Appeals Court had, therefore, not adhered to the principle of stare decisis. The Supreme Court disagreed and also upheld the conviction. "Salman’s conduct is in the heartland of Dirks’s rule concerning gifts," Justice Alito wrote.<span class="ql-inline-citation" data-cite="14"></span> </p></div>

## What Is Stare Decisis? Stare decisis is a legal doctrine that obligates courts to follow historical cases when making a ruling on a similar case. Stare decisis ensures that cases with similar scenarios and facts are approached in the same way. Simply put, it binds courts to follow legal precedents set by previous decisions. Stare decisis is a Latin term meaning "to stand by that which is decided." ## Understanding Stare Decisis The U.S. [common law](https://www.investopedia.com/terms/c/common-law.asp) structure has a unified system of deciding legal matters with the principle of stare decisis at its core, making the concept of legal precedent extremely important. A prior ruling or judgment on any case is known as a [precedent](https://www.investopedia.com/terms/c/condition-precedent.asp). Stare decisis dictates that courts look to precedents when overseeing an ongoing case with similar circumstances. ### Key Takeaways * Stare decisis is a legal doctrine that obligates courts to follow historical cases when making a ruling on a similar case. * Stare decisis requires that cases follow the precedents of other similar cases in similar jurisdictions. * The U.S. Supreme Court is the nation’s highest court; therefore, all states rely on Supreme Court precedents. ![Stare Decisis]() :max_bytes(150000):strip_icc()/stare_decisis.asp_final-6d4689880426446e9178372281e95a49.png) Investopedia / Nez Riaz ## What Makes a Precedent? A unique case with hardly any past reference material may become a precedent when the judge makes a ruling on it. Also, the new ruling on a similar present case replaces any precedent that has been overruled in a current case. Under the rule of stare decisis, courts are obligated to uphold their previous rulings or the rulings made by higher courts within the same court system. For example, the Kansas state [appellate courts](https://www.investopedia.com/terms/a/appellate-courts.asp) will follow their precedent, the Kansas Supreme Court precedent, and the U.S. Supreme Court precedent. Kansas is not obligated to follow precedents from the appellate courts of other states, say California. However, when faced with a unique case, Kansas may refer to the precedent of California or any other state that has an established ruling as a guide in setting its precedent. In effect, all courts are bound to follow the rulings of the Supreme Court, as the highest court in the country. Therefore, decisions that the highest court makes become binding precedent or obligatory stare decisis for the lower courts in the system. When the Supreme Court overturns a precedent made by courts below it in the legal hierarchy, the new ruling will become stare decisis on similar court hearings. If a case ruled in a Kansas court, which has abided by a certain precedent for decades, is taken to the U.S. Supreme Court and is then overturned by that court, the Supreme Court’s overrule replaces the former precedent, and Kansas courts would need to adapt to the new rule as precedent. ## Overturning a Precedent In rare cases, the Supreme Court has reversed its own previous rulings—David Schultz, professor of law at the University of Minnesota and professor of political science at Hamline University, reports that between1 789 to 2020, the Court did so 145 times out of "25,544 Supreme Court opinions and judgments after oral arguments." This amounts to barely one-half of one percent. The most famous reversal to date, Schultz notes, is 1954's Brown v. Board of Education.That decision reversed the separate-but-equal doctrine ruling of Plessy v. Ferguson in 1896, which supported segregation. The most recent and controversial overturning of a precedent occurred on June 24, 2022, when the Court reversed Roe v. Wade, the 1973 ruling that legalized abortion, making the Dobbs v. Jackson Women's Health Organization the next major case to depart from stare decesis. ## Real World Examples [Insider trading](https://www.investopedia.com/terms/i/insidertrading.asp) in the securities industry is the misuse of [material nonpublic information](https://www.investopedia.com/terms/m/materialinsiderinformation.asp) for financial gain. The insider can trade the information for their portfolio or sell the information to an outsider for a cost. The precedent looked to by courts when dealing with insider trading is the 1983 case of Dirks v. SEC. In this case, the U.S. Supreme Court ruled that insiders are guilty if they directly or indirectly received material benefits from disclosing the information to someone who acts on it. In addition, exploiting confidential information exists when the information is gifted to a relative or friend. This decision became precedent and is upheld by courts dealing with financial crimes that are similar in nature. ### Using stare decisis In the 2016 ruling of Salman v. the United States, the Supreme Court used stare decisis to make the ruling. Bassam Salman made an estimated $1.5 million from insider information that he received indirectly from his brother-in-law, Maher Kara, then a Citigroup investment banker. While Salman’s counsel believed that he should be convicted only if he compensated his brother-in-law in cash or kind, the Supreme Court judge ruled that insiders do not have to get something in return for divulging company secrets. Based on stare decisis, the confidential information given to Salman was considered a gift—as Dirks v. SEC makes it clear that fiduciary duty is breached when a tipper gives confidential information as a gift. Salman was therefore found guilty of insider trading. ### Considering precedent In 2014, the U.S. Court of Appeals for the Second Circuit in New York overturned the insider trading conviction of two [hedge fund](https://www.investopedia.com/terms/h/hedgefund.asp) managers, Todd Newman and Anthony Chiasson, stating an insider can be convicted only if the misappropriated information produced a real personal benefit. When Bassam Salam appealed his 2013 conviction using the Second Circuit's ruling as precedent, the U.S. Court of Appeals for the Ninth Circuit based in San Francisco did not abide by the Second Circuit’s precedent, which it was not obligated to uphold. The Appeals Court upheld the conviction ruling on Salman. As noted above, Salman appealed that decision to the U.S. Supreme Court, stating that the Second Circuit’s ruling was inconsistent with the Supreme Court precedent set about by [Dirks](https://www.investopedia.com/terms/d/dirks-test.asp) v. SEC and the Appeals Court had, therefore, not adhered to the principle of stare decisis. The Supreme Court disagreed and also upheld the conviction. "Salman’s conduct is in the heartland of Dirks’s rule concerning gifts," Justice Alito wrote.

What Is Stare Decisis? Stare decisis is a legal doctrine that obligates courts to follow historical cases when making a ruling on a similar case. Stare decisis ensures that cases with similar scenarios and facts are approached in the same way. Simply put, it binds courts to follow legal precedents set by previous decisions. Stare decisis is a Latin term meaning "to stand by that which is decided." Understanding Stare Decisis The U.S. common law structure has a unified system of deciding legal matters with the principle of stare decisis at its core, making the concept of legal precedent extremely important. A prior ruling or judgment on any case is known as a precedent. Stare decisis dictates that courts look to precedents when overseeing an ongoing case with similar circumstances. Key Takeaways Stare decisis is a legal doctrine that obligates courts to follow historical cases when making a ruling on a similar case.Stare decisis requires that cases follow the precedents of other similar cases in similar jurisdictions.The U.S. Supreme Court is the nation’s highest court; therefore, all states rely on Supreme Court precedents. Investopedia / Nez Riaz What Makes a Precedent? A unique case with hardly any past reference material may become a precedent when the judge makes a ruling on it. Also, the new ruling on a similar present case replaces any precedent that has been overruled in a current case. Under the rule of stare decisis, courts are obligated to uphold their previous rulings or the rulings made by higher courts within the same court system. For example, the Kansas state appellate courts will follow their precedent, the Kansas Supreme Court precedent, and the U.S. Supreme Court precedent. Kansas is not obligated to follow precedents from the appellate courts of other states, say California. However, when faced with a unique case, Kansas may refer to the precedent of California or any other state that has an established ruling as a guide in setting its precedent. In effect, all courts are bound to follow the rulings of the Supreme Court, as the highest court in the country. Therefore, decisions that the highest court makes become binding precedent or obligatory stare decisis for the lower courts in the system. When the Supreme Court overturns a precedent made by courts below it in the legal hierarchy, the new ruling will become stare decisis on similar court hearings. If a case ruled in a Kansas court, which has abided by a certain precedent for decades, is taken to the U.S. Supreme Court and is then overturned by that court, the Supreme Court’s overrule replaces the former precedent, and Kansas courts would need to adapt to the new rule as precedent. Overturning a Precedent In rare cases, the Supreme Court has reversed its own previous rulings—David Schultz, professor of law at the University of Minnesota and professor of political science at Hamline University, reports that between1 789 to 2020, the Court did so 145 times out of "25,544 Supreme Court opinions and judgments after oral arguments." This amounts to barely one-half of one percent. The most famous reversal to date, Schultz notes, is 1954's Brown v. Board of Education.That decision reversed the separate-but-equal doctrine ruling of Plessy v. Ferguson in 1896, which supported segregation. The most recent and controversial overturning of a precedent occurred on June 24, 2022, when the Court reversed Roe v. Wade, the 1973 ruling that legalized abortion, making the Dobbs v. Jackson Women's Health Organization the next major case to depart from stare decesis. Real World Examples Insider trading in the securities industry is the misuse of material nonpublic information for financial gain. The insider can trade the information for their portfolio or sell the information to an outsider for a cost. The precedent looked to by courts when dealing with insider trading is the 1983 case of Dirks v. SEC. In this case, the U.S. Supreme Court ruled that insiders are guilty if they directly or indirectly received material benefits from disclosing the information to someone who acts on it. In addition, exploiting confidential information exists when the information is gifted to a relative or friend. This decision became precedent and is upheld by courts dealing with financial crimes that are similar in nature. Using stare decisis In the 2016 ruling of Salman v. the United States, the Supreme Court used stare decisis to make the ruling. Bassam Salman made an estimated $1.5 million from insider information that he received indirectly from his brother-in-law, Maher Kara, then a Citigroup investment banker. While Salman’s counsel believed that he should be convicted only if he compensated his brother-in-law in cash or kind, the Supreme Court judge ruled that insiders do not have to get something in return for divulging company secrets. Based on stare decisis, the confidential information given to Salman was considered a gift—as Dirks v. SEC makes it clear that fiduciary duty is breached when a tipper gives confidential information as a gift. Salman was therefore found guilty of insider trading. Considering precedent In 2014, the U.S. Court of Appeals for the Second Circuit in New York overturned the insider trading conviction of two hedge fund managers, Todd Newman and Anthony Chiasson, stating an insider can be convicted only if the misappropriated information produced a real personal benefit. When Bassam Salam appealed his 2013 conviction using the Second Circuit's ruling as precedent, the U.S. Court of Appeals for the Ninth Circuit based in San Francisco did not abide by the Second Circuit’s precedent, which it was not obligated to uphold. The Appeals Court upheld the conviction ruling on Salman. As noted above, Salman appealed that decision to the U.S. Supreme Court, stating that the Second Circuit’s ruling was inconsistent with the Supreme Court precedent set about by Dirks v. SEC and the Appeals Court had, therefore, not adhered to the principle of stare decisis. The Supreme Court disagreed and also upheld the conviction. "Salman’s conduct is in the heartland of Dirks’s rule concerning gifts," Justice Alito wrote.

https://www.investopedia.com/articles/pf/12/set-up-a-trust-fund.asp

How to Set Up a Trust Fund

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 many ways to set up a trust depending on what you want to achieve. You may see trust funds as a tool of the ultra-wealthy, but they can be useful to anyone who wants to protect their assets for the future needs of the people or causes that are important to them. </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"> People entering second marriages may set up trust funds to protect property for the children of their first marriages. People who want to contribute to the causes of their choice can set up trusts to manage the money for the long term. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> But trust funds are most commonly set up to cover the future educational costs of children and grandchildren. They certainly are useful for the purpose, but there may be easier and less expensive ways to set aside money for them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Grantors create trust funds for various purposes: charitable, business, and especially personal goals such as providing future financial support for children and grandchildren.</li><li>Grantors of irrevocable trusts retain no rights over the trust; they also owe no taxes on the trust's income. <span class="ql-inline-citation" data-cite="30"></span></li><li>Although many families use college trust funds to pay for children’s education, it can be simpler and less expensive to use alternatives such as Section 529 plans.</li><li>The tax code and state laws ease the creation of special needs trusts and ABLE accounts to assist disabled individuals.<span class="ql-inline-citation" data-cite="38"></span><span class="ql-inline-citation" data-cite="37"></span> </li></ul></div></div></div> <span class="heading-toc" id="toc-structure-and-operation"></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"> Structure and Operation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Regardless of their size and purpose, all trusts have the same basic structure and terminology.   The terms “trust” and “trust fund” are often used interchangeably but they have slightly different legal meanings. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <li>A trust is a legal arrangement evidenced in a written agreement transferring property from a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grantor.asp">grantor</a> to a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustee.asp">trustee</a> for specified purposes. The trustee has the fiduciary responsibility to manage the property in accordance with the directions in the agreement and the best interests of the trust’s beneficiaries.<span class="ql-inline-citation" data-cite="26"></span></li> <li>A trust fund is the property transferred by the grantor to the trustee, known as the "corpus" of the trust.<span class="ql-inline-citation" data-cite="28"></span><span class="ql-inline-citation" data-cite="27"></span> Though the word fund suggests financial assets, almost any type of property—including real estate, art, patents, or copyrights—can comprise all or part of a trust fund.  </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-subheading__text"> Revocable Grantor Trusts: Ownership Retained </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In some circumstances, the grantor is the trustee and retains ownership and control of the assets. This is sometimes used to avoid the cost, time, and potential publicity associated with the probate of an estate. </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 grantor may create a revocable trust by limiting the term that the trust remains in effect or retaining the right to end the arrangement.<span class="ql-inline-citation" data-cite="29"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Grantor trusts serve a variety of purposes but do not offer tax savings. The grantor continues to be liable for any taxes due on trust income, and the assets may be available to the grantor’s creditors.<span class="ql-inline-citation" data-cite="30"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Employers create grantor trusts to identify and segregate assets to back future liabilities for employee retirement benefits. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Some public officials transfer stock shares and other investments to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blindtrust.asp">blind trusts</a> to be managed by a hird party without the officials’ knowledge during their tenure in office to avoid potential conflicts of interest.<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_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"> Irrevocable Trusts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> When the grantor permanently transfers ownership and control of property to a third-party trustee, the trust is irrevocable. The grantor no longer owns the transferred assets and is not responsible for any taxes due, and the trust assets cannot be claimed by the grantor’s creditors.<span class="ql-inline-citation" data-cite="30"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> These trusts—which are often designed to provide financially for children and grandchildren or to serve as college funds—have tax- and estate-planning benefits for the grantor.  <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-subheading__text"> Trusts for Individuals </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Irrevocable trusts are often used to hold assets for the benefit of family members. The trust itself can be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/081815/can-i-put-my-ira-trust.asp">named the beneficiary</a> of life insurance policies and individual retirement accounts (IRAs), though doing so subjects the funds to estate taxes and IRS regulations on retirement withdrawals. </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"> When constructed correctly, trust arrangements can provide tax- and estate-planning advantages. Grandparents often appoint a parent as trustee for their children.  </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"> Depending on the terms of the arrangement, beneficiaries may receive income or assets from the trust fund during the lifetime or after the grantor's death. For example, the trustee of a college trust fund may be directed to use trust income to pay tuition expenses directly to the school and to pay or reimburse the beneficiary for college living expenses. </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"> Distributions also might be scheduled at a specific age or event. Use of the trust distributions may be limited to specific purposes such as medical expenses or a down payment for a home or left to the beneficiaries’ choice. </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-how-are-trusts-managed"></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"> How Are Trusts Managed? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The trustees of a trust may be individuals or the trust departments of banks and other financial institutions. Typically, their responsibilities include the collection of income, disposition and replacement of assets, and distributions to beneficiaries. Distributions may be required on a prescribed schedule or for specific purposes.   </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"> Trustees are compensated for their work unless the fees are waived, as sometimes occurs with family member trustees. The management of trust assets includes record-keeping and reporting as well as legal and tax compliance.  </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"> Creating and documenting a trust with a limited amount of financial assets and simple, clear directives usually entails legal fees of a few thousand dollars and low annual expenses. Expenses increase with the value of the trust fund and the complexity of its terms. </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"> Expenses of Managing a Trust Fund </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> In addition to trustee fees, trusts may incur expenses for financial and investment advisors, attorneys, accountants, property managers, and brokers. Financial institution trust departments generally charge annual fees of 1% to 2% of the value of trust assets, with the rate declining as the values managed increase.<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_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Some large investment firms—especially those that offer mutual funds for retirement and other personal accounts—offer standardized, relatively low-cost trust services. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Individuals who use online services for banking and investment accounts can establish trust fund accounts directly online. However, a substantial trust, particularly one with varied assets, may incur significant costs. It’s important to consider alternative arrangements that might cost less. </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-estate-planning-and-trusts-for-children"></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"> Estate Planning and Trusts for Children </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Trusts can help parents and grandparents plan for their offspring’s financial needs while complementing their own tax and <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>. However, it's worth investigating whether there are simpler and less expensive alternatives. </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"> Parents whose total estate values exceed the estate tax threshold of $12.92 million for 2023 may want to consider removing assets from their estates by transferring their ownership to trusts.<span class="ql-inline-citation" data-cite="25"></span><span class="ql-inline-citation" data-cite="22"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> The gift tax exemption is set at $17,000 for 2023. That means each parent and grandparent can make a gift of up to this limit annually per recipient without incurring a gift tax.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_60-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_61-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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 federal estate tax threshold and the gift tax exemption are adjusted annually for inflation.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> If the value of a gift exceeds that amount, the excess is taxable, but the tax isn’t due until the total of “excess” gifts exceeds the estate tax threshold. Only then are the excess gifts added back to the value of the remaining estate and taxed.   </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"> Affluent families may take advantage of trusts to limit the value of their estates, reducing their tax rate to the rate imposed on their children’s income. Any appreciation in the transferred asset ultimately belongs to the beneficiaries. For example, the trust would pay capital gains tax on the sale of any stock shares held in the trust. </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"> Also, if assets paying dividends or interest are transferred to an irrevocable trust, the grantor will not owe tax on the income. Instead, the trust must pay tax, at rates from 10% to 37% as of 2023, on annual income that is not distributed during the year.<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_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> Annual income distributed to a grantor’s child can be taxed under the "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/k/kiddietax.asp">kiddie tax</a>" at rates lower than the grantor’s higher rates.<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_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>Check your state's laws for trusts. Some trusts are exempt from federal reporting, but a state may levy income tax on beneficiaries who are residents.</p></div></div></div> <span class="heading-toc" id="toc-alternatives-to-trusts-for-education"></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"> Alternatives to Trusts for Education </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Financing a child’s education may be the most common reason that families create trusts. However, for families who are not ultra-rich, there are alternative vehicles that can be more efficient. </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"> The most common alternatives to college trust funds are direct payments to the college on behalf of a grandchild, contributions to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/529plan.asp">Section 529 plan</a>, or setting up either a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/ugma.asp">Uniform Gifts to Minors Act </a>(UGMA) account or a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/utma.asp">Uniform Transfer to Minors Act</a> (UTMA) account.  </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"> Section 529 plans and UGMA and UTMA accounts can be set up through banks and financial institutions making them less costly to set up and manage than trusts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> Research the fees charged by 529 plan sponsors <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-529-plans-5070533">before choosing one</a>. Some investment firms sponsor plans that have no upfront or management fees. Other brokers and advisors charge relatively high fees that lower the plans’ returns. </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"> Another option is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coverdellesa.asp">Coverdell Education Savings Account</a> (ESA). These can be established for children under the age of 18 for elementary, secondary, and postsecondary educational expenses. </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"> Unlike the other two options, there are income limitations: A contributor to a Coverdell ESA must have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/magi.asp">modified adjusted gross income</a> (MAGI) of less than $220,000 for a joint return and $110,000 for a single return.<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_84-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_85-0"> <span class="mntl-sc-block-subheading__text"> Section 529 Plans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> Section 529 plans are established by states or their agencies and enable a contributor to prepay—or contribute to an account to prepay—a beneficiary’s qualified educational expenses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_88-0"> Contributions are not tax-deductible but earnings and distributions for qualified expenses are tax-free. Funds may be used to pay tuition and necessary expenses for both postsecondary and K-12 schools. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> Funds can also be used to repay student loans up to a lifetime limit of $10,000. In the case of K-12 education, an annual limit of $10,000 of expenses may be paid with funds from the Section 529 plan. The beneficiary can generally exclude the earnings and distributions from taxable income.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> Most 529 plans offer investment options that are limited and conservative. Before investing in a 529 plan, fees charged by plan sponsors should be compared. They differ widely.<br> </br></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"> Parents and grandparents establishing Section 529 funds can maintain control over the accounts and distributions, and even change the beneficiary. Contributions to a Section 529 plan <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/managing-wealth/072516/why-you-should-front-load-your-529-plan.asp">can be front-loaded</a>.<span class="ql-inline-citation" data-cite="33"></span> Five years of annual gifts of up to the 2022 gift-tax limit of $16,000 would equal $80,000, while five years of annual gifts up to the 2023 gift-tax limit of $17,000 would equal $85,000.<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_95-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> Because contributions can be substantial, especially if front-loading is chosen, establishing these accounts for young children can result in significant tax-free savings for college. </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"> In some cases, these plans—or the distributions from them—will harm a student’s ability to obtain need-based financial aid.<span class="ql-inline-citation" data-cite="34"></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_99-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_100-0"> <span class="mntl-sc-block-subheading__text"> UGMA and UTMA Custodial Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_101-0"> Custodial accounts can be established for underage beneficiaries under the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_102-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_103-0"> Both entail irrevocable transfers of assets to accounts for minors. Transfers are nontaxable to the beneficiary up to the annual gift tax limit. The assets must be transferred from the custodial account to the beneficiary upon attaining an age set by state law, generally 18 or 21 years. </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"> Although not limited to educational financing, these vehicles are often used as a simplified form of college trust fund.<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_106-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_107-0"> Earnings on these accounts up to the child’s annual taxable income ceiling are taxable at the beneficiary’s tax rate, which is generally lower than parents’, grandparents’, or other contributors’ tax rates. Income above the ceiling is taxed at the parents’ rate.<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_108-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_109-0"> UGMA accounts are limited to money and financial securities, while UTMA accounts can hold tangible and even risky assets such as art and real estate. As savings vehicles, these accounts can provide funds to beneficiaries for any purpose, not just educational expenses.<span class="ql-inline-citation" data-cite="36"></span><span class="ql-inline-citation" data-cite="35"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_110-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_111-0"> <span class="mntl-sc-block-subheading__text"> Coverdell Education Savings Accounts (ESAs) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_112-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coverdellesa.asp">Coverdell ESAs</a> can be established for children under age 18 for qualified elementary, secondary, and postsecondary educational expenses. Contributions must be made in cash and are not tax-deductible. </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"> The maximum total of contributions for a beneficiary cannot exceed $2,000 per year. Earnings are not taxed; distributions also are tax-free provided they are used for qualified educational expenses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_115-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_116-0"> A contributor to a Coverdell ESA must have a modified adjusted gross income of less than $220,000 for a joint return and $110,000 for a single return.<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_117-0"></div> <span class="heading-toc" id="toc-other-trusts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_118-0"> <span class="mntl-sc-block-heading__text"> Other Trusts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_119-0"> Federal and state laws expressly recognize and provide benefits for trusts that help individuals with disabilities. In particular, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/special-needs-trust-vs-able-account-5217834">special needs trusts and ABLE program accounts</a> enjoy legal recognition.<span class="ql-inline-citation" data-cite="38"></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_120-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_121-0"> <span class="mntl-sc-block-subheading__text"> Special Needs Trusts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_122-0"> A special needs trust provides financial assistance to an individual with disabilities while maintaining that person’s eligibility for government benefits based on need, such as Medicaid and Supplemental Security Income. These trusts must be operated for the sole benefit of the beneficiary, who must be under the age of 65 when the trust is created. It pays for costs that are not covered by Medicare or Medicaid. </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"> If the trust is established with assets owned by the individual with disabilities, it generally must be irrevocable and must provide that Medicaid will be reimbursed upon the beneficiary’s death or the trust’s termination. </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"> Specialized professional advice is important in the creation and operation of these arrangements because state laws impose varied and complex requirements.<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_127-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_128-0"> <span class="mntl-sc-block-subheading__text"> ABLE Programs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_129-0"> The tax code provides benefits for people with disabilities or blindness through tax benefits for state-sponsored savings programs established under the Achieving a Better Life Experience Act of 2014 (ABLE).<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_130-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_131-0"> Contributions to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/able-account.asp">ABLE accounts</a> must be in cash and are not tax-deductible. Earnings and distributions for qualified disability expenses are tax-free and the accounts do not count against eligibility for other federal assistance programs.<span class="ql-inline-citation" data-cite="13"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_132-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_133-0"><span class="heading-toc" id="toc-is-there-a-difference-between-a-trust-and-a-trust-fund"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is There a Difference Between a Trust and a Trust Fund?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A trust is a legal agreement in writing that transfers property from a “grantor” to a “trustee” for specific purposes.</p><p>The trust fund is the property transferred by the grantor to the trustee.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_134-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_135-0"><span class="heading-toc" id="toc-who-owns-a-trust"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Owns a Trust?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The creator of a revocable trust is treated as its owner for tax and other purposes.</p><p>An irrevocable trust is an independent entity that is managed by a trustee for the benefit of its beneficiaries.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_136-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_137-0"><span class="heading-toc" id="toc-is-a-college-trust-fund-a-good-way-to-plan-for-educational-expenses"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a College Trust Fund a Good Way to Plan for Educational Expenses?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A college trust fund can help pay a family member's college expenses while helping the grantor with tax and estate planning.</p><p>In some cases, particularly for families who are not ultra-rich, alternative options can be simpler and more cost-effective. They include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-an-utma-ugma-529-plan-and-do-you-want-one-5075913">529 plans, UGMA and UTMA accounts</a>, and Coverdell Education Savings Accounts.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_138-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_139-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_140-0"> Trusts are useful arrangements for designating assets for specific purposes. Differences in legal structure and terms significantly affect a trust's tax impact, asset protection, and benefits.  </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"> In some cases, alternative vehicles can be more efficient and less costly. Careful evaluation is critical, and professional advice is advisable. <br> </br></p></div>

There are many ways to set up a trust depending on what you want to achieve. You may see trust funds as a tool of the ultra-wealthy, but they can be useful to anyone who wants to protect their assets for the future needs of the people or causes that are important to them. People entering second marriages may set up trust funds to protect property for the children of their first marriages. People who want to contribute to the causes of their choice can set up trusts to manage the money for the long term. But trust funds are most commonly set up to cover the future educational costs of children and grandchildren. They certainly are useful for the purpose, but there may be easier and less expensive ways to set aside money for them. ### Key Takeaways * Grantors create trust funds for various purposes: charitable, business, and especially personal goals such as providing future financial support for children and grandchildren. * Grantors of irrevocable trusts retain no rights over the trust; they also owe no taxes on the trust's income. * Although many families use college trust funds to pay for children’s education, it can be simpler and less expensive to use alternatives such as Section 529 plans. * The tax code and state laws ease the creation of special needs trusts and ABLE accounts to assist disabled individuals. ## Structure and Operation Regardless of their size and purpose, all trusts have the same basic structure and terminology.   The terms “trust” and “trust fund” are often used interchangeably but they have slightly different legal meanings. * A trust is a legal arrangement evidenced in a written agreement transferring property from a [grantor](https://www.investopedia.com/terms/g/grantor.asp) to a [trustee](https://www.investopedia.com/terms/t/trustee.asp) for specified purposes. The trustee has the fiduciary responsibility to manage the property in accordance with the directions in the agreement and the best interests of the trust’s beneficiaries. * A trust fund is the property transferred by the grantor to the trustee, known as the "corpus" of the trust. Though the word fund suggests financial assets, almost any type of property—including real estate, art, patents, or copyrights—can comprise all or part of a trust fund. ### Revocable Grantor Trusts: Ownership Retained In some circumstances, the grantor is the trustee and retains ownership and control of the assets. This is sometimes used to avoid the cost, time, and potential publicity associated with the probate of an estate. A grantor may create a revocable trust by limiting the term that the trust remains in effect or retaining the right to end the arrangement. Grantor trusts serve a variety of purposes but do not offer tax savings. The grantor continues to be liable for any taxes due on trust income, and the assets may be available to the grantor’s creditors. Employers create grantor trusts to identify and segregate assets to back future liabilities for employee retirement benefits. Some public officials transfer stock shares and other investments to [blind trusts](https://www.investopedia.com/terms/b/blindtrust.asp) to be managed by a hird party without the officials’ knowledge during their tenure in office to avoid potential conflicts of interest.  ### Irrevocable Trusts When the grantor permanently transfers ownership and control of property to a third-party trustee, the trust is irrevocable. The grantor no longer owns the transferred assets and is not responsible for any taxes due, and the trust assets cannot be claimed by the grantor’s creditors. These trusts—which are often designed to provide financially for children and grandchildren or to serve as college funds—have tax- and estate-planning benefits for the grantor.   ### Trusts for Individuals Irrevocable trusts are often used to hold assets for the benefit of family members. The trust itself can be [named the beneficiary](https://www.investopedia.com/ask/answers/081815/can-i-put-my-ira-trust.asp) of life insurance policies and individual retirement accounts (IRAs), though doing so subjects the funds to estate taxes and IRS regulations on retirement withdrawals. When constructed correctly, trust arrangements can provide tax- and estate-planning advantages. Grandparents often appoint a parent as trustee for their children.  Depending on the terms of the arrangement, beneficiaries may receive income or assets from the trust fund during the lifetime or after the grantor's death. For example, the trustee of a college trust fund may be directed to use trust income to pay tuition expenses directly to the school and to pay or reimburse the beneficiary for college living expenses. Distributions also might be scheduled at a specific age or event. Use of the trust distributions may be limited to specific purposes such as medical expenses or a down payment for a home or left to the beneficiaries’ choice. ## How Are Trusts Managed? The trustees of a trust may be individuals or the trust departments of banks and other financial institutions. Typically, their responsibilities include the collection of income, disposition and replacement of assets, and distributions to beneficiaries. Distributions may be required on a prescribed schedule or for specific purposes.   Trustees are compensated for their work unless the fees are waived, as sometimes occurs with family member trustees. The management of trust assets includes record-keeping and reporting as well as legal and tax compliance.  Creating and documenting a trust with a limited amount of financial assets and simple, clear directives usually entails legal fees of a few thousand dollars and low annual expenses. Expenses increase with the value of the trust fund and the complexity of its terms. ### Expenses of Managing a Trust Fund In addition to trustee fees, trusts may incur expenses for financial and investment advisors, attorneys, accountants, property managers, and brokers. Financial institution trust departments generally charge annual fees of 1% to 2% of the value of trust assets, with the rate declining as the values managed increase. Some large investment firms—especially those that offer mutual funds for retirement and other personal accounts—offer standardized, relatively low-cost trust services. Individuals who use online services for banking and investment accounts can establish trust fund accounts directly online. However, a substantial trust, particularly one with varied assets, may incur significant costs. It’s important to consider alternative arrangements that might cost less. ## Estate Planning and Trusts for Children Trusts can help parents and grandparents plan for their offspring’s financial needs while complementing their own tax and [estate planning](https://www.investopedia.com/terms/e/estateplanning.asp). However, it's worth investigating whether there are simpler and less expensive alternatives. Parents whose total estate values exceed the estate tax threshold of $12.92 million for 2023 may want to consider removing assets from their estates by transferring their ownership to trusts. The gift tax exemption is set at $17,000 for 2023. That means each parent and grandparent can make a gift of up to this limit annually per recipient without incurring a gift tax. ### The federal estate tax threshold and the gift tax exemption are adjusted annually for inflation. If the value of a gift exceeds that amount, the excess is taxable, but the tax isn’t due until the total of “excess” gifts exceeds the estate tax threshold. Only then are the excess gifts added back to the value of the remaining estate and taxed.   Affluent families may take advantage of trusts to limit the value of their estates, reducing their tax rate to the rate imposed on their children’s income. Any appreciation in the transferred asset ultimately belongs to the beneficiaries. For example, the trust would pay capital gains tax on the sale of any stock shares held in the trust. Also, if assets paying dividends or interest are transferred to an irrevocable trust, the grantor will not owe tax on the income. Instead, the trust must pay tax, at rates from 10% to 37% as of 2023, on annual income that is not distributed during the year. Annual income distributed to a grantor’s child can be taxed under the "[kiddie tax](https://www.investopedia.com/terms/k/kiddietax.asp)" at rates lower than the grantor’s higher rates. ### Check your state's laws for trusts. Some trusts are exempt from federal reporting, but a state may levy income tax on beneficiaries who are residents. ## Alternatives to Trusts for Education Financing a child’s education may be the most common reason that families create trusts. However, for families who are not ultra-rich, there are alternative vehicles that can be more efficient. The most common alternatives to college trust funds are direct payments to the college on behalf of a grandchild, contributions to a [Section 529 plan](https://www.investopedia.com/terms/1/529plan.asp), or setting up either a [Uniform Gifts to Minors Act](https://www.investopedia.com/terms/u/ugma.asp) (UGMA) account or a [Uniform Transfer to Minors Act](https://www.investopedia.com/terms/u/utma.asp) (UTMA) account.  Section 529 plans and UGMA and UTMA accounts can be set up through banks and financial institutions making them less costly to set up and manage than trusts. Research the fees charged by 529 plan sponsors [before choosing one](https://www.investopedia.com/best-529-plans-5070533). Some investment firms sponsor plans that have no upfront or management fees. Other brokers and advisors charge relatively high fees that lower the plans’ returns. Another option is a [Coverdell Education Savings Account](https://www.investopedia.com/terms/c/coverdellesa.asp) (ESA). These can be established for children under the age of 18 for elementary, secondary, and postsecondary educational expenses. Unlike the other two options, there are income limitations: A contributor to a Coverdell ESA must have a [modified adjusted gross income](https://www.investopedia.com/terms/m/magi.asp) (MAGI) of less than $220,000 for a joint return and $110,000 for a single return. ### Section 529 Plans Section 529 plans are established by states or their agencies and enable a contributor to prepay—or contribute to an account to prepay—a beneficiary’s qualified educational expenses. Contributions are not tax-deductible but earnings and distributions for qualified expenses are tax-free. Funds may be used to pay tuition and necessary expenses for both postsecondary and K-12 schools. Funds can also be used to repay student loans up to a lifetime limit of $10,000. In the case of K-12 education, an annual limit of $10,000 of expenses may be paid with funds from the Section 529 plan. The beneficiary can generally exclude the earnings and distributions from taxable income. Most 529 plans offer investment options that are limited and conservative. Before investing in a 529 plan, fees charged by plan sponsors should be compared. They differ widely. Parents and grandparents establishing Section 529 funds can maintain control over the accounts and distributions, and even change the beneficiary. Contributions to a Section 529 plan [can be front-loaded](https://www.investopedia.com/articles/managing-wealth/072516/why-you-should-front-load-your-529-plan.asp). Five years of annual gifts of up to the 2022 gift-tax limit of $16,000 would equal $80,000, while five years of annual gifts up to the 2023 gift-tax limit of $17,000 would equal $85,000. Because contributions can be substantial, especially if front-loading is chosen, establishing these accounts for young children can result in significant tax-free savings for college. In some cases, these plans—or the distributions from them—will harm a student’s ability to obtain need-based financial aid. ### UGMA and UTMA Custodial Accounts Custodial accounts can be established for underage beneficiaries under the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA). Both entail irrevocable transfers of assets to accounts for minors. Transfers are nontaxable to the beneficiary up to the annual gift tax limit. The assets must be transferred from the custodial account to the beneficiary upon attaining an age set by state law, generally 18 or 21 years. Although not limited to educational financing, these vehicles are often used as a simplified form of college trust fund. Earnings on these accounts up to the child’s annual taxable income ceiling are taxable at the beneficiary’s tax rate, which is generally lower than parents’, grandparents’, or other contributors’ tax rates. Income above the ceiling is taxed at the parents’ rate. UGMA accounts are limited to money and financial securities, while UTMA accounts can hold tangible and even risky assets such as art and real estate. As savings vehicles, these accounts can provide funds to beneficiaries for any purpose, not just educational expenses.  ### Coverdell Education Savings Accounts (ESAs) [Coverdell ESAs](https://www.investopedia.com/terms/c/coverdellesa.asp) can be established for children under age 18 for qualified elementary, secondary, and postsecondary educational expenses. Contributions must be made in cash and are not tax-deductible. The maximum total of contributions for a beneficiary cannot exceed $2,000 per year. Earnings are not taxed; distributions also are tax-free provided they are used for qualified educational expenses. A contributor to a Coverdell ESA must have a modified adjusted gross income of less than $220,000 for a joint return and $110,000 for a single return. ## Other Trusts Federal and state laws expressly recognize and provide benefits for trusts that help individuals with disabilities. In particular, [special needs trusts and ABLE program accounts](https://www.investopedia.com/special-needs-trust-vs-able-account-5217834) enjoy legal recognition. ### Special Needs Trusts A special needs trust provides financial assistance to an individual with disabilities while maintaining that person’s eligibility for government benefits based on need, such as Medicaid and Supplemental Security Income. These trusts must be operated for the sole benefit of the beneficiary, who must be under the age of 65 when the trust is created. It pays for costs that are not covered by Medicare or Medicaid. If the trust is established with assets owned by the individual with disabilities, it generally must be irrevocable and must provide that Medicaid will be reimbursed upon the beneficiary’s death or the trust’s termination. Specialized professional advice is important in the creation and operation of these arrangements because state laws impose varied and complex requirements. ### ABLE Programs The tax code provides benefits for people with disabilities or blindness through tax benefits for state-sponsored savings programs established under the Achieving a Better Life Experience Act of 2014 (ABLE). Contributions to [ABLE accounts](https://www.investopedia.com/terms/a/able-account.asp) must be in cash and are not tax-deductible. Earnings and distributions for qualified disability expenses are tax-free and the accounts do not count against eligibility for other federal assistance programs. ## Is There a Difference Between a Trust and a Trust Fund? A trust is a legal agreement in writing that transfers property from a “grantor” to a “trustee” for specific purposes. The trust fund is the property transferred by the grantor to the trustee. ## Who Owns a Trust? The creator of a revocable trust is treated as its owner for tax and other purposes. An irrevocable trust is an independent entity that is managed by a trustee for the benefit of its beneficiaries. ## Is a College Trust Fund a Good Way to Plan for Educational Expenses? A college trust fund can help pay a family member's college expenses while helping the grantor with tax and estate planning. In some cases, particularly for families who are not ultra-rich, alternative options can be simpler and more cost-effective. They include [529 plans, UGMA and UTMA accounts](https://www.investopedia.com/what-is-an-utma-ugma-529-plan-and-do-you-want-one-5075913), and Coverdell Education Savings Accounts. ## The Bottom Line Trusts are useful arrangements for designating assets for specific purposes. Differences in legal structure and terms significantly affect a trust's tax impact, asset protection, and benefits.  In some cases, alternative vehicles can be more efficient and less costly. Careful evaluation is critical, and professional advice is advisable. 

There are many ways to set up a trust depending on what you want to achieve. You may see trust funds as a tool of the ultra-wealthy, but they can be useful to anyone who wants to protect their assets for the future needs of the people or causes that are important to them. People entering second marriages may set up trust funds to protect property for the children of their first marriages. People who want to contribute to the causes of their choice can set up trusts to manage the money for the long term. But trust funds are most commonly set up to cover the future educational costs of children and grandchildren. They certainly are useful for the purpose, but there may be easier and less expensive ways to set aside money for them. Key Takeaways Grantors create trust funds for various purposes: charitable, business, and especially personal goals such as providing future financial support for children and grandchildren.Grantors of irrevocable trusts retain no rights over the trust; they also owe no taxes on the trust's income. Although many families use college trust funds to pay for children’s education, it can be simpler and less expensive to use alternatives such as Section 529 plans.The tax code and state laws ease the creation of special needs trusts and ABLE accounts to assist disabled individuals.  Structure and Operation Regardless of their size and purpose, all trusts have the same basic structure and terminology.   The terms “trust” and “trust fund” are often used interchangeably but they have slightly different legal meanings. A trust is a legal arrangement evidenced in a written agreement transferring property from a grantor to a trustee for specified purposes. The trustee has the fiduciary responsibility to manage the property in accordance with the directions in the agreement and the best interests of the trust’s beneficiaries. A trust fund is the property transferred by the grantor to the trustee, known as the "corpus" of the trust. Though the word fund suggests financial assets, almost any type of property—including real estate, art, patents, or copyrights—can comprise all or part of a trust fund.   Revocable Grantor Trusts: Ownership Retained In some circumstances, the grantor is the trustee and retains ownership and control of the assets. This is sometimes used to avoid the cost, time, and potential publicity associated with the probate of an estate. A grantor may create a revocable trust by limiting the term that the trust remains in effect or retaining the right to end the arrangement. Grantor trusts serve a variety of purposes but do not offer tax savings. The grantor continues to be liable for any taxes due on trust income, and the assets may be available to the grantor’s creditors. Employers create grantor trusts to identify and segregate assets to back future liabilities for employee retirement benefits. Some public officials transfer stock shares and other investments to blind trusts to be managed by a hird party without the officials’ knowledge during their tenure in office to avoid potential conflicts of interest.  Irrevocable Trusts When the grantor permanently transfers ownership and control of property to a third-party trustee, the trust is irrevocable. The grantor no longer owns the transferred assets and is not responsible for any taxes due, and the trust assets cannot be claimed by the grantor’s creditors. These trusts—which are often designed to provide financially for children and grandchildren or to serve as college funds—have tax- and estate-planning benefits for the grantor.   Trusts for Individuals Irrevocable trusts are often used to hold assets for the benefit of family members. The trust itself can be named the beneficiary of life insurance policies and individual retirement accounts (IRAs), though doing so subjects the funds to estate taxes and IRS regulations on retirement withdrawals. When constructed correctly, trust arrangements can provide tax- and estate-planning advantages. Grandparents often appoint a parent as trustee for their children.  Depending on the terms of the arrangement, beneficiaries may receive income or assets from the trust fund during the lifetime or after the grantor's death. For example, the trustee of a college trust fund may be directed to use trust income to pay tuition expenses directly to the school and to pay or reimburse the beneficiary for college living expenses. Distributions also might be scheduled at a specific age or event. Use of the trust distributions may be limited to specific purposes such as medical expenses or a down payment for a home or left to the beneficiaries’ choice. How Are Trusts Managed? The trustees of a trust may be individuals or the trust departments of banks and other financial institutions. Typically, their responsibilities include the collection of income, disposition and replacement of assets, and distributions to beneficiaries. Distributions may be required on a prescribed schedule or for specific purposes.   Trustees are compensated for their work unless the fees are waived, as sometimes occurs with family member trustees. The management of trust assets includes record-keeping and reporting as well as legal and tax compliance.  Creating and documenting a trust with a limited amount of financial assets and simple, clear directives usually entails legal fees of a few thousand dollars and low annual expenses. Expenses increase with the value of the trust fund and the complexity of its terms. Expenses of Managing a Trust Fund In addition to trustee fees, trusts may incur expenses for financial and investment advisors, attorneys, accountants, property managers, and brokers. Financial institution trust departments generally charge annual fees of 1% to 2% of the value of trust assets, with the rate declining as the values managed increase. Some large investment firms—especially those that offer mutual funds for retirement and other personal accounts—offer standardized, relatively low-cost trust services. Individuals who use online services for banking and investment accounts can establish trust fund accounts directly online. However, a substantial trust, particularly one with varied assets, may incur significant costs. It’s important to consider alternative arrangements that might cost less. Estate Planning and Trusts for Children Trusts can help parents and grandparents plan for their offspring’s financial needs while complementing their own tax and estate planning. However, it's worth investigating whether there are simpler and less expensive alternatives. Parents whose total estate values exceed the estate tax threshold of $12.92 million for 2023 may want to consider removing assets from their estates by transferring their ownership to trusts. The gift tax exemption is set at $17,000 for 2023. That means each parent and grandparent can make a gift of up to this limit annually per recipient without incurring a gift tax. The federal estate tax threshold and the gift tax exemption are adjusted annually for inflation. If the value of a gift exceeds that amount, the excess is taxable, but the tax isn’t due until the total of “excess” gifts exceeds the estate tax threshold. Only then are the excess gifts added back to the value of the remaining estate and taxed.   Affluent families may take advantage of trusts to limit the value of their estates, reducing their tax rate to the rate imposed on their children’s income. Any appreciation in the transferred asset ultimately belongs to the beneficiaries. For example, the trust would pay capital gains tax on the sale of any stock shares held in the trust. Also, if assets paying dividends or interest are transferred to an irrevocable trust, the grantor will not owe tax on the income. Instead, the trust must pay tax, at rates from 10% to 37% as of 2023, on annual income that is not distributed during the year. Annual income distributed to a grantor’s child can be taxed under the "kiddie tax" at rates lower than the grantor’s higher rates. Check your state's laws for trusts. Some trusts are exempt from federal reporting, but a state may levy income tax on beneficiaries who are residents. Alternatives to Trusts for Education Financing a child’s education may be the most common reason that families create trusts. However, for families who are not ultra-rich, there are alternative vehicles that can be more efficient. The most common alternatives to college trust funds are direct payments to the college on behalf of a grandchild, contributions to a Section 529 plan, or setting up either a Uniform Gifts to Minors Act (UGMA) account or a Uniform Transfer to Minors Act (UTMA) account.  Section 529 plans and UGMA and UTMA accounts can be set up through banks and financial institutions making them less costly to set up and manage than trusts. Research the fees charged by 529 plan sponsors before choosing one. Some investment firms sponsor plans that have no upfront or management fees. Other brokers and advisors charge relatively high fees that lower the plans’ returns. Another option is a Coverdell Education Savings Account (ESA). These can be established for children under the age of 18 for elementary, secondary, and postsecondary educational expenses. Unlike the other two options, there are income limitations: A contributor to a Coverdell ESA must have a modified adjusted gross income (MAGI) of less than $220,000 for a joint return and $110,000 for a single return. Section 529 Plans Section 529 plans are established by states or their agencies and enable a contributor to prepay—or contribute to an account to prepay—a beneficiary’s qualified educational expenses. Contributions are not tax-deductible but earnings and distributions for qualified expenses are tax-free. Funds may be used to pay tuition and necessary expenses for both postsecondary and K-12 schools. Funds can also be used to repay student loans up to a lifetime limit of $10,000. In the case of K-12 education, an annual limit of $10,000 of expenses may be paid with funds from the Section 529 plan. The beneficiary can generally exclude the earnings and distributions from taxable income. Most 529 plans offer investment options that are limited and conservative. Before investing in a 529 plan, fees charged by plan sponsors should be compared. They differ widely. Parents and grandparents establishing Section 529 funds can maintain control over the accounts and distributions, and even change the beneficiary. Contributions to a Section 529 plan can be front-loaded. Five years of annual gifts of up to the 2022 gift-tax limit of $16,000 would equal $80,000, while five years of annual gifts up to the 2023 gift-tax limit of $17,000 would equal $85,000. Because contributions can be substantial, especially if front-loading is chosen, establishing these accounts for young children can result in significant tax-free savings for college. In some cases, these plans—or the distributions from them—will harm a student’s ability to obtain need-based financial aid. UGMA and UTMA Custodial Accounts Custodial accounts can be established for underage beneficiaries under the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA). Both entail irrevocable transfers of assets to accounts for minors. Transfers are nontaxable to the beneficiary up to the annual gift tax limit. The assets must be transferred from the custodial account to the beneficiary upon attaining an age set by state law, generally 18 or 21 years. Although not limited to educational financing, these vehicles are often used as a simplified form of college trust fund. Earnings on these accounts up to the child’s annual taxable income ceiling are taxable at the beneficiary’s tax rate, which is generally lower than parents’, grandparents’, or other contributors’ tax rates. Income above the ceiling is taxed at the parents’ rate. UGMA accounts are limited to money and financial securities, while UTMA accounts can hold tangible and even risky assets such as art and real estate. As savings vehicles, these accounts can provide funds to beneficiaries for any purpose, not just educational expenses.  Coverdell Education Savings Accounts (ESAs) Coverdell ESAs can be established for children under age 18 for qualified elementary, secondary, and postsecondary educational expenses. Contributions must be made in cash and are not tax-deductible. The maximum total of contributions for a beneficiary cannot exceed $2,000 per year. Earnings are not taxed; distributions also are tax-free provided they are used for qualified educational expenses. A contributor to a Coverdell ESA must have a modified adjusted gross income of less than $220,000 for a joint return and $110,000 for a single return. Other Trusts Federal and state laws expressly recognize and provide benefits for trusts that help individuals with disabilities. In particular, special needs trusts and ABLE program accounts enjoy legal recognition. Special Needs Trusts A special needs trust provides financial assistance to an individual with disabilities while maintaining that person’s eligibility for government benefits based on need, such as Medicaid and Supplemental Security Income. These trusts must be operated for the sole benefit of the beneficiary, who must be under the age of 65 when the trust is created. It pays for costs that are not covered by Medicare or Medicaid. If the trust is established with assets owned by the individual with disabilities, it generally must be irrevocable and must provide that Medicaid will be reimbursed upon the beneficiary’s death or the trust’s termination. Specialized professional advice is important in the creation and operation of these arrangements because state laws impose varied and complex requirements. ABLE Programs The tax code provides benefits for people with disabilities or blindness through tax benefits for state-sponsored savings programs established under the Achieving a Better Life Experience Act of 2014 (ABLE). Contributions to ABLE accounts must be in cash and are not tax-deductible. Earnings and distributions for qualified disability expenses are tax-free and the accounts do not count against eligibility for other federal assistance programs. Is There a Difference Between a Trust and a Trust Fund? A trust is a legal agreement in writing that transfers property from a “grantor” to a “trustee” for specific purposes.The trust fund is the property transferred by the grantor to the trustee. Who Owns a Trust? The creator of a revocable trust is treated as its owner for tax and other purposes.An irrevocable trust is an independent entity that is managed by a trustee for the benefit of its beneficiaries. Is a College Trust Fund a Good Way to Plan for Educational Expenses? A college trust fund can help pay a family member's college expenses while helping the grantor with tax and estate planning.In some cases, particularly for families who are not ultra-rich, alternative options can be simpler and more cost-effective. They include 529 plans, UGMA and UTMA accounts, and Coverdell Education Savings Accounts. The Bottom Line Trusts are useful arrangements for designating assets for specific purposes. Differences in legal structure and terms significantly affect a trust's tax impact, asset protection, and benefits.  In some cases, alternative vehicles can be more efficient and less costly. Careful evaluation is critical, and professional advice is advisable. 

https://www.investopedia.com/representative-payee-bank-account-5217784

Representative Payee Bank Account: 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-representative-payee-bank-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Representative Payee Bank Account? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A representative payee bank account is a type of bank account designed to receive and hold funds for a beneficiary of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssa.asp">Social Security Administration (SSA)</a>. A representative payee bank account is usually a checking account, and it is managed by a representative payee—either a person or organization appointed to help manage benefit payments for a beneficiary of either Social Security or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssi.asp">Supplemental Security Income (SSI)</a> payments. </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 representative payee uses the representative payee bank account to accept benefit checks from the SSA and use the funds to pay for the beneficiary’s needs. The representative payee also must keep track of the transactions going in and out of the account, as the SSA may request a report of accounting to see how the benefits are being used.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A representative payee bank account is an account used by an appointed person or organization to manage the finances of a Social Security beneficiary.</li><li>Representative payees are chosen by the Social Security Administration (SSA) to administer the account for a beneficiary—usually an older or disabled person.</li><li>A representative payee must keep records of the account’s transactions for oversight purposes, and if a payee misuses the funds, they could potentially be prosecuted.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-representative-payee"></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"> What Is a Representative Payee? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Representative payees can be either individuals or organizations, and they are appointed by the SSA to manage a beneficiary’s benefits.<span class="ql-inline-citation" data-cite="1"></span> They also have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/042915/what-are-some-examples-fiduciary-duty.asp">fiduciary duties</a>, meaning that they are required by law to manage the funds only in the best interest of the beneficiary. In most cases, a representative payee is a family member. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-who-needs-a-representative-payee"></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 Needs a Representative Payee? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Beneficiaries, particularly of SSI funds, are either older or disabled people who usually have little or no income and cannot meet their basic needs.<span class="ql-inline-citation" data-cite="2"></span> There are strict rules and guidelines around what the representative payee can do with the money—for instance, the representative payee cannot pay themselves for assisting the beneficiary. Instead, the benefits must be budgeted for day-to-day living expenses. Food, clothing, and shelter expenses are at the top of the list.<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"> Whether or not a beneficiary needs a representative payee is typically determined when they apply for Social Security benefits. If they’re eligible, they can tell the SSA who they would like to be their payee. Ultimately, however, the SSA will make the decision and send the payee a letter appointing the person or individual. The beneficiary can also appeal the decision if they either don’t agree with the SSA’s choice or don’t think they need one at all.<span class="ql-inline-citation" data-cite="4"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>There are income and asset limits to qualify for SSI benefits, and representative payees need to take special care to ensure that the beneficiary’s account doesn’t breach those limits. Otherwise, the beneficiary risks losing them or having them reduced.</p></div></div></div> <span class="heading-toc" id="toc-more-about-representative-payee-bank-accounts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> More About Representative Payee Bank Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> A representative payee bank account isn’t much different from a standard checking or savings account—the primary difference being that the representative payee is specifically named to administer the account, even though the account itself is owned by the beneficiary, says <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.linkedin.com/in/mehlert/">Mary Anne Ehlert</a>, a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfp.asp">Certified Financial Planner</a> and founder of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://protectedtomorrows.com/">Protected Tomorrows</a>, a financial planning firm focused on helping families with members with disabilities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> “They’re basically checking accounts,” Ehlert says, but “the account would have the beneficiary’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssn.asp">Social Security number</a> attached to it and the representative payee’s name as well.” </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"> She adds that the representative payee’s name is noted so that the bank is aware that they have been appointed to administer it.  </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"> Modeling these accounts like standard checking accounts also makes it easy for payees to automate expenses, like paying the beneficiary’s rent or utility bills. These accounts can be opened by a beneficiary or a representative payee at most big banks—although some smaller community banks or credit unions may not offer them.  </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 for administering the account, the representative payee’s primary function is to make sure that the beneficiary’s money is spent correctly—that it’s used to pay bills and living expenses, and not much else, says <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.linkedin.com/in/cynthiahaddad/">Cynthia Haddad</a>, co-founder of Special Needs Financial Planning, a specialty practice of Affinia Financial Group.  </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"> “[Payees] can only use the money for the benefits of the beneficiary, such as paying for food, clothing, and shelter,” Haddad says. “The money is meant to be used for that person’s care.” </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"> And to make sure that payees are doing so, the oversight agencies may check in from time to time, usually by sending a letter asking for a transaction record. While it’s unlikely that a full-blown audit could occur, an agency could decide to initiate a more thorough investigation if it doesn’t feel that the transaction records are complete.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_33-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_34-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>If beneficiaries feel that their representative payees are taking advantage of them or otherwise not administering their account properly, they can and should call the SSA immediately. If payees misuse funds, they will need to repay those funds, or they could face criminal prosecution.<span class="ql-inline-citation" data-cite="4"></span><br/></p></div></div></div> <span class="heading-toc" id="toc-considerations-for-representative-payees"></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"> Considerations for Representative Payees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Representative payees carry some significant responsibility. There are many things that they should take into consideration, including: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <strong>Oversight</strong>: As mentioned, oversight agencies may request a record of transactions from a payee. Federal law charges each individual state with monitoring the representative payee system and investigating potential violations.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> <strong>Spend it, don’t save it:</strong> A beneficiary’s money must be spent—it can’t or shouldn’t be saved. If funds are piling up in a beneficiary’s account, it sends a signal to the SSA that the money isn’t needed, and it could lead to a beneficiary seeing their benefits reduced or withdrawn completely. “The beneficiary doesn’t want to save it, because that means they may not need it,” says Haddad. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> <strong>Use ABLE accounts</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/able-account.asp">Achieving a Better Life Experience (ABLE) accounts</a> can be important tools for beneficiaries and payees. They function much like <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/529plan.asp">529 plans</a>, and total annual contributions can’t exceed $16,000. So, if a beneficiary does have money to “save,” stashing it in an ABLE account may be the best way to keep it on hand without sending the wrong signal to the SSA.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-what-does-a-representative-payee-do"></span> <h2 class="mntl-sc-block-questionandanswer__question">What does a representative payee do?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A representative payee manages benefit payments for beneficiaries of Social Security or Supplemental Security Income (SSI). Payees are required to use the payments they receive for the needs of the beneficiary and to act in their best interests.</p><p>Duties include:</p><ul><li>Determining the beneficiary’s needs</li><li>Using the payments to meet those needs</li><li>Saving any money left after meeting the beneficiary’s current needs in an interest-bearing account</li><li>Reporting changes or events that could affect the beneficiary’s eligibility</li><li>Keeping records of payments received and how the money was spent or saved<br/></li></ul></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-do-representative-payees-receive-a-fee-for-services"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do representative payees receive a fee for services?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. Individuals are never approved by the Social Security Administration (SSA) to collect a fee. One exception: Some organizations may collect a fee from a beneficiary’s monthly payment for providing services, but this must be approved in writing.<span class="ql-inline-citation" data-cite="6"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Representative payee bank accounts are used by a representative payee to pay bills and other expenses for a beneficiary who receives Social Security or SSI funds. Their job is to make sure that the beneficiary’s living expenses are paid with the money in the account, and they must keep a record of the account’s transactions. </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"> These accounts are more or less the same as a standard checking account but include specific language detailing the representative payee’s role in administering it. They’re available at most large banks.<br/> </p></div>

## What Is a Representative Payee Bank Account? A representative payee bank account is a type of bank account designed to receive and hold funds for a beneficiary of the [Social Security Administration (SSA)](https://www.investopedia.com/terms/s/ssa.asp). A representative payee bank account is usually a checking account, and it is managed by a representative payee—either a person or organization appointed to help manage benefit payments for a beneficiary of either Social Security or [Supplemental Security Income (SSI)](https://www.investopedia.com/terms/s/ssi.asp) payments. The representative payee uses the representative payee bank account to accept benefit checks from the SSA and use the funds to pay for the beneficiary’s needs. The representative payee also must keep track of the transactions going in and out of the account, as the SSA may request a report of accounting to see how the benefits are being used. ### Key takeaways * A representative payee bank account is an account used by an appointed person or organization to manage the finances of a Social Security beneficiary. * Representative payees are chosen by the Social Security Administration (SSA) to administer the account for a beneficiary—usually an older or disabled person. * A representative payee must keep records of the account’s transactions for oversight purposes, and if a payee misuses the funds, they could potentially be prosecuted. ## What Is a Representative Payee? Representative payees can be either individuals or organizations, and they are appointed by the SSA to manage a beneficiary’s benefits. They also have [fiduciary duties](https://www.investopedia.com/ask/answers/042915/what-are-some-examples-fiduciary-duty.asp), meaning that they are required by law to manage the funds only in the best interest of the beneficiary. In most cases, a representative payee is a family member. ## Who Needs a Representative Payee? Beneficiaries, particularly of SSI funds, are either older or disabled people who usually have little or no income and cannot meet their basic needs. There are strict rules and guidelines around what the representative payee can do with the money—for instance, the representative payee cannot pay themselves for assisting the beneficiary. Instead, the benefits must be budgeted for day-to-day living expenses. Food, clothing, and shelter expenses are at the top of the list. Whether or not a beneficiary needs a representative payee is typically determined when they apply for Social Security benefits. If they’re eligible, they can tell the SSA who they would like to be their payee. Ultimately, however, the SSA will make the decision and send the payee a letter appointing the person or individual. The beneficiary can also appeal the decision if they either don’t agree with the SSA’s choice or don’t think they need one at all. ### There are income and asset limits to qualify for SSI benefits, and representative payees need to take special care to ensure that the beneficiary’s account doesn’t breach those limits. Otherwise, the beneficiary risks losing them or having them reduced. ## More About Representative Payee Bank Accounts A representative payee bank account isn’t much different from a standard checking or savings account—the primary difference being that the representative payee is specifically named to administer the account, even though the account itself is owned by the beneficiary, says [Mary Anne Ehlert](https://www.linkedin.com/in/mehlert/), a [Certified Financial Planner](https://www.investopedia.com/terms/c/cfp.asp) and founder of [Protected Tomorrows](https://protectedtomorrows.com/), a financial planning firm focused on helping families with members with disabilities. “They’re basically checking accounts,” Ehlert says, but “the account would have the beneficiary’s [Social Security number](https://www.investopedia.com/terms/s/ssn.asp) attached to it and the representative payee’s name as well.” She adds that the representative payee’s name is noted so that the bank is aware that they have been appointed to administer it.  Modeling these accounts like standard checking accounts also makes it easy for payees to automate expenses, like paying the beneficiary’s rent or utility bills. These accounts can be opened by a beneficiary or a representative payee at most big banks—although some smaller community banks or credit unions may not offer them.  As for administering the account, the representative payee’s primary function is to make sure that the beneficiary’s money is spent correctly—that it’s used to pay bills and living expenses, and not much else, says [Cynthia Haddad](https://www.linkedin.com/in/cynthiahaddad/), co-founder of Special Needs Financial Planning, a specialty practice of Affinia Financial Group.  “[Payees] can only use the money for the benefits of the beneficiary, such as paying for food, clothing, and shelter,” Haddad says. “The money is meant to be used for that person’s care.” And to make sure that payees are doing so, the oversight agencies may check in from time to time, usually by sending a letter asking for a transaction record. While it’s unlikely that a full-blown audit could occur, an agency could decide to initiate a more thorough investigation if it doesn’t feel that the transaction records are complete. ### If beneficiaries feel that their representative payees are taking advantage of them or otherwise not administering their account properly, they can and should call the SSA immediately. If payees misuse funds, they will need to repay those funds, or they could face criminal prosecution. ## Considerations for Representative Payees Representative payees carry some significant responsibility. There are many things that they should take into consideration, including: **Oversight**: As mentioned, oversight agencies may request a record of transactions from a payee. Federal law charges each individual state with monitoring the representative payee system and investigating potential violations. **Spend it, don’t save it:** A beneficiary’s money must be spent—it can’t or shouldn’t be saved. If funds are piling up in a beneficiary’s account, it sends a signal to the SSA that the money isn’t needed, and it could lead to a beneficiary seeing their benefits reduced or withdrawn completely. “The beneficiary doesn’t want to save it, because that means they may not need it,” says Haddad. **Use ABLE accounts**: [Achieving a Better Life Experience (ABLE) accounts](https://www.investopedia.com/terms/a/able-account.asp) can be important tools for beneficiaries and payees. They function much like [529 plans](https://www.investopedia.com/terms/1/529plan.asp), and total annual contributions can’t exceed $16,000. So, if a beneficiary does have money to “save,” stashing it in an ABLE account may be the best way to keep it on hand without sending the wrong signal to the SSA. ## What does a representative payee do? A representative payee manages benefit payments for beneficiaries of Social Security or Supplemental Security Income (SSI). Payees are required to use the payments they receive for the needs of the beneficiary and to act in their best interests. Duties include: * Determining the beneficiary’s needs * Using the payments to meet those needs * Saving any money left after meeting the beneficiary’s current needs in an interest-bearing account * Reporting changes or events that could affect the beneficiary’s eligibility * Keeping records of payments received and how the money was spent or saved ## Do representative payees receive a fee for services? No. Individuals are never approved by the Social Security Administration (SSA) to collect a fee. One exception: Some organizations may collect a fee from a beneficiary’s monthly payment for providing services, but this must be approved in writing. ## The Bottom Line Representative payee bank accounts are used by a representative payee to pay bills and other expenses for a beneficiary who receives Social Security or SSI funds. Their job is to make sure that the beneficiary’s living expenses are paid with the money in the account, and they must keep a record of the account’s transactions. These accounts are more or less the same as a standard checking account but include specific language detailing the representative payee’s role in administering it. They’re available at most large banks.

What Is a Representative Payee Bank Account? A representative payee bank account is a type of bank account designed to receive and hold funds for a beneficiary of the Social Security Administration (SSA). A representative payee bank account is usually a checking account, and it is managed by a representative payee—either a person or organization appointed to help manage benefit payments for a beneficiary of either Social Security or Supplemental Security Income (SSI) payments. The representative payee uses the representative payee bank account to accept benefit checks from the SSA and use the funds to pay for the beneficiary’s needs. The representative payee also must keep track of the transactions going in and out of the account, as the SSA may request a report of accounting to see how the benefits are being used. Key takeaways A representative payee bank account is an account used by an appointed person or organization to manage the finances of a Social Security beneficiary.Representative payees are chosen by the Social Security Administration (SSA) to administer the account for a beneficiary—usually an older or disabled person.A representative payee must keep records of the account’s transactions for oversight purposes, and if a payee misuses the funds, they could potentially be prosecuted. What Is a Representative Payee? Representative payees can be either individuals or organizations, and they are appointed by the SSA to manage a beneficiary’s benefits. They also have fiduciary duties, meaning that they are required by law to manage the funds only in the best interest of the beneficiary. In most cases, a representative payee is a family member. Who Needs a Representative Payee? Beneficiaries, particularly of SSI funds, are either older or disabled people who usually have little or no income and cannot meet their basic needs. There are strict rules and guidelines around what the representative payee can do with the money—for instance, the representative payee cannot pay themselves for assisting the beneficiary. Instead, the benefits must be budgeted for day-to-day living expenses. Food, clothing, and shelter expenses are at the top of the list. Whether or not a beneficiary needs a representative payee is typically determined when they apply for Social Security benefits. If they’re eligible, they can tell the SSA who they would like to be their payee. Ultimately, however, the SSA will make the decision and send the payee a letter appointing the person or individual. The beneficiary can also appeal the decision if they either don’t agree with the SSA’s choice or don’t think they need one at all. There are income and asset limits to qualify for SSI benefits, and representative payees need to take special care to ensure that the beneficiary’s account doesn’t breach those limits. Otherwise, the beneficiary risks losing them or having them reduced. More About Representative Payee Bank Accounts A representative payee bank account isn’t much different from a standard checking or savings account—the primary difference being that the representative payee is specifically named to administer the account, even though the account itself is owned by the beneficiary, says Mary Anne Ehlert, a Certified Financial Planner and founder of Protected Tomorrows, a financial planning firm focused on helping families with members with disabilities. “They’re basically checking accounts,” Ehlert says, but “the account would have the beneficiary’s Social Security number attached to it and the representative payee’s name as well.” She adds that the representative payee’s name is noted so that the bank is aware that they have been appointed to administer it.  Modeling these accounts like standard checking accounts also makes it easy for payees to automate expenses, like paying the beneficiary’s rent or utility bills. These accounts can be opened by a beneficiary or a representative payee at most big banks—although some smaller community banks or credit unions may not offer them.  As for administering the account, the representative payee’s primary function is to make sure that the beneficiary’s money is spent correctly—that it’s used to pay bills and living expenses, and not much else, says Cynthia Haddad, co-founder of Special Needs Financial Planning, a specialty practice of Affinia Financial Group.  “[Payees] can only use the money for the benefits of the beneficiary, such as paying for food, clothing, and shelter,” Haddad says. “The money is meant to be used for that person’s care.” And to make sure that payees are doing so, the oversight agencies may check in from time to time, usually by sending a letter asking for a transaction record. While it’s unlikely that a full-blown audit could occur, an agency could decide to initiate a more thorough investigation if it doesn’t feel that the transaction records are complete. If beneficiaries feel that their representative payees are taking advantage of them or otherwise not administering their account properly, they can and should call the SSA immediately. If payees misuse funds, they will need to repay those funds, or they could face criminal prosecution. Considerations for Representative Payees Representative payees carry some significant responsibility. There are many things that they should take into consideration, including: Oversight: As mentioned, oversight agencies may request a record of transactions from a payee. Federal law charges each individual state with monitoring the representative payee system and investigating potential violations. Spend it, don’t save it: A beneficiary’s money must be spent—it can’t or shouldn’t be saved. If funds are piling up in a beneficiary’s account, it sends a signal to the SSA that the money isn’t needed, and it could lead to a beneficiary seeing their benefits reduced or withdrawn completely. “The beneficiary doesn’t want to save it, because that means they may not need it,” says Haddad. Use ABLE accounts: Achieving a Better Life Experience (ABLE) accounts can be important tools for beneficiaries and payees. They function much like 529 plans, and total annual contributions can’t exceed $16,000. So, if a beneficiary does have money to “save,” stashing it in an ABLE account may be the best way to keep it on hand without sending the wrong signal to the SSA. What does a representative payee do? A representative payee manages benefit payments for beneficiaries of Social Security or Supplemental Security Income (SSI). Payees are required to use the payments they receive for the needs of the beneficiary and to act in their best interests.Duties include:Determining the beneficiary’s needsUsing the payments to meet those needsSaving any money left after meeting the beneficiary’s current needs in an interest-bearing accountReporting changes or events that could affect the beneficiary’s eligibilityKeeping records of payments received and how the money was spent or saved Do representative payees receive a fee for services? No. Individuals are never approved by the Social Security Administration (SSA) to collect a fee. One exception: Some organizations may collect a fee from a beneficiary’s monthly payment for providing services, but this must be approved in writing. The Bottom Line Representative payee bank accounts are used by a representative payee to pay bills and other expenses for a beneficiary who receives Social Security or SSI funds. Their job is to make sure that the beneficiary’s living expenses are paid with the money in the account, and they must keep a record of the account’s transactions. These accounts are more or less the same as a standard checking account but include specific language detailing the representative payee’s role in administering it. They’re available at most large banks.

https://www.investopedia.com/articles/active-trading/012915/premarket-routine-sets-stage-trading-day.asp

Pre-Market Routine Sets Stage For The Trading Day

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/premarket.asp" rel="noopener noreferrer">Pre-market</a> preparation impacts your performance throughout the trading day. It is an urgent task because financial markets are highly competitive and require constant realignment of strategies to short-term conditions. This is especially true in our modern environment wherein securities trade through a 24-hour cycle. Many traders still flip on their screens just before the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/openingbell.asp" rel="noopener noreferrer">opening bell</a> hoping to play catch-up. The extra sleep may be beneficial but the competition is getting up early, gathering data, and deciding how the overnight session will impact trade flow. </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"> Choose now to join these conscientious folks by shaking off your slumber and following this comprehensive pre-market checklist: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>To get ahead of the competition, or at least keep up, implement a pre-market trading routine that is consistent and effective.</li><li>Checking market index futures, considering economic and geopolitical factors, seasonality, and sifting through the corporate news flood are all good preparation strategies.</li><li>Consider the technical factors at play by identifying and writing down key levels, establishing first bias, finding safe exits for positions, and placing deep limit orders.</li><li>See what other traders are doing and what themes and trends are at play, but avoid the crowd, think irrationally, and decide how passive or aggressive you want to be during the session before it starts.</li><li>Once the trading session is underway, be smart: buy the dips and sell the rips.</li></ul></div></div></div> <span class="heading-toc" id="toc-check-index-futures"></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"> Check Index Futures  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Look at the highs and lows printed by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp" rel="noopener noreferrer">S&amp;P 500</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq100.asp" rel="noopener noreferrer">NASDAQ 100</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell2000.asp" rel="noopener noreferrer">Russell 2000 Index</a> futures during the overnight session because they will generate <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/support-and-resistance-basics/" rel="noopener noreferrer">support and resistance</a> during U.S. market hours. </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-review-of-macro-forces"></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"> Review of Macro Forces </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Read stories that moved world markets overnight and consider how they will impact the U.S. session. These are usually market-specific, with a central bank or economic data moving the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tickertape.asp" rel="noopener noreferrer">tape</a>. However, geopolitics and nature generate their own market movers from time to time, so stay informed. </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-filter-the-news-flood"></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"> Filter the News Flood<strong> </strong> </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Check for the news on open positions. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/upgrade.asp" rel="noopener noreferrer">Upgrades</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/downgrade.asp" rel="noopener noreferrer">downgrades</a>, and guidance can translate into big losses or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/windfall-profits.asp" rel="noopener noreferrer">windfall profits</a>. Scan financial headlines for other stories that will move the tape as well as for uncovering new opportunities for that session. </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-see-what-other-traders-are-doing"></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"> See What Other Traders Are Doing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Sort pre-market securities by volume and find out where your competition is risking their capital. Then look at open positions, as well as the <em>flavors of the day,</em> such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/fundamental-analysis/10/decoding-earnings-reports.asp" rel="noopener noreferrer">stocks reporting earnings</a> or commodities reacting to geopolitical events. </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-write-down-key-levels"></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"> Write Down Key Levels </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0">  Internalize key numbers on major instruments and open positions, putting the data right in front of your nose if needed, where you can see it during the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tradingsession.asp" rel="noopener noreferrer">regular session</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-identify-pre-market-levels"></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"> Identify Pre-Market Levels </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Watch where index futures or underlying funds trade in the pre-market, especially after monthly economic data. Those levels may yield <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/breakout.asp" rel="noopener noreferrer">breakouts</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/breakdown.asp" rel="noopener noreferrer">breakdowns</a> in the regular session. </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-find-safe-exits"></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"> Find Safe Exits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Exit <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/selling-a-losing-stock/" rel="noopener noreferrer">losing positions</a> in the pre-market, especially when you expect to take a hit after the opening bell. Many traders and investors cannot access real-time quotes until 90 minutes before the U.S. market opens. You will be amazed at how often third-party exchanges generate favorable exits before that time. </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-establish-first-bias"></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"> Establish First Bias </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Look at the relationship between the last closing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/print.asp" rel="noopener noreferrer">prints</a> and the expected opening prints. Identify who will benefit and who is getting trapped. It is time to scramble if you are not on the winning side. </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-respect-seasonality"></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"> Respect Seasonality </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Consider the day of the week, time of the month, the month of the quarter, and the period of the year. Each segment will generate specific price action that favors one market group over another. </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-find-the-theme"></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"> Find the Theme </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> A majority of securities will offer no opportunities during that market day. It is your job to find needles in haystacks by following the short-term <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneyflow.asp" rel="noopener noreferrer">money flow</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-think-irrationally"></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"> Think Irrationally </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The red or green you see flashing in the pre-market is less important than how they alter current expectations. If you cannot figure it out by yourself, find an expert you trust to explain it to you.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-place-deep-limit-orders"></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"> Place Deep Limit Orders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Play this game when you are sitting alone in the dark, watching the pre-market. Place deep <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/limitorder.asp" rel="noopener noreferrer">limit orders</a> on securities you want to own, but not at current prices. Then be amazed at how often you get filled. </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-set-your-collar"></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"> Set Your Collar </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Decide how aggressive or defensive you want to be in the morning session, based on your pre-market analysis. Re-evaluate at lunchtime or when short-term conditions change significantly. </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-avoid-the-crowd"></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"> Avoid the Crowd </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Prepare a list of momentum plays and then do nothing while waiting for other traders to get caught on the wrong side of the tape. Then look for cheap entries. </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-buy-the-dipssell-the-rips"></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"> Buy the Dips/Sell the Rips </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Securities print big moves in the pre-market because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/algorithm.asp" rel="noopener noreferrer">algorithms</a> <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/101014/basics-algorithmic-trading-concepts-and-examples.asp" rel="noopener noreferrer">push them to extreme prices</a>, trying to attract weak-handed capital. Use those rips and dips to get positioned in the opposite direction or take fortuitous exits on open positions.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Your pre-market routine sets the stage for the rest of the trading day. Use this comprehensive checklist to get up to speed, ahead of the opening bell. </p></div>

[Pre-market](https://www.investopedia.com/terms/p/premarket.asp) preparation impacts your performance throughout the trading day. It is an urgent task because financial markets are highly competitive and require constant realignment of strategies to short-term conditions. This is especially true in our modern environment wherein securities trade through a 24-hour cycle. Many traders still flip on their screens just before the [opening bell](https://www.investopedia.com/terms/o/openingbell.asp) hoping to play catch-up. The extra sleep may be beneficial but the competition is getting up early, gathering data, and deciding how the overnight session will impact trade flow. Choose now to join these conscientious folks by shaking off your slumber and following this comprehensive pre-market checklist: ### Key Takeaways * To get ahead of the competition, or at least keep up, implement a pre-market trading routine that is consistent and effective. * Checking market index futures, considering economic and geopolitical factors, seasonality, and sifting through the corporate news flood are all good preparation strategies. * Consider the technical factors at play by identifying and writing down key levels, establishing first bias, finding safe exits for positions, and placing deep limit orders. * See what other traders are doing and what themes and trends are at play, but avoid the crowd, think irrationally, and decide how passive or aggressive you want to be during the session before it starts. * Once the trading session is underway, be smart: buy the dips and sell the rips. ## Check Index Futures Look at the highs and lows printed by the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp), [NASDAQ 100](https://www.investopedia.com/terms/n/nasdaq100.asp) and [Russell 2000 Index](https://www.investopedia.com/terms/r/russell2000.asp) futures during the overnight session because they will generate [support and resistance](https://www.investopedia.com/trading/support-and-resistance-basics/) during U.S. market hours. ## Review of Macro Forces Read stories that moved world markets overnight and consider how they will impact the U.S. session. These are usually market-specific, with a central bank or economic data moving the [tape](https://www.investopedia.com/terms/t/tickertape.asp). However, geopolitics and nature generate their own market movers from time to time, so stay informed. ## Filter the News Flood Check for the news on open positions. [Upgrades](https://www.investopedia.com/terms/u/upgrade.asp), [downgrades](https://www.investopedia.com/terms/d/downgrade.asp), and guidance can translate into big losses or [windfall profits](https://www.investopedia.com/terms/w/windfall-profits.asp). Scan financial headlines for other stories that will move the tape as well as for uncovering new opportunities for that session. ## See What Other Traders Are Doing Sort pre-market securities by volume and find out where your competition is risking their capital. Then look at open positions, as well as the *flavors of the day,* such as [stocks reporting earnings](https://www.investopedia.com/articles/fundamental-analysis/10/decoding-earnings-reports.asp) or commodities reacting to geopolitical events. ## Write Down Key Levels  Internalize key numbers on major instruments and open positions, putting the data right in front of your nose if needed, where you can see it during the [regular session](https://www.investopedia.com/terms/t/tradingsession.asp). ## Identify Pre-Market Levels Watch where index futures or underlying funds trade in the pre-market, especially after monthly economic data. Those levels may yield [breakouts](https://www.investopedia.com/terms/b/breakout.asp) or [breakdowns](https://www.investopedia.com/terms/b/breakdown.asp) in the regular session. ## Find Safe Exits Exit [losing positions](https://www.investopedia.com/investing/selling-a-losing-stock/) in the pre-market, especially when you expect to take a hit after the opening bell. Many traders and investors cannot access real-time quotes until 90 minutes before the U.S. market opens. You will be amazed at how often third-party exchanges generate favorable exits before that time. ## Establish First Bias Look at the relationship between the last closing [prints](https://www.investopedia.com/terms/p/print.asp) and the expected opening prints. Identify who will benefit and who is getting trapped. It is time to scramble if you are not on the winning side. ## Respect Seasonality Consider the day of the week, time of the month, the month of the quarter, and the period of the year. Each segment will generate specific price action that favors one market group over another. ## Find the Theme A majority of securities will offer no opportunities during that market day. It is your job to find needles in haystacks by following the short-term [money flow](https://www.investopedia.com/terms/m/moneyflow.asp). ## Think Irrationally The red or green you see flashing in the pre-market is less important than how they alter current expectations. If you cannot figure it out by yourself, find an expert you trust to explain it to you.  ## Place Deep Limit Orders Play this game when you are sitting alone in the dark, watching the pre-market. Place deep [limit orders](https://www.investopedia.com/terms/l/limitorder.asp) on securities you want to own, but not at current prices. Then be amazed at how often you get filled. ## Set Your Collar Decide how aggressive or defensive you want to be in the morning session, based on your pre-market analysis. Re-evaluate at lunchtime or when short-term conditions change significantly. ## Avoid the Crowd Prepare a list of momentum plays and then do nothing while waiting for other traders to get caught on the wrong side of the tape. Then look for cheap entries. ## Buy the Dips/Sell the Rips Securities print big moves in the pre-market because [algorithms](https://www.investopedia.com/terms/a/algorithm.asp) [push them to extreme prices](https://www.investopedia.com/articles/active-trading/101014/basics-algorithmic-trading-concepts-and-examples.asp), trying to attract weak-handed capital. Use those rips and dips to get positioned in the opposite direction or take fortuitous exits on open positions.  ## The Bottom Line Your pre-market routine sets the stage for the rest of the trading day. Use this comprehensive checklist to get up to speed, ahead of the opening bell.

Pre-market preparation impacts your performance throughout the trading day. It is an urgent task because financial markets are highly competitive and require constant realignment of strategies to short-term conditions. This is especially true in our modern environment wherein securities trade through a 24-hour cycle. Many traders still flip on their screens just before the opening bell hoping to play catch-up. The extra sleep may be beneficial but the competition is getting up early, gathering data, and deciding how the overnight session will impact trade flow. Choose now to join these conscientious folks by shaking off your slumber and following this comprehensive pre-market checklist: Key Takeaways To get ahead of the competition, or at least keep up, implement a pre-market trading routine that is consistent and effective.Checking market index futures, considering economic and geopolitical factors, seasonality, and sifting through the corporate news flood are all good preparation strategies.Consider the technical factors at play by identifying and writing down key levels, establishing first bias, finding safe exits for positions, and placing deep limit orders.See what other traders are doing and what themes and trends are at play, but avoid the crowd, think irrationally, and decide how passive or aggressive you want to be during the session before it starts.Once the trading session is underway, be smart: buy the dips and sell the rips. Check Index Futures  Look at the highs and lows printed by the S&P 500, NASDAQ 100 and Russell 2000 Index futures during the overnight session because they will generate support and resistance during U.S. market hours. Review of Macro Forces Read stories that moved world markets overnight and consider how they will impact the U.S. session. These are usually market-specific, with a central bank or economic data moving the tape. However, geopolitics and nature generate their own market movers from time to time, so stay informed. Filter the News Flood  Check for the news on open positions. Upgrades, downgrades, and guidance can translate into big losses or windfall profits. Scan financial headlines for other stories that will move the tape as well as for uncovering new opportunities for that session. See What Other Traders Are Doing Sort pre-market securities by volume and find out where your competition is risking their capital. Then look at open positions, as well as the flavors of the day, such as stocks reporting earnings or commodities reacting to geopolitical events. Write Down Key Levels  Internalize key numbers on major instruments and open positions, putting the data right in front of your nose if needed, where you can see it during the regular session. Identify Pre-Market Levels Watch where index futures or underlying funds trade in the pre-market, especially after monthly economic data. Those levels may yield breakouts or breakdowns in the regular session. Find Safe Exits Exit losing positions in the pre-market, especially when you expect to take a hit after the opening bell. Many traders and investors cannot access real-time quotes until 90 minutes before the U.S. market opens. You will be amazed at how often third-party exchanges generate favorable exits before that time. Establish First Bias Look at the relationship between the last closing prints and the expected opening prints. Identify who will benefit and who is getting trapped. It is time to scramble if you are not on the winning side. Respect Seasonality Consider the day of the week, time of the month, the month of the quarter, and the period of the year. Each segment will generate specific price action that favors one market group over another. Find the Theme A majority of securities will offer no opportunities during that market day. It is your job to find needles in haystacks by following the short-term money flow. Think Irrationally The red or green you see flashing in the pre-market is less important than how they alter current expectations. If you cannot figure it out by yourself, find an expert you trust to explain it to you.  Place Deep Limit Orders Play this game when you are sitting alone in the dark, watching the pre-market. Place deep limit orders on securities you want to own, but not at current prices. Then be amazed at how often you get filled. Set Your Collar Decide how aggressive or defensive you want to be in the morning session, based on your pre-market analysis. Re-evaluate at lunchtime or when short-term conditions change significantly. Avoid the Crowd Prepare a list of momentum plays and then do nothing while waiting for other traders to get caught on the wrong side of the tape. Then look for cheap entries. Buy the Dips/Sell the Rips Securities print big moves in the pre-market because algorithms push them to extreme prices, trying to attract weak-handed capital. Use those rips and dips to get positioned in the opposite direction or take fortuitous exits on open positions.  The Bottom Line Your pre-market routine sets the stage for the rest of the trading day. Use this comprehensive checklist to get up to speed, ahead of the opening bell.

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

What Are Savings? How to Calculate Your Savings Rate

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-savings"></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 Savings? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Savings refers to the money that a person has left over after they subtract out their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-spending.asp">consumer spending</a> from their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disposableincome.asp">disposable income</a> over a given time period. Savings, therefore, represents a net surplus of funds for an individual or household after all expenses and obligations have been paid. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Savings are kept in the form of cash or cash equivalents (e.g. as bank deposits), which are exposed to no risk of loss but also come with correspondingly minimal returns. Savings can be grown through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investing.asp">investing</a>, which requires that the money be put at risk, however. </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>Savings is the amount of money left over after spending and other obligations are deducted from earnings.</li><li>Savings represent money that is otherwise idle and not being put at risk with investments or spent on consumption.</li><li>Savings accounts are very safe but tend to offer very low rates of return as a result.</li><li>Saving can be contrasted with investing, in that the latter involves seeking to grow wealth by putting money at risk.</li><li>Negative savings is indicative of household debt or negative net worth.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-savings"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Savings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Savings comprise the amount of money left over after spending. People may save for various life goals or aspirations such as retirement, a child's college education, the down payment for a home or car, a vacation, or several other examples. </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"> Savings may commonly be earmarked for emergencies. For example, Sasha’s monthly paycheck is $5,000. Expenses include a $1,300 rent payment, a $450 car payment, a $500 student loan payment, a $300 <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> payment, $250 for groceries, $75 for utilities, $75 for cellphone service, and $100 for gas. Since Sasha's monthly income is $5,000 and monthly expenses are $3,050, there is $1,950 leftover as savings. If Sasha maintains this excess as savings and later faces an emergency, there will be some money to live on while resolving the issue. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> If one is unable to maintain savings, they may be said to be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/10/budgeting-when-broke.asp">living paycheck to paycheck</a>. If such a person experiences an emergency, there is often not enough money saved up to live on and they may risk falling into debt or bankruptcy. </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-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The U.S. Bureau of Economic Analysis defines disposable income as all sources of income minus the tax you pay on that income.<span class="ql-inline-citation" data-cite="2"></span></p></div></div></div> <span class="heading-toc" id="toc-types-of-savings-accounts"></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 Savings Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> There are different types of savings accounts offered by banks that come with different features or limitations. Note that all bank savings vehicles come with <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> of up to $250,000 per depositor per institution.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <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"> Savings Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">savings account</a> pays interest on cash not needed for daily expenses but available for an emergency. Deposits and withdrawals are made online, by phone, mail, or at a physical bank branch or ATM. Interest rates on savings accounts tend to be low but are often higher than on checking accounts. The best savings accounts can usually be found online because they'll pay a higher interest rate. Online-only accounts may be examples of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp">high-yield savings accounts</a>, which can offer as much as 20-25x higher interest on deposits than the national average.<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> <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"> Checking Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/checkingaccount.asp">checking account</a> offers the ability to write checks or use debit cards that draw from your account. A checking account pays lower interest rates than other bank accounts, and many of them credit no interest at all to checking customers. In return, however, account holders get highly liquid and accessible funds often with low or no monthly fees. </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"> Money Market Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymarketaccount.asp">money market account (MMA)</a> is an interest-bearing account at a bank or credit union (not to be confused with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/money-marketfund.asp">money market fund</a>). MMAs often pay a higher interest rate than regular passbook savings accounts and also include check writing and debit card privileges. These also can come with restrictions that make them less flexible than a regular checking account.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-subheading__text"> Certificates of Deposit (CDs) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit (CD)</a> limits access to cash for a certain period in exchange for a higher interest rate. Deposit terms range from three months to five years; the longer the term, the higher the interest rate. CDs have early withdrawal penalties that can erase interest earned, so it is best to keep the money in the CD for the entire term.<span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="6"></span> Shopping around for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">the best CD rate</a> is critical if you want to maximize your investment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-how-to-calculate-your-savings-rate"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> How to Calculate Your Savings Rate </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> One's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savings-rate.asp">savings rate</a> is the percentage of disposable personal income that is kept rather than spent on consumption or obligations.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Say that your net income is $25,000 a year after taxes (i.e., your disposable income) and over the course of the year you also spend $24,000 in consumption, bills, and other expenditures. Your total savings are $1,000. Dividing savings by disposable income yields a savings rate of 4% = ($1,000 / $25,000 x 100). </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-note" 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 with-title" id="mntl-sc-block-callout-heading_3-0">5%</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The average personal savings rate in the U.S. (as of March 2022).<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-savings-vs-investing"></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"> Savings vs. Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> People sometimes use the words <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/022516/saving-vs-investing-understanding-key-differences.asp">savings and investing</a> interchangeable, for instance saving for retirement in a 401(k) plan, but this usage is technically incorrect. Retirement "saving" is more accurately investing, since money put away in these accounts is used to purchase securities such as stocks, bonds, and mutual funds. When money is invested, it is at risk of loss—but that risk is offset by positive expected returns over time. Savings, in contrast, are by definition "safe" from any potential loss. </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, savings are highly liquid and available for immediate use (e.g. using a debit card to make a purchase). Investments, on the other hand, must first be sold into usable cash. This can take some time and you may incur transaction costs. Investments, by definition, entail some sort of long-term time horizon to allow the money to grow and appreciate. </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-savings-faqs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-heading__text"> Savings FAQs </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-subheading__text"> What Is the Meaning of Savings? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Savings simply refers to the money you've earned that is left over after all of your spending and other expenses have been completed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-subheading__text"> What Are the Types of Savings? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Savings is essentially cash, so there is only one type of savings in that respect. However, you can choose to keep your cash savings in various places, such as under the mattress or in a bank account. Bank accounts offer several types of savings products from standard deposit accounts to checking and money market accounts or CDs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-subheading__text"> How Much Will $1,000 in Savings Grow in a Year? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> It depends where you keep the savings. If it is literally under the mattress, you'll have exactly $1,000 a year from now (and it may be worth "less" due to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a>). If you put your money into a high-yield savings account (currently paying around 0.87% annually as of May 2022, you'd earn $8.70 after 12 months. A one-year CD may pay slightly more, say 0.96%, but your money will also be locked up for the entire 12 months, after which time you'd earn $9.60.<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_53-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-subheading__text"> How Can I Save $1,000 Fast? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> The best way to increase savings is to cut down on costs. Keeping a budget and not spending loosely can help. If you spend $6 on a fancy coffee every morning before work, for example, you can buy a cheaper $1 cup of Joe instead. Say you work 200 days out of the year—you've just saved $1,000. </p></div>

## What Are Savings? Savings refers to the money that a person has left over after they subtract out their [consumer spending](https://www.investopedia.com/terms/c/consumer-spending.asp) from their [disposable income](https://www.investopedia.com/terms/d/disposableincome.asp) over a given time period. Savings, therefore, represents a net surplus of funds for an individual or household after all expenses and obligations have been paid. Savings are kept in the form of cash or cash equivalents (e.g. as bank deposits), which are exposed to no risk of loss but also come with correspondingly minimal returns. Savings can be grown through [investing](https://www.investopedia.com/terms/i/investing.asp), which requires that the money be put at risk, however. ### Key Takeaways * Savings is the amount of money left over after spending and other obligations are deducted from earnings. * Savings represent money that is otherwise idle and not being put at risk with investments or spent on consumption. * Savings accounts are very safe but tend to offer very low rates of return as a result. * Saving can be contrasted with investing, in that the latter involves seeking to grow wealth by putting money at risk. * Negative savings is indicative of household debt or negative net worth. ## Understanding Savings Savings comprise the amount of money left over after spending. People may save for various life goals or aspirations such as retirement, a child's college education, the down payment for a home or car, a vacation, or several other examples. Savings may commonly be earmarked for emergencies. For example, Sasha’s monthly paycheck is $5,000. Expenses include a $1,300 rent payment, a $450 car payment, a $500 student loan payment, a $300 [credit card](https://www.investopedia.com/terms/c/creditcard.asp) payment, $250 for groceries, $75 for utilities, $75 for cellphone service, and $100 for gas. Since Sasha's monthly income is $5,000 and monthly expenses are $3,050, there is $1,950 leftover as savings. If Sasha maintains this excess as savings and later faces an emergency, there will be some money to live on while resolving the issue. If one is unable to maintain savings, they may be said to be [living paycheck to paycheck](https://www.investopedia.com/articles/pf/10/budgeting-when-broke.asp). If such a person experiences an emergency, there is often not enough money saved up to live on and they may risk falling into debt or bankruptcy. ### The U.S. Bureau of Economic Analysis defines disposable income as all sources of income minus the tax you pay on that income. ## Types of Savings Accounts There are different types of savings accounts offered by banks that come with different features or limitations. Note that all bank savings vehicles come with [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp) of up to $250,000 per depositor per institution. ### Savings Accounts A [savings account](https://www.investopedia.com/terms/s/savingsaccount.asp) pays interest on cash not needed for daily expenses but available for an emergency. Deposits and withdrawals are made online, by phone, mail, or at a physical bank branch or ATM. Interest rates on savings accounts tend to be low but are often higher than on checking accounts. The best savings accounts can usually be found online because they'll pay a higher interest rate. Online-only accounts may be examples of [high-yield savings accounts](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp), which can offer as much as 20-25x higher interest on deposits than the national average. ### Checking Accounts A [checking account](https://www.investopedia.com/terms/c/checkingaccount.asp) offers the ability to write checks or use debit cards that draw from your account. A checking account pays lower interest rates than other bank accounts, and many of them credit no interest at all to checking customers. In return, however, account holders get highly liquid and accessible funds often with low or no monthly fees. ### Money Market Accounts A [money market account (MMA)](https://www.investopedia.com/terms/m/moneymarketaccount.asp) is an interest-bearing account at a bank or credit union (not to be confused with a [money market fund](https://www.investopedia.com/terms/m/money-marketfund.asp)). MMAs often pay a higher interest rate than regular passbook savings accounts and also include check writing and debit card privileges. These also can come with restrictions that make them less flexible than a regular checking account. ### Certificates of Deposit (CDs) A [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp) limits access to cash for a certain period in exchange for a higher interest rate. Deposit terms range from three months to five years; the longer the term, the higher the interest rate. CDs have early withdrawal penalties that can erase interest earned, so it is best to keep the money in the CD for the entire term. Shopping around for [the best CD rate](https://www.investopedia.com/best-cd-rates-4770214) is critical if you want to maximize your investment. ## How to Calculate Your Savings Rate One's [savings rate](https://www.investopedia.com/terms/s/savings-rate.asp) is the percentage of disposable personal income that is kept rather than spent on consumption or obligations. Say that your net income is $25,000 a year after taxes (i.e., your disposable income) and over the course of the year you also spend $24,000 in consumption, bills, and other expenditures. Your total savings are $1,000. Dividing savings by disposable income yields a savings rate of 4% = ($1,000 / $25,000 x 100). ### 5% The average personal savings rate in the U.S. (as of March 2022). ## Savings vs. Investing People sometimes use the words [savings and investing](https://www.investopedia.com/articles/investing/022516/saving-vs-investing-understanding-key-differences.asp) interchangeable, for instance saving for retirement in a 401(k) plan, but this usage is technically incorrect. Retirement "saving" is more accurately investing, since money put away in these accounts is used to purchase securities such as stocks, bonds, and mutual funds. When money is invested, it is at risk of loss—but that risk is offset by positive expected returns over time. Savings, in contrast, are by definition "safe" from any potential loss. Additionally, savings are highly liquid and available for immediate use (e.g. using a debit card to make a purchase). Investments, on the other hand, must first be sold into usable cash. This can take some time and you may incur transaction costs. Investments, by definition, entail some sort of long-term time horizon to allow the money to grow and appreciate. ## Savings FAQs ### What Is the Meaning of Savings? Savings simply refers to the money you've earned that is left over after all of your spending and other expenses have been completed. ### What Are the Types of Savings? Savings is essentially cash, so there is only one type of savings in that respect. However, you can choose to keep your cash savings in various places, such as under the mattress or in a bank account. Bank accounts offer several types of savings products from standard deposit accounts to checking and money market accounts or CDs. ### How Much Will $1,000 in Savings Grow in a Year? It depends where you keep the savings. If it is literally under the mattress, you'll have exactly $1,000 a year from now (and it may be worth "less" due to [inflation](https://www.investopedia.com/terms/i/inflation.asp)). If you put your money into a high-yield savings account (currently paying around 0.87% annually as of May 2022, you'd earn $8.70 after 12 months. A one-year CD may pay slightly more, say 0.96%, but your money will also be locked up for the entire 12 months, after which time you'd earn $9.60. ### How Can I Save $1,000 Fast? The best way to increase savings is to cut down on costs. Keeping a budget and not spending loosely can help. If you spend $6 on a fancy coffee every morning before work, for example, you can buy a cheaper $1 cup of Joe instead. Say you work 200 days out of the year—you've just saved $1,000.

What Are Savings? Savings refers to the money that a person has left over after they subtract out their consumer spending from their disposable income over a given time period. Savings, therefore, represents a net surplus of funds for an individual or household after all expenses and obligations have been paid. Savings are kept in the form of cash or cash equivalents (e.g. as bank deposits), which are exposed to no risk of loss but also come with correspondingly minimal returns. Savings can be grown through investing, which requires that the money be put at risk, however. Key Takeaways Savings is the amount of money left over after spending and other obligations are deducted from earnings.Savings represent money that is otherwise idle and not being put at risk with investments or spent on consumption.Savings accounts are very safe but tend to offer very low rates of return as a result.Saving can be contrasted with investing, in that the latter involves seeking to grow wealth by putting money at risk.Negative savings is indicative of household debt or negative net worth. Understanding Savings Savings comprise the amount of money left over after spending. People may save for various life goals or aspirations such as retirement, a child's college education, the down payment for a home or car, a vacation, or several other examples. Savings may commonly be earmarked for emergencies. For example, Sasha’s monthly paycheck is $5,000. Expenses include a $1,300 rent payment, a $450 car payment, a $500 student loan payment, a $300 credit card payment, $250 for groceries, $75 for utilities, $75 for cellphone service, and $100 for gas. Since Sasha's monthly income is $5,000 and monthly expenses are $3,050, there is $1,950 leftover as savings. If Sasha maintains this excess as savings and later faces an emergency, there will be some money to live on while resolving the issue. If one is unable to maintain savings, they may be said to be living paycheck to paycheck. If such a person experiences an emergency, there is often not enough money saved up to live on and they may risk falling into debt or bankruptcy. The U.S. Bureau of Economic Analysis defines disposable income as all sources of income minus the tax you pay on that income. Types of Savings Accounts There are different types of savings accounts offered by banks that come with different features or limitations. Note that all bank savings vehicles come with Federal Deposit Insurance Corporation (FDIC) of up to $250,000 per depositor per institution. Savings Accounts A savings account pays interest on cash not needed for daily expenses but available for an emergency. Deposits and withdrawals are made online, by phone, mail, or at a physical bank branch or ATM. Interest rates on savings accounts tend to be low but are often higher than on checking accounts. The best savings accounts can usually be found online because they'll pay a higher interest rate. Online-only accounts may be examples of high-yield savings accounts, which can offer as much as 20-25x higher interest on deposits than the national average. Checking Accounts A checking account offers the ability to write checks or use debit cards that draw from your account. A checking account pays lower interest rates than other bank accounts, and many of them credit no interest at all to checking customers. In return, however, account holders get highly liquid and accessible funds often with low or no monthly fees. Money Market Accounts A money market account (MMA) is an interest-bearing account at a bank or credit union (not to be confused with a money market fund). MMAs often pay a higher interest rate than regular passbook savings accounts and also include check writing and debit card privileges. These also can come with restrictions that make them less flexible than a regular checking account. Certificates of Deposit (CDs) A certificate of deposit (CD) limits access to cash for a certain period in exchange for a higher interest rate. Deposit terms range from three months to five years; the longer the term, the higher the interest rate. CDs have early withdrawal penalties that can erase interest earned, so it is best to keep the money in the CD for the entire term. Shopping around for the best CD rate is critical if you want to maximize your investment. How to Calculate Your Savings Rate One's savings rate is the percentage of disposable personal income that is kept rather than spent on consumption or obligations. Say that your net income is $25,000 a year after taxes (i.e., your disposable income) and over the course of the year you also spend $24,000 in consumption, bills, and other expenditures. Your total savings are $1,000. Dividing savings by disposable income yields a savings rate of 4% = ($1,000 / $25,000 x 100). 5% The average personal savings rate in the U.S. (as of March 2022). Savings vs. Investing People sometimes use the words savings and investing interchangeable, for instance saving for retirement in a 401(k) plan, but this usage is technically incorrect. Retirement "saving" is more accurately investing, since money put away in these accounts is used to purchase securities such as stocks, bonds, and mutual funds. When money is invested, it is at risk of loss—but that risk is offset by positive expected returns over time. Savings, in contrast, are by definition "safe" from any potential loss. Additionally, savings are highly liquid and available for immediate use (e.g. using a debit card to make a purchase). Investments, on the other hand, must first be sold into usable cash. This can take some time and you may incur transaction costs. Investments, by definition, entail some sort of long-term time horizon to allow the money to grow and appreciate. Savings FAQs What Is the Meaning of Savings? Savings simply refers to the money you've earned that is left over after all of your spending and other expenses have been completed. What Are the Types of Savings? Savings is essentially cash, so there is only one type of savings in that respect. However, you can choose to keep your cash savings in various places, such as under the mattress or in a bank account. Bank accounts offer several types of savings products from standard deposit accounts to checking and money market accounts or CDs. How Much Will $1,000 in Savings Grow in a Year? It depends where you keep the savings. If it is literally under the mattress, you'll have exactly $1,000 a year from now (and it may be worth "less" due to inflation). If you put your money into a high-yield savings account (currently paying around 0.87% annually as of May 2022, you'd earn $8.70 after 12 months. A one-year CD may pay slightly more, say 0.96%, but your money will also be locked up for the entire 12 months, after which time you'd earn $9.60. How Can I Save $1,000 Fast? The best way to increase savings is to cut down on costs. Keeping a budget and not spending loosely can help. If you spend $6 on a fancy coffee every morning before work, for example, you can buy a cheaper $1 cup of Joe instead. Say you work 200 days out of the year—you've just saved $1,000.

https://www.investopedia.com/capital-one-auto-loans-review-7968929

Capital One Auto Loans Review 2024

<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <svg class="mntl-svg-resource is-hidden"> <defs> <symbol id="star-icon"><svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg></symbol> </defs> </svg> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp product-review-content product-review-content--finance product-review--base" id="product-review-content--finance_1-0"> <div class="comp js-toc-appear article-container article-intro mntl-block" id="article-intro_1-0"> <div class="comp product-card" data-tracking-container="true" data-tracking-id="product-card" id="product-card_1-0" style="--imgWidth: 0px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp figure-article figure-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="Capital One" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/vTQcLvJzMEXqXXK3XFE5-osWwTA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/capital-one-360-88da4ba5f07946ccac0a88887b7ef019.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDgAFAPEAAABIedIvL////wBIeSwAAAAADgAFAEEIHwAFCBwYoKDBAAMTKkwIgOHChwoLCgRAsWLDhgIaBgQAOw==')" width="1500"/> <noscript> <img alt="Capital One" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/vTQcLvJzMEXqXXK3XFE5-osWwTA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/capital-one-360-88da4ba5f07946ccac0a88887b7ef019.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 product-card__rating card-rating--finance product-rating" id="product-card__rating_1-0"> <span class="product-rating__rating-label noskim"> Investopedia’s Rating </span> <div alt="3.5 out of 5 stars" class="comp star-rating" id="star-rating_1-0"> <span class="star-rating__label">3.5</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_1-0" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="50%" stop-color="#333e8b"></stop> <stop offset="50%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__half-full star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: url(#linear-star-rating_1-0);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp product-card__rating card-rating--finance product-rating --> <div class="comp js-sticky-riser-show product-card__cta commerce-block mntl-block" id="product-card__cta_1-0"> <a class="commerce-button mntl-text-link" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&amp;pub_param_2=${REQUEST_ID}" data-tracking-container="false" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&amp;ts=investopedia&amp;p=capone&amp;bwid_id=6385e804ca097c71ee1e23c1" id="commerce-button_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Apply Now</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp js-sticky-riser-show product-card__cta commerce-block mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> <strong>Our Take</strong> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-1"> Capital One simplifies the car shopping process and helps borrowers spend less time at the dealership. With Capital One's Auto Navigator loan marketplace, you can find the right vehicle near you and get a rate quote on a car loan before heading to the dealership. However, your Capital One loan isn't finalized until after you apply through a dealer, so your final terms may differ from what you expected. </p><!-- 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_1-0-2"> <iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp lazyload mntl-sc-block-iframe__uri mntl-block" data-src="https://datawrapper.dwcdn.net/GuX8B/3/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Capital One Announces Agreement to Acquire Discover Financial Services"></iframe><!-- end: comp lazyload mntl-sc-block-iframe__uri mntl-block --> </div><!-- end: comp sc-block-iframe--datawrapper mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block --> </div> <div class="tabbed-sc-block" data-click-action="Product Tab Click" data-tracking-container="true" data-tracking-id="Full Product Review"> <ul class="tabbed-sc-block__tabs"> <li class="tabbed-sc-block__tab js-tabbed-tab is-active is-initial-load" data-tab-index="1"><span class="tabbed-sc-block__title">Pros and Cons</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="2"><span class="tabbed-sc-block__title">Key Takeaways</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="3"><span class="tabbed-sc-block__title">Company Overview</span></li> </ul> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Pros and Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content is-active is-initial-load" data-tab-index="1"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_1-0-4"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Low loan minimums </p></li> <li><p>Offers refinancing</p></li> <li><p>Online shopping tool provides loan and car options</p></li> <li><p>Clear about pre-qualification requirements</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Limited disclosure about APRs</p></li> <li><p>Restrictions on vehicle make, mileage, and year</p></li> <li><p>Shorter maximum repayment terms</p></li> <li><p>Does not allow lease buyouts</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Key Takeaways</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="2"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-6"> <li>Capital One offers financing only through participating dealers.</li><li>Vehicles with branded titles, motorcycles, and recreational vehicles aren't eligible for Capital One financing. </li><li>Rates and loan terms vary by location and participating dealer. </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Company Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-8"> Capital One is a financial services holding company that offers a range of banking services and credit products, including credit cards and auto loans. Capital One’s Auto Navigator tool allows buyers to search for new and used cars, pre-qualify for financing, and design their loans before going to a dealership. Capital One's auto financing and Auto Navigator tools are available in most of the country, except Alaska and Hawaii. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_1-0-9"> <div class="comp product-spec-tool definition-list" id="product-spec-tool_1-0"> <ul class="definition-list__container"> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Loan Types Offered</span> <span class="definition-list__item-content definition-list__item-content-0"> New, used, refinance </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">States Available</span> <span class="definition-list__item-content definition-list__item-content-1"> All states and D.C. except AK, HI </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">New APR Range</span> <span class="definition-list__item-content definition-list__item-content-2"> Not disclosed </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Used APR Range</span> <span class="definition-list__item-content definition-list__item-content-3"> Not disclosed </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Refinance APR Range</span> <span class="definition-list__item-content definition-list__item-content-4"> Not disclosed </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Min. Time to Receive Loan</span> <span class="definition-list__item-content definition-list__item-content-5"> Not disclosed </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Recommended Min. Credit Score</span> <span class="definition-list__item-content definition-list__item-content-6"> Not disclosed </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Max. Accepted Mileage</span> <span class="definition-list__item-content definition-list__item-content-7"> 150,000 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Max. Accepted Age</span> <span class="definition-list__item-content definition-list__item-content-8"> 10 years </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Max. Accepted Loan-to-Value Ratio</span> <span class="definition-list__item-content definition-list__item-content-9"> Not disclosed </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="Capital One" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/vTQcLvJzMEXqXXK3XFE5-osWwTA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/capital-one-360-88da4ba5f07946ccac0a88887b7ef019.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDgAFAPEAAABIedIvL////wBIeSwAAAAADgAFAEEIHwAFCBwYoKDBAAMTKkwIgOHChwoLCgRAsWLDhgIaBgQAOw==')" width="1500"/> <noscript> <img alt="Capital One" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/vTQcLvJzMEXqXXK3XFE5-osWwTA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/capital-one-360-88da4ba5f07946ccac0a88887b7ef019.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__rating product-rating" id="sticky-toc-widget__rating_1-0"> <span class="product-rating__rating-label noskim"> overall rating </span> <div alt="3.5 out of 5 stars" class="comp star-rating" id="star-rating_1-0-1"> <span class="star-rating__label">3.5</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> 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href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&amp;ts=investopedia&amp;p=capone&amp;bwid_id=6385e804ca097c71ee1e23c1" id="commerce-button_2-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Apply Now</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp sticky-toc-widget__cta commerce-block mntl-block --> </div><!-- end: comp sticky-toc-widget__product-container mntl-block --> <div class="comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="sticky-toc-widget__toc_3-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_3-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_3-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_5-0"> Table of Contents</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_3-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="View All" id="mntl-toc-toggle__btn_3-0"> View All</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Capital One Auto Loans Review 2024" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_6-0"> Capital One Auto Loans Review 2024</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_3-0"> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pros Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-explained" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Pros Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-cons-explained" id="mntl-toc__list-item-link_3-0-1" rel="nocaes"><span class="link__wrapper">Cons Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Types of Loans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-types-of-auto-loans-offered-by-capital-one" id="mntl-toc__list-item-link_3-0-2" rel="nocaes"><span class="link__wrapper">Types of Loans</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Time to Receive Funds" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-time-to-receive-funds" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">Time to Receive Funds</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Borrower Requirements" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-borrower-requirements" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Borrower Requirements</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Vehicle Requirements" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-vehicle-requirements" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">Vehicle Requirements</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-6"> <div class="comp 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data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-customer-service" id="mntl-toc__list-item-link_3-0-7" rel="nocaes"><span class="link__wrapper">Customer Service</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-8"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-8"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Satisfaction" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-customer-satisfaction" id="mntl-toc__list-item-link_3-0-8" rel="nocaes"><span class="link__wrapper">Customer Satisfaction</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-9"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-9"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Apply" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-apply-for-a-capital-one-auto-loan" id="mntl-toc__list-item-link_3-0-9" rel="nocaes"><span class="link__wrapper">How to Apply</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-10"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-10"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Alternatives" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-alternatives-to-capital-one-auto-loans" id="mntl-toc__list-item-link_3-0-10" rel="nocaes"><span class="link__wrapper">Alternatives</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-11"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-11"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_3-0-11" rel="nocaes"><span class="link__wrapper">Final Verdict</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-12"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-12"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_3-0-12" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block --> </div><!-- end: comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block --> </div><!-- end: comp left-nav js-sticky-container product-review__left-nav mntl-block --> <div class="comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block" data-tracking-container="true" id="product-review__content_1-0"> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>See our picks for the best auto loans in a variety of categories:</p> <ul> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">Best Auto Loan Rates</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-used-car-loans-7373705">Best Used Car Loans</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-refinance-loans-5069118">Best Auto Refinance Loans</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-car-loans-for-bad-credit-7372351">Best Car Loans for Bad Credit</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loans-for-fair-credit-7486579">Best Car Loans for Fair Credit</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-car-loans-for-first-time-buyers-7373461">Best Car Loans for First Time Buyers</a></li> </ul></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-pros-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-1"> <span class="mntl-sc-block-heading__text"> Pros Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-2"> <li><strong>Low loan minimum:</strong> Some lenders have high loan minimums, such as $7,500. But with Capital One the minimum is $4,000, so it's a good option if you're hoping to buy an older, inexpensive used car. </li> <li><strong>Offers refinancing:</strong> Not all lenders offer refinancing of your current loan. Capital One does make this available to those hoping to refinance loans from $7,500 to $75,000, as long as your balance isn’t significantly greater than your vehicle’s estimated value.</li> <li><strong>Online shopping tool provides loan and car options</strong>: Capital One’s Auto Navigator tool provides multiple dealership options and loan information from other lenders, in addition to Capital One Auto Finance.</li> <li><strong>Clear about pre-qualification requirements</strong>: Before you apply, you can use Capital One's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prequalification.asp">pre-qualification</a> tool without impacting your credit score to get a sense of your potential terms, along with minimum requirements like income (a monthly minimum of at least $1,500). However, there may be additional or varied requirements based on the lender selected.<span class="ql-inline-citation" data-cite="2"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-cons-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-3"> <span class="mntl-sc-block-heading__text"> Cons Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-4"> <li><strong>Limited disclosure about APRs:</strong> Many lenders reveal APR ranges for new, used, and refinance loans, but Capital One does not. This can make it harder to compare loan products.</li> <li><strong>Restrictions on vehicle make, mileage, and year:</strong> Capital One has strict requirements for the vehicles it finances, generally limiting buyers to cars less than 10 years old with fewer than 120,000 miles. You also can’t use Capital One auto loans to buy vehicle makes no longer in production, such as Oldsmobile or Saab, or to buy motorcycles or RVs.<span class="ql-inline-citation" data-cite="3"></span> </li> <li><strong>Shorter maximum repayment terms: </strong>Many lenders allow you to repay a loan for up to 84 months. Capital One limits you to 72 months for both new and used vehicle loans. </li> <li><strong>Does not allow lease buyouts: </strong>Capital One's purchase loans can only be used to purchase eligible vehicles from participating dealers, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/013015/best-way-get-out-your-car-lease.asp">lease buyouts</a> aren’t available.<span class="ql-inline-citation" data-cite="2"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-types-of-auto-loans-offered-by-capital-one"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-5"> <span class="mntl-sc-block-heading__text"> Types of Auto Loans Offered by Capital One </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"> Capital One has financing options for new and used cars—but you must buy through its auto dealership network, which includes independent dealers and franchises. Borrowers with existing auto loans can also use the lender's refinancing program to potentially secure a lower interest rate or lower monthly payments.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-7"> Rates and loan terms vary by location, the selected vehicle, and the dealer selling the car, but borrowers can generally finance $4,000 and up.  </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_2-0-8"> <span class="mntl-sc-block-subheading__text"> New Auto Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-9"> <li><strong>APR:</strong> Not disclosed</li><li><strong>Loan amounts:</strong> $4,000 and up</li><li><strong>Loan terms:</strong> 24–72 months</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-10"> <span class="mntl-sc-block-subheading__text"> Used Auto Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-11"> <li><strong>APR:</strong> Not disclosed</li><li><strong>Loan amounts:</strong> $4,000 and up</li><li><strong>Loan terms:</strong> 24–72 months</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-12"> <span class="mntl-sc-block-subheading__text"> Refinance Auto Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-13"> <li><strong>APR:</strong> Not disclosed</li><li><strong>Loan amounts:</strong> $7,500–$75,000</li><li><strong>Loan terms:</strong> Not disclosed</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_2-0-14"> You can’t refinance loans currently financed by Capital One Auto Finance.<span class="ql-inline-citation" data-cite="4"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-time-to-receive-funds"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-15"> <span class="mntl-sc-block-heading__text"> Time to Receive Funds </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-16"> You can design an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">auto loan</a> online, including adjusting the down payment and repayment term, through Capital One's Auto Navigator. But to finalize the loan and complete your vehicle purchase, you must visit a participating dealer, fill out an application, and undergo a hard credit check. How long the process takes depends on the dealership and your individual circumstances.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-borrower-requirements"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-17"> <span class="mntl-sc-block-heading__text"> Borrower Requirements </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-18"> <li><strong>Minimum recommended credit score: </strong>Not disclosed</li><li><strong>State availability:</strong> Available in all states and D.C., except Alaska and Hawaii</li><li><strong>Membership requirements: </strong>None</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-vehicle-requirements"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-19"> <span class="mntl-sc-block-heading__text"> Vehicle Requirements </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-20"> <li><strong>Maximum accepted mileage:</strong> 120,000 (150,000 in some cases)</li><li><strong>Maximum loan-to-value ratio:</strong> Not disclosed</li><li><strong>Maximum vehicle age:</strong> 10 years old</li><li><strong>Other vehicle restrictions:</strong> The vehicle must be for personal use.<span class="ql-inline-citation" data-cite="3"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-capital-one-auto-loan-features"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-21"> <span class="mntl-sc-block-heading__text"> Capital One Auto Loan Features </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-22"> <li><strong>Origination fee:</strong> Capital One does not charge origination fees. </li> <li><strong>Prepayment fee:</strong> There are no prepayment penalties, so there is no added charge for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-happens-early-loan-payoff-7505190">paying off your car loan early</a>. </li> <li><strong>Discounts:</strong> Capital One doesn't disclose available discounts. </li> <li><strong>Rebates:</strong> There are no rebate programs available. </li> <li><strong>Pays creditors directly for refinance loans:</strong> Capital One will issue the check directly to your previous lienholder when you refinance. </li> <li><strong>Can change due date:</strong> Capital One allows you to change your due date by up to 15 days.<span class="ql-inline-citation" data-cite="3"></span> </li> <li><strong>Car-buying service:</strong> Capital One's Auto Navigator allows you to find vehicles from participating dealers and pre-qualify for financing in one place. </li> <li><strong>Partner dealerships:</strong> The Auto Navigator lists cars from participating dealerships.</li> <li><strong>First-time car buyer program:</strong> Capital One does not have a first-time car buyer program. </li> <li><strong>Mobile app:</strong> Capital One’s Auto Navigator app can be used to shop for loans and vehicles on the go. And Capital One has a separate app you can use to manage your loan and make monthly payments. </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_2-0-23"> <span class="mntl-sc-block-subheading__text"> Co-Signers and Co-Applicants </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_2-0-24"> If you have trouble qualifying for a car loan on your own due to your credit history or income, you may qualify or get better terms by adding a creditworthy co-borrower to your application. Capital One allows <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/co-applicant.asp">joint applications</a> if you can’t qualify on your own, but remember that co-borrowers will share equal responsibility for the vehicle and for paying back the loan. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-customer-service"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-25"> <span class="mntl-sc-block-heading__text"> Customer Service </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-26"> Capital One has a few contact numbers related to auto loans.<span class="ql-inline-citation" data-cite="5"></span><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_2-0-27"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 214px;"></colgroup> <colgroup span="1" style="width: 136px;"></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th>Purpose</th> <th>Phone Number</th> <th>Hours</th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>New and used vehicle financing applicants</b></td> <td>(800) 689-1789</td> <td>Monday to Friday, 9 a.m. to 9 p.m. ET, Saturday 10 a.m. to 7 p.m. ET</td> </tr> <tr> <td><b>Auto refinance applicants</b></td> <td>(833) 292-8336</td> <td>Monday to Friday, 9 a.m. to 9 p.m. ET</td> </tr> <tr> <td><b>Existing auto loan customers</b></td> <td>(800) 946-0332</td> <td>Monday to Friday, 9 a.m. to 8 p.m. ET</td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <span class="heading-toc" id="toc-customer-satisfaction"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-28"> <span class="mntl-sc-block-heading__text"> Customer Satisfaction </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-29"> Capital One is an industry leader in customer satisfaction. It was the fifth-ranked lender for luxury financing and first for mass market financing in the J.D. Power U.S. Consumer Auto Financing Study.<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_2-0-30"> Over 2,600 people have filed official complaints with Capital One regarding vehicle loans or leases with the Consumer Financial Protection Bureau since 2017, primarily concerning billing problems, getting a loan or lease, and denied requests to lower payments.<span class="ql-inline-citation" data-cite="7"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-31"> However, the CFPB’s complaint database isn’t necessarily representative of most consumer experiences with Capital One, and the number of complaints should be considered in light of it being the fifth-largest auto lender in 2022 based on the total dollar amount of its outstanding loans.<span class="ql-inline-citation" data-cite="8"></span>  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-apply-for-a-capital-one-auto-loan"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-32"> <span class="mntl-sc-block-heading__text"> How to Apply for a Capital One Auto Loan </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-33"> Applying for an auto loan through Capital One can be fairly efficient, with a combination of online and in-person steps.<span class="ql-inline-citation" data-cite="3"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ol class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-34"> <li><strong>Pre-qualify for a loan:</strong> Use Capital One's Auto Navigator to check your pre-qualified offers without impacting 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>. You get an estimate regarding monthly payments, terms, and APRs. But you do have to provide your personal information, address, employment, and income. Your pre-qualification offer is valid for 30 days. </li> <li><strong>Pick a car: </strong>You can use the Auto Navigator to shop for specific makes or models, or you can shop by body type; the platform shows vehicles available from participating dealers. You can choose a car and use the pre-qualification tool to change the loan terms.</li> <li><strong>Head to the dealership: </strong>To purchase the selected vehicle, contact the dealership to schedule a test drive and ensure the vehicle is still available. When you go to the dealership, either bring your Auto Navigator pre-qualification offer or otherwise identify yourself as a pre-qualified Auto Navigator customer. </li> <li><strong>Complete a full loan application:</strong> If you decide to move forward with the vehicle purchase, you will have to fill out a full loan application at the dealership, provide documentation, and consent to 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 credit check</a>. </li> <li><strong>Review the loan terms: </strong>After processing your application, the dealer’s loan offer or offers may differ from the Auto Navigator pre-qualification. The offer may differ due to added options that don’t involve Capital One, such as maintenance plans or GAP coverage, so review the terms carefully before agreeing to and signing the loan agreement. <br/></li> </ol><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-warning mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-35"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>Although a longer loan term can be appealing because it gives you a lower monthly payment, more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> will accrue over the longer period and add to the overall loan cost. Use our <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/car-loan-calculator-5084761">auto loan calculator</a> to determine how the term and interest rate affect your payments.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-warning mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-alternatives-to-capital-one-auto-loans"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-36"> <span class="mntl-sc-block-heading__text"> Alternatives to Capital One Auto Loans </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-37"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th></th> <th><b><a class="null" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&amp;pub_param_2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&amp;ts=investopedia&amp;p=capone&amp;bwid_id=6385e804ca097c71ee1e23c1" rel="nofollow">Capital One</a></b></th> <th><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.penfed.org/auto/rates?s_cid=NA-1017425" rel="sponsored nofollow">PenFed</a></b></th> <th><b><a class="null" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&amp;pub_param_2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&amp;ts=investopedia&amp;p=ccu&amp;bwid_id=6385e804ca097c71ee1e23c1" rel="nofollow">Consumers Credit Union</a></b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Loan Types Offered</b></td> <td>New, used, refinance</td> <td>New, used, refinance, cash-out refinance, lease buyout</td> <td>New, used, refinance, cash-out refinance, motorcycle, RV</td> </tr> <tr> <td><b>States Available</b></td> <td>All states and D.C. except AK, HI</td> <td>All states, D.C., and Puerto Rico</td> <td>All states and D.C.</td> </tr> <tr> <td><b>New APR Range</b></td> <td>Not disclosed</td> <td>4.74%–17.99%</td> <td>6.54% and up</td> </tr> <tr> <td><b>New Loan Amounts</b></td> <td>$4,000 and up</td> <td>$500–$150,000</td> <td>$500–$350,000</td> </tr> <tr> <td><b>New Loan Terms</b></td> <td>24–72 months</td> <td>36–84 months</td> <td>36–84 months</td> </tr> <tr> <td><b>Used APR Range</b></td> <td>Not disclosed</td> <td>6.19%–17.99%</td> <td>6.93% and up</td> </tr> <tr> <td><b>Used Loan Amounts</b></td> <td>$4,000 and up</td> <td>$500–$150,000</td> <td>$500–$350,000</td> </tr> <tr> <td><b>Used Loan Terms</b></td> <td>24–72 months</td> <td>36–72 months</td> <td>60–84 months</td> </tr> <tr> <td><b>Refinance APR Range</b></td> <td>Not disclosed</td> <td>4.74% and up</td> <td>6.84%–8.54%</td> </tr> <tr> <td><b>Refinance Loan Amounts</b></td> <td>$7,500–$75,000</td> <td>Up to $150,000</td> <td>$500–$350,000</td> </tr> <tr> <td><b>Refinance Loan Terms</b></td> <td>Not disclosed</td> <td>36–72 months</td> <td>60–84 months</td> </tr> <tr> <td><b>Min. Time to Receive Loan</b></td> <td>Not disclosed</td> <td>5 days</td> <td>1 day</td> </tr> <tr> <td><b>Recommended Min. Credit Score</b></td> <td>Not disclosed</td> <td>Not disclosed</td> <td>Not disclosed</td> </tr> <tr> <td><b>Max. Accepted Mileage</b></td> <td>150,000</td> <td>125,000</td> <td>None</td> </tr> <tr> <td><b>Max. Accepted Age</b></td> <td>10 years</td> <td>None</td> <td>None</td> </tr> <tr> <td><b>Max. Accepted Loan-to-Value Ratio</b></td> <td>Not disclosed</td> <td>125%</td> <td>125%</td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <span class="heading-toc" id="toc-final-verdict"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-38"> <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"> For those looking for a one-stop location to buy and finance a vehicle, Capital One allows you to pre-qualify for a loan, search for cars, and build your loan terms before heading to the dealership—all without impacting your credit. It may also be a good fit for someone who doesn’t need to borrow much to buy a car, or who wants to apply with a co-borrower.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-40"> However, your actual loan terms after applying may be different if you purchase a different vehicle, if your income changes, or if your credit score drops. It can also be challenging to tell what your interest rate might be in advance, and there are some vehicle restrictions to keep in mind. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-link-closest-header="false" data-tracking-container="true" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_2-0-41"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&amp;pub_param_2=${REQUEST_ID}" data-retailer-type="other" data-tracking-container="true" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&amp;ts=investopedia&amp;p=capone&amp;bwid_id=6385e804ca097c71ee1e23c1" id="button_1-0" rel="noskim noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Apply Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-42"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-43"> Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. See our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/auto-loan-review-methodology-7552736">full auto loan review methodology</a> for more information. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block --> </div><!-- end: comp article-body article-content mntl-block --> </div> </div><!-- end: comp product-review-content product-review-content--finance product-review--base --> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-2"><p>Capital One. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.capitalone.com/cars/disclosures" rel="nofollow sponsored">Disclosures</a>."</p></li> <li class="mntl-sources__source" id="citation-3"><p>Capital One. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.capitalone.com/cars/how-auto-navigator-works" rel="nofollow sponsored">Frequently Asked Questions</a>."</p></li> <li class="mntl-sources__source" id="citation-4"><p>Capital One. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.capitalone.com/auto-financing/faq/" rel="nofollow sponsored">Does Capital One Refinance Its Own Loans?</a>”</p></li> <li class="mntl-sources__source" id="citation-5"><p>Capital One. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.capitalone.com/help-center/contact-us/" rel="nofollow sponsored">Contact Us</a>."</p></li> <li class="mntl-sources__source" id="citation-6"><p>J.D. Power. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.jdpower.com/business/press-releases/2023-us-consumer-financing-satisfaction-study">J.D. Power U.S. Consumer Auto Financing Study</a>."</p></li> <li class="mntl-sources__source" id="citation-7"><p>Consumer Financial Protection Bureau. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/data-research/consumer-complaints/search/?chartType=line&amp;dateInterval=Month&amp;dateRange=All&amp;date_received_max=2023-08-24&amp;date_received_min=2011-12-01&amp;lens=Product&amp;product=Vehicle%20loan%20or%20lease&amp;searchField=all&amp;searchText=capital%20one&amp;subLens=sub_product&amp;tab=Trends">Consumer Complaint Database</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" 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:fill(white):max_bytes(150000):strip_icc()/capital-one-360-88da4ba5f07946ccac0a88887b7ef019.png) :fill(white):max_bytes(150000):strip_icc()/capital-one-360-88da4ba5f07946ccac0a88887b7ef019.png) Investopedia’s Rating 3.5 [Apply Now](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=capone&bwid_id=6385e804ca097c71ee1e23c1) **Our Take** Capital One simplifies the car shopping process and helps borrowers spend less time at the dealership. With Capital One's Auto Navigator loan marketplace, you can find the right vehicle near you and get a rate quote on a car loan before heading to the dealership. However, your Capital One loan isn't finalized until after you apply through a dealer, so your final terms may differ from what you expected. * Pros and Cons * Key Takeaways * Company Overview Pros and Cons Pros * Low loan minimums * Offers refinancing * Online shopping tool provides loan and car options * Clear about pre-qualification requirements Cons * Limited disclosure about APRs * Restrictions on vehicle make, mileage, and year * Shorter maximum repayment terms * Does not allow lease buyouts Key Takeaways * Capital One offers financing only through participating dealers. * Vehicles with branded titles, motorcycles, and recreational vehicles aren't eligible for Capital One financing. * Rates and loan terms vary by location and participating dealer. Company Overview Capital One is a financial services holding company that offers a range of banking services and credit products, including credit cards and auto loans. Capital One’s Auto Navigator tool allows buyers to search for new and used cars, pre-qualify for financing, and design their loans before going to a dealership. Capital One's auto financing and Auto Navigator tools are available in most of the country, except Alaska and Hawaii. * Loan Types Offered New, used, refinance * States Available All states and D.C. except AK, HI * New APR Range Not disclosed * Used APR Range Not disclosed * Refinance APR Range Not disclosed * Min. Time to Receive Loan Not disclosed * Recommended Min. Credit Score Not disclosed * Max. Accepted Mileage 150,000 * Max. Accepted Age 10 years * Max. Accepted Loan-to-Value Ratio Not disclosed :fill(white):max_bytes(150000):strip_icc()/capital-one-360-88da4ba5f07946ccac0a88887b7ef019.png) :fill(white):max_bytes(150000):strip_icc()/capital-one-360-88da4ba5f07946ccac0a88887b7ef019.png) overall rating 3.5 [Apply Now](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=capone&bwid_id=6385e804ca097c71ee1e23c1) Table of Contents View All Capital One Auto Loans Review 2024 * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Types of Loans](#toc-types-of-auto-loans-offered-by-capital-one) * [Time to Receive Funds](#toc-time-to-receive-funds) * [Borrower Requirements](#toc-borrower-requirements) * [Vehicle Requirements](#toc-vehicle-requirements) * [Auto Loan Features](#toc-capital-one-auto-loan-features) * [Customer Service](#toc-customer-service) * [Customer Satisfaction](#toc-customer-satisfaction) * [How to Apply](#toc-how-to-apply-for-a-capital-one-auto-loan) * [Alternatives](#toc-alternatives-to-capital-one-auto-loans) * [Final Verdict](#toc-final-verdict) * [Methodology](#toc-methodology) See our picks for the best auto loans in a variety of categories: * [Best Auto Loan Rates](https://www.investopedia.com/best-auto-loan-rates-4846394) * [Best Used Car Loans](https://www.investopedia.com/best-used-car-loans-7373705) * [Best Auto Refinance Loans](https://www.investopedia.com/best-auto-refinance-loans-5069118) * [Best Car Loans for Bad Credit](https://www.investopedia.com/best-car-loans-for-bad-credit-7372351) * [Best Car Loans for Fair Credit](https://www.investopedia.com/best-auto-loans-for-fair-credit-7486579) * [Best Car Loans for First Time Buyers](https://www.investopedia.com/best-car-loans-for-first-time-buyers-7373461) ## Pros Explained * **Low loan minimum:** Some lenders have high loan minimums, such as $7,500. But with Capital One the minimum is $4,000, so it's a good option if you're hoping to buy an older, inexpensive used car. * **Offers refinancing:** Not all lenders offer refinancing of your current loan. Capital One does make this available to those hoping to refinance loans from $7,500 to $75,000, as long as your balance isn’t significantly greater than your vehicle’s estimated value. * **Online shopping tool provides loan and car options**: Capital One’s Auto Navigator tool provides multiple dealership options and loan information from other lenders, in addition to Capital One Auto Finance. * **Clear about pre-qualification requirements**: Before you apply, you can use Capital One's [pre-qualification](https://www.investopedia.com/terms/p/prequalification.asp) tool without impacting your credit score to get a sense of your potential terms, along with minimum requirements like income (a monthly minimum of at least $1,500). However, there may be additional or varied requirements based on the lender selected. ## Cons Explained * **Limited disclosure about APRs:** Many lenders reveal APR ranges for new, used, and refinance loans, but Capital One does not. This can make it harder to compare loan products. * **Restrictions on vehicle make, mileage, and year:** Capital One has strict requirements for the vehicles it finances, generally limiting buyers to cars less than 10 years old with fewer than 120,000 miles. You also can’t use Capital One auto loans to buy vehicle makes no longer in production, such as Oldsmobile or Saab, or to buy motorcycles or RVs. * **Shorter maximum repayment terms:** Many lenders allow you to repay a loan for up to 84 months. Capital One limits you to 72 months for both new and used vehicle loans. * **Does not allow lease buyouts:** Capital One's purchase loans can only be used to purchase eligible vehicles from participating dealers, and [lease buyouts](https://www.investopedia.com/articles/personal-finance/013015/best-way-get-out-your-car-lease.asp) aren’t available. ## Types of Auto Loans Offered by Capital One Capital One has financing options for new and used cars—but you must buy through its auto dealership network, which includes independent dealers and franchises. Borrowers with existing auto loans can also use the lender's refinancing program to potentially secure a lower interest rate or lower monthly payments.  Rates and loan terms vary by location, the selected vehicle, and the dealer selling the car, but borrowers can generally finance $4,000 and up.  ### New Auto Loans * **APR:** Not disclosed * **Loan amounts:** $4,000 and up * **Loan terms:** 24–72 months ### Used Auto Loans * **APR:** Not disclosed * **Loan amounts:** $4,000 and up * **Loan terms:** 24–72 months ### Refinance Auto Loans * **APR:** Not disclosed * **Loan amounts:** $7,500–$75,000 * **Loan terms:** Not disclosed You can’t refinance loans currently financed by Capital One Auto Finance. ## Time to Receive Funds You can design an [auto loan](https://www.investopedia.com/best-auto-loan-rates-4846394) online, including adjusting the down payment and repayment term, through Capital One's Auto Navigator. But to finalize the loan and complete your vehicle purchase, you must visit a participating dealer, fill out an application, and undergo a hard credit check. How long the process takes depends on the dealership and your individual circumstances.  ## Borrower Requirements * **Minimum recommended credit score:** Not disclosed * **State availability:** Available in all states and D.C., except Alaska and Hawaii * **Membership requirements:** None ## Vehicle Requirements * **Maximum accepted mileage:** 120,000 (150,000 in some cases) * **Maximum loan-to-value ratio:** Not disclosed * **Maximum vehicle age:** 10 years old * **Other vehicle restrictions:** The vehicle must be for personal use. ## Capital One Auto Loan Features * **Origination fee:** Capital One does not charge origination fees. * **Prepayment fee:** There are no prepayment penalties, so there is no added charge for [paying off your car loan early](https://www.investopedia.com/what-happens-early-loan-payoff-7505190). * **Discounts:** Capital One doesn't disclose available discounts. * **Rebates:** There are no rebate programs available. * **Pays creditors directly for refinance loans:** Capital One will issue the check directly to your previous lienholder when you refinance. * **Can change due date:** Capital One allows you to change your due date by up to 15 days. * **Car-buying service:** Capital One's Auto Navigator allows you to find vehicles from participating dealers and pre-qualify for financing in one place. * **Partner dealerships:** The Auto Navigator lists cars from participating dealerships. * **First-time car buyer program:** Capital One does not have a first-time car buyer program. * **Mobile app:** Capital One’s Auto Navigator app can be used to shop for loans and vehicles on the go. And Capital One has a separate app you can use to manage your loan and make monthly payments. ### Co-Signers and Co-Applicants If you have trouble qualifying for a car loan on your own due to your credit history or income, you may qualify or get better terms by adding a creditworthy co-borrower to your application. Capital One allows [joint applications](https://www.investopedia.com/terms/c/co-applicant.asp) if you can’t qualify on your own, but remember that co-borrowers will share equal responsibility for the vehicle and for paying back the loan. ## Customer Service Capital One has a few contact numbers related to auto loans. | Purpose | Phone Number | Hours | | --- | --- | --- | | **New and used vehicle financing applicants** | (800) 689-1789 | Monday to Friday, 9 a.m. to 9 p.m. ET, Saturday 10 a.m. to 7 p.m. ET | | **Auto refinance applicants** | (833) 292-8336 | Monday to Friday, 9 a.m. to 9 p.m. ET | | **Existing auto loan customers** | (800) 946-0332 | Monday to Friday, 9 a.m. to 8 p.m. ET | ## Customer Satisfaction Capital One is an industry leader in customer satisfaction. It was the fifth-ranked lender for luxury financing and first for mass market financing in the J.D. Power U.S. Consumer Auto Financing Study.  Over 2,600 people have filed official complaints with Capital One regarding vehicle loans or leases with the Consumer Financial Protection Bureau since 2017, primarily concerning billing problems, getting a loan or lease, and denied requests to lower payments. However, the CFPB’s complaint database isn’t necessarily representative of most consumer experiences with Capital One, and the number of complaints should be considered in light of it being the fifth-largest auto lender in 2022 based on the total dollar amount of its outstanding loans.  ## How to Apply for a Capital One Auto Loan Applying for an auto loan through Capital One can be fairly efficient, with a combination of online and in-person steps. 1. **Pre-qualify for a loan:** Use Capital One's Auto Navigator to check your pre-qualified offers without impacting your [credit score](https://www.investopedia.com/terms/c/credit_score.asp). You get an estimate regarding monthly payments, terms, and APRs. But you do have to provide your personal information, address, employment, and income. Your pre-qualification offer is valid for 30 days. 2. **Pick a car:** You can use the Auto Navigator to shop for specific makes or models, or you can shop by body type; the platform shows vehicles available from participating dealers. You can choose a car and use the pre-qualification tool to change the loan terms. 3. **Head to the dealership:** To purchase the selected vehicle, contact the dealership to schedule a test drive and ensure the vehicle is still available. When you go to the dealership, either bring your Auto Navigator pre-qualification offer or otherwise identify yourself as a pre-qualified Auto Navigator customer. 4. **Complete a full loan application:** If you decide to move forward with the vehicle purchase, you will have to fill out a full loan application at the dealership, provide documentation, and consent to a [hard credit check](https://www.investopedia.com/terms/h/hard-inquiry.asp). 5. **Review the loan terms:** After processing your application, the dealer’s loan offer or offers may differ from the Auto Navigator pre-qualification. The offer may differ due to added options that don’t involve Capital One, such as maintenance plans or GAP coverage, so review the terms carefully before agreeing to and signing the loan agreement. Although a longer loan term can be appealing because it gives you a lower monthly payment, more [interest](https://www.investopedia.com/terms/i/interest.asp) will accrue over the longer period and add to the overall loan cost. Use our [auto loan calculator](https://www.investopedia.com/car-loan-calculator-5084761) to determine how the term and interest rate affect your payments. ## Alternatives to Capital One Auto Loans | | **[Capital One](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=capone&bwid_id=6385e804ca097c71ee1e23c1)** | **[PenFed](https://www.penfed.org/auto/rates?s_cid=NA-1017425)** | **[Consumers Credit Union](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=ccu&bwid_id=6385e804ca097c71ee1e23c1)** | | --- | --- | --- | --- | | **Loan Types Offered** | New, used, refinance | New, used, refinance, cash-out refinance, lease buyout | New, used, refinance, cash-out refinance, motorcycle, RV | | **States Available** | All states and D.C. except AK, HI | All states, D.C., and Puerto Rico | All states and D.C. | | **New APR Range** | Not disclosed | 4.74%–17.99% | 6.54% and up | | **New Loan Amounts** | $4,000 and up | $500–$150,000 | $500–$350,000 | | **New Loan Terms** | 24–72 months | 36–84 months | 36–84 months | | **Used APR Range** | Not disclosed | 6.19%–17.99% | 6.93% and up | | **Used Loan Amounts** | $4,000 and up | $500–$150,000 | $500–$350,000 | | **Used Loan Terms** | 24–72 months | 36–72 months | 60–84 months | | **Refinance APR Range** | Not disclosed | 4.74% and up | 6.84%–8.54% | | **Refinance Loan Amounts** | $7,500–$75,000 | Up to $150,000 | $500–$350,000 | | **Refinance Loan Terms** | Not disclosed | 36–72 months | 60–84 months | | **Min. Time to Receive Loan** | Not disclosed | 5 days | 1 day | | **Recommended Min. Credit Score** | Not disclosed | Not disclosed | Not disclosed | | **Max. Accepted Mileage** | 150,000 | 125,000 | None | | **Max. Accepted Age** | 10 years | None | None | | **Max. Accepted Loan-to-Value Ratio** | Not disclosed | 125% | 125% | ## Final Verdict For those looking for a one-stop location to buy and finance a vehicle, Capital One allows you to pre-qualify for a loan, search for cars, and build your loan terms before heading to the dealership—all without impacting your credit. It may also be a good fit for someone who doesn’t need to borrow much to buy a car, or who wants to apply with a co-borrower.  However, your actual loan terms after applying may be different if you purchase a different vehicle, if your income changes, or if your credit score drops. It can also be challenging to tell what your interest rate might be in advance, and there are some vehicle restrictions to keep in mind. [Apply Now](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=capone&bwid_id=6385e804ca097c71ee1e23c1) ## Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. See our [full auto loan review methodology](https://www.investopedia.com/auto-loan-review-methodology-7552736) for more information. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our [editorial policy.](https://www.investopedia.com/legal-4768893#EditorialPolicy) 1. Capital One. "[Disclosures](https://www.capitalone.com/cars/disclosures)." 2. Capital One. "[Frequently Asked Questions](https://www.capitalone.com/cars/how-auto-navigator-works)." 3. Capital One. “[Does Capital One Refinance Its Own Loans?](https://www.capitalone.com/auto-financing/faq/)” 4. Capital One. "[Contact Us](https://www.capitalone.com/help-center/contact-us/)." 5. J.D. Power. "[J.D. Power U.S. Consumer Auto Financing Study](https://www.jdpower.com/business/press-releases/2023-us-consumer-financing-satisfaction-study)." 6. Consumer Financial Protection Bureau. "[Consumer Complaint Database](https://www.consumerfinance.gov/data-research/consumer-complaints/search/?chartType=line&dateInterval=Month&dateRange=All&date_received_max=2023-08-24&date_received_min=2011-12-01&lens=Product&product=Vehicle%20loan%20or%20lease&searchField=all&searchText=capital%20one&subLens=sub_product&tab=Trends)." 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Investopedia’s Rating 3.5 Apply Now Our Take Capital One simplifies the car shopping process and helps borrowers spend less time at the dealership. With Capital One's Auto Navigator loan marketplace, you can find the right vehicle near you and get a rate quote on a car loan before heading to the dealership. However, your Capital One loan isn't finalized until after you apply through a dealer, so your final terms may differ from what you expected. Pros and Cons Key Takeaways Company Overview Pros and Cons Pros Low loan minimums  Offers refinancing Online shopping tool provides loan and car options Clear about pre-qualification requirements Cons Limited disclosure about APRs Restrictions on vehicle make, mileage, and year Shorter maximum repayment terms Does not allow lease buyouts Key Takeaways Capital One offers financing only through participating dealers.Vehicles with branded titles, motorcycles, and recreational vehicles aren't eligible for Capital One financing. Rates and loan terms vary by location and participating dealer.  Company Overview Capital One is a financial services holding company that offers a range of banking services and credit products, including credit cards and auto loans. Capital One’s Auto Navigator tool allows buyers to search for new and used cars, pre-qualify for financing, and design their loans before going to a dealership. Capital One's auto financing and Auto Navigator tools are available in most of the country, except Alaska and Hawaii. Loan Types Offered New, used, refinance States Available All states and D.C. except AK, HI New APR Range Not disclosed Used APR Range Not disclosed Refinance APR Range Not disclosed Min. Time to Receive Loan Not disclosed Recommended Min. Credit Score Not disclosed Max. Accepted Mileage 150,000 Max. Accepted Age 10 years Max. Accepted Loan-to-Value Ratio Not disclosed overall rating 3.5 Apply Now Table of Contents View All Capital One Auto Loans Review 2024 Pros Explained Cons Explained Types of Loans Time to Receive Funds Borrower Requirements Vehicle Requirements Auto Loan Features Customer Service Customer Satisfaction How to Apply Alternatives Final Verdict Methodology See our picks for the best auto loans in a variety of categories: Best Auto Loan Rates Best Used Car Loans Best Auto Refinance Loans Best Car Loans for Bad Credit Best Car Loans for Fair Credit Best Car Loans for First Time Buyers Pros Explained Low loan minimum: Some lenders have high loan minimums, such as $7,500. But with Capital One the minimum is $4,000, so it's a good option if you're hoping to buy an older, inexpensive used car.  Offers refinancing: Not all lenders offer refinancing of your current loan. Capital One does make this available to those hoping to refinance loans from $7,500 to $75,000, as long as your balance isn’t significantly greater than your vehicle’s estimated value. Online shopping tool provides loan and car options: Capital One’s Auto Navigator tool provides multiple dealership options and loan information from other lenders, in addition to Capital One Auto Finance. Clear about pre-qualification requirements: Before you apply, you can use Capital One's pre-qualification tool without impacting your credit score to get a sense of your potential terms, along with minimum requirements like income (a monthly minimum of at least $1,500). However, there may be additional or varied requirements based on the lender selected. Cons Explained Limited disclosure about APRs: Many lenders reveal APR ranges for new, used, and refinance loans, but Capital One does not. This can make it harder to compare loan products. Restrictions on vehicle make, mileage, and year: Capital One has strict requirements for the vehicles it finances, generally limiting buyers to cars less than 10 years old with fewer than 120,000 miles. You also can’t use Capital One auto loans to buy vehicle makes no longer in production, such as Oldsmobile or Saab, or to buy motorcycles or RVs. Shorter maximum repayment terms: Many lenders allow you to repay a loan for up to 84 months. Capital One limits you to 72 months for both new and used vehicle loans.  Does not allow lease buyouts: Capital One's purchase loans can only be used to purchase eligible vehicles from participating dealers, and lease buyouts aren’t available. Types of Auto Loans Offered by Capital One Capital One has financing options for new and used cars—but you must buy through its auto dealership network, which includes independent dealers and franchises. Borrowers with existing auto loans can also use the lender's refinancing program to potentially secure a lower interest rate or lower monthly payments.  Rates and loan terms vary by location, the selected vehicle, and the dealer selling the car, but borrowers can generally finance $4,000 and up.  New Auto Loans APR: Not disclosedLoan amounts: $4,000 and upLoan terms: 24–72 months Used Auto Loans APR: Not disclosedLoan amounts: $4,000 and upLoan terms: 24–72 months Refinance Auto Loans APR: Not disclosedLoan amounts: $7,500–$75,000Loan terms: Not disclosed You can’t refinance loans currently financed by Capital One Auto Finance. Time to Receive Funds You can design an auto loan online, including adjusting the down payment and repayment term, through Capital One's Auto Navigator. But to finalize the loan and complete your vehicle purchase, you must visit a participating dealer, fill out an application, and undergo a hard credit check. How long the process takes depends on the dealership and your individual circumstances.  Borrower Requirements Minimum recommended credit score: Not disclosedState availability: Available in all states and D.C., except Alaska and HawaiiMembership requirements: None Vehicle Requirements Maximum accepted mileage: 120,000 (150,000 in some cases)Maximum loan-to-value ratio: Not disclosedMaximum vehicle age: 10 years oldOther vehicle restrictions: The vehicle must be for personal use. Capital One Auto Loan Features Origination fee: Capital One does not charge origination fees.  Prepayment fee: There are no prepayment penalties, so there is no added charge for paying off your car loan early.  Discounts: Capital One doesn't disclose available discounts.  Rebates: There are no rebate programs available.  Pays creditors directly for refinance loans: Capital One will issue the check directly to your previous lienholder when you refinance.  Can change due date: Capital One allows you to change your due date by up to 15 days. Car-buying service: Capital One's Auto Navigator allows you to find vehicles from participating dealers and pre-qualify for financing in one place.  Partner dealerships: The Auto Navigator lists cars from participating dealerships. First-time car buyer program: Capital One does not have a first-time car buyer program.  Mobile app: Capital One’s Auto Navigator app can be used to shop for loans and vehicles on the go. And Capital One has a separate app you can use to manage your loan and make monthly payments.  Co-Signers and Co-Applicants If you have trouble qualifying for a car loan on your own due to your credit history or income, you may qualify or get better terms by adding a creditworthy co-borrower to your application. Capital One allows joint applications if you can’t qualify on your own, but remember that co-borrowers will share equal responsibility for the vehicle and for paying back the loan. Customer Service Capital One has a few contact numbers related to auto loans. Purpose Phone Number Hours New and used vehicle financing applicants (800) 689-1789 Monday to Friday, 9 a.m. to 9 p.m. ET, Saturday 10 a.m. to 7 p.m. ET Auto refinance applicants (833) 292-8336 Monday to Friday, 9 a.m. to 9 p.m. ET Existing auto loan customers (800) 946-0332 Monday to Friday, 9 a.m. to 8 p.m. ET Customer Satisfaction Capital One is an industry leader in customer satisfaction. It was the fifth-ranked lender for luxury financing and first for mass market financing in the J.D. Power U.S. Consumer Auto Financing Study.  Over 2,600 people have filed official complaints with Capital One regarding vehicle loans or leases with the Consumer Financial Protection Bureau since 2017, primarily concerning billing problems, getting a loan or lease, and denied requests to lower payments. However, the CFPB’s complaint database isn’t necessarily representative of most consumer experiences with Capital One, and the number of complaints should be considered in light of it being the fifth-largest auto lender in 2022 based on the total dollar amount of its outstanding loans.  How to Apply for a Capital One Auto Loan Applying for an auto loan through Capital One can be fairly efficient, with a combination of online and in-person steps. Pre-qualify for a loan: Use Capital One's Auto Navigator to check your pre-qualified offers without impacting your credit score. You get an estimate regarding monthly payments, terms, and APRs. But you do have to provide your personal information, address, employment, and income. Your pre-qualification offer is valid for 30 days.  Pick a car: You can use the Auto Navigator to shop for specific makes or models, or you can shop by body type; the platform shows vehicles available from participating dealers. You can choose a car and use the pre-qualification tool to change the loan terms. Head to the dealership: To purchase the selected vehicle, contact the dealership to schedule a test drive and ensure the vehicle is still available. When you go to the dealership, either bring your Auto Navigator pre-qualification offer or otherwise identify yourself as a pre-qualified Auto Navigator customer.  Complete a full loan application: If you decide to move forward with the vehicle purchase, you will have to fill out a full loan application at the dealership, provide documentation, and consent to a hard credit check.  Review the loan terms: After processing your application, the dealer’s loan offer or offers may differ from the Auto Navigator pre-qualification. The offer may differ due to added options that don’t involve Capital One, such as maintenance plans or GAP coverage, so review the terms carefully before agreeing to and signing the loan agreement.  Although a longer loan term can be appealing because it gives you a lower monthly payment, more interest will accrue over the longer period and add to the overall loan cost. Use our auto loan calculator to determine how the term and interest rate affect your payments. Alternatives to Capital One Auto Loans Capital One PenFed Consumers Credit Union Loan Types Offered New, used, refinance New, used, refinance, cash-out refinance, lease buyout New, used, refinance, cash-out refinance, motorcycle, RV States Available All states and D.C. except AK, HI All states, D.C., and Puerto Rico All states and D.C. New APR Range Not disclosed 4.74%–17.99% 6.54% and up New Loan Amounts $4,000 and up $500–$150,000 $500–$350,000 New Loan Terms 24–72 months 36–84 months 36–84 months Used APR Range Not disclosed 6.19%–17.99% 6.93% and up Used Loan Amounts $4,000 and up $500–$150,000 $500–$350,000 Used Loan Terms 24–72 months 36–72 months 60–84 months Refinance APR Range Not disclosed 4.74% and up 6.84%–8.54% Refinance Loan Amounts $7,500–$75,000 Up to $150,000 $500–$350,000 Refinance Loan Terms Not disclosed 36–72 months 60–84 months Min. Time to Receive Loan Not disclosed 5 days 1 day Recommended Min. Credit Score Not disclosed Not disclosed Not disclosed Max. Accepted Mileage 150,000 125,000 None Max. Accepted Age 10 years None None Max. Accepted Loan-to-Value Ratio Not disclosed 125% 125% Final Verdict For those looking for a one-stop location to buy and finance a vehicle, Capital One allows you to pre-qualify for a loan, search for cars, and build your loan terms before heading to the dealership—all without impacting your credit. It may also be a good fit for someone who doesn’t need to borrow much to buy a car, or who wants to apply with a co-borrower.  However, your actual loan terms after applying may be different if you purchase a different vehicle, if your income changes, or if your credit score drops. It can also be challenging to tell what your interest rate might be in advance, and there are some vehicle restrictions to keep in mind. Apply Now Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. See our full auto loan review methodology for more information. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Capital One. "Disclosures." Capital One. "Frequently Asked Questions." Capital One. “Does Capital One Refinance Its Own Loans?” Capital One. "Contact Us." J.D. Power. "J.D. Power U.S. Consumer Auto Financing Study." Consumer Financial Protection Bureau. "Consumer Complaint Database." Related Articles Compare Best Auto Loan Rates, Lenders, & Financing for May 2024 - Rates From 1.99% Best Auto Loans for Fair Credit of 2024 LightStream Auto Loans Review First Tech FCU Auto Loans Review 2024 Best Private Party Car Loans Best Auto Refinance Loans for May 2024

https://www.investopedia.com/articles/retirement/07/enjoy_life.asp

Enjoy Life Now and Still Save for Later

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Wanting to live well in the moment while saving for an enjoyable retirement can be a financial conundrum. The good news is, it is possible to do both. Balancing these two needs simply means making sure you are keeping your financial house in order while you are enjoying your lifestyle. Individuals can learn to balance these two often-conflicting aims—lifestyle goals and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retirement.asp" rel="noopener noreferrer">retirement</a> goals—by using the following four-step process: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <span class="heading-toc" id="toc-1-assess-your-situation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> 1. Assess Your Situation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Begin with analyzing the way you live now. One way of doing so is to make a list of questions to ask yourself. This simple test might be called the "happiness barometer." Examples include the following: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> <li>Am I happy with my current lifestyle?</li><li>Do I feel I have enough financial resources to sustain my lifestyle?</li><li>Am I enjoying life?</li><li>Are there things I want to be doing, but have not yet begun to pursue?</li><li>Am I living where I want to live?</li><li>Am I driving the kind of car I would like to drive and, if not, how important is that?</li> </ul> <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"> Then take a look at your finances, and add questions to your list such as: </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>Am I saving enough for retirement?</li> <li>Am I able to pay my bills on time?</li> <li>Do I have enough <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disposableincome.asp" rel="noopener noreferrer">disposable income</a>?</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> If you answer "no" to a number of these questions, then you may need to revise some of your goals, change your lifestyle, or both. These revisions should focus on needs versus wants in your life. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>In order to assess your financial situation, ask yourself questions about how happy your current lifestyle makes you and how you're handling your money.</li><li>Develop a new lifestyle and retirement goals if your current ones are incompatible.</li><li>Design a strategy for ensuring our goals can coexist, and be sure to check and update your plan every three months.</li></ul></div></div></div> <span class="heading-toc" id="toc-2-develop-new-goals"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> 2. Develop New Goals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> If you find a disconnect between your lifestyle goals and your retirement goals, it very likely means you need to either develop new goals or revise your existing ones. Make sure that these goals are realistically based on your financial resources. Again, you will need to distinguish your wants from your needs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Lifestyle Goals </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> To help you keep on track with your lifestyle goals, make a written list of the things you want to do—a list of things that could make your life more pleasurable. This "pleasure list" can include, but is not limited to: hobbies you'd like to pursue, places you'd like to go, restaurants you want to try, places where you want to live, the kind of car you want to drive, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/qualified-charitable-organization.asp" rel="noopener noreferrer">charities</a> you'd like to support. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Retirement Goals </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Review and assess your retirement goals to determine whether you are on track with your projected financial needs and objectives. This includes reviewing your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/budget.asp" rel="noopener noreferrer">budget</a> and making any necessary revisions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> If you have not yet established retirement goals, now is the time to do so. If you need help with this, seek out a qualified <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialplanner.asp" rel="noopener noreferrer">financial planner</a>. </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-3-devise-a-plan"></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"> 3. Devise a Plan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Once your lifestyle and retirement goals are in place, the next step is to determine whether they can coexist. Incorporate the two sets of goals into your budget and add dollar figures for each lifestyle goal. This is one of the key areas where you will begin to make any necessary adjustments by cutting out non-necessities. </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"> Do not jeopardize your retirement goals. Instead, cut back on less-important budget items. For instance, a lifestyle goal may be to play golf one Saturday each month. If your finances fall short of allowing you to enjoy this hobby, don't remove it from your list. Look elsewhere in the budget for a source of funding. For instance, you may find that taking leftovers to work instead of buying your lunch two or three days a week could increase your disposable <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp" rel="noopener noreferrer">income</a>. </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"> Review each lifestyle goal and determine what it is you need to do in your budget to make this goal achievable. The idea is to make your budget work for you and not vice versa. </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-4-monitor-and-reassess"></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"> 4. Monitor and Reassess </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> After you have put your plan into action, check at least once every three months to ensure the plan is on track, and then reassess your goals, objectives, and budget at least once each year to determine whether you need to make any changes. Monitoring and reassessing may need to occur more often if you are falling short of your goals and objectives. </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"> Make sure to determine what went well, what didn't, and what you need to change. As you go through this process, you will find that your lifestyle and retirement goals may also change. Be willing to adjust, but be hesitant to abandon important goals. Be persistent in going after what you want. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> To balance living well now with retiring well, begin with an assessment of your current situation. Then develop a new set of lifestyle goals to achieve what you want. Put a plan in action by determining how you can achieve your goals within your budget, and finally, monitor your plan on an ongoing basis. </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"> Over time, if you're sticking to your goals and objectives, you should find that your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quality-of-life.asp" rel="noopener noreferrer">quality of life</a>—and the comfort factor of knowing you'll have enough to retire—will improve. </p></div>

Wanting to live well in the moment while saving for an enjoyable retirement can be a financial conundrum. The good news is, it is possible to do both. Balancing these two needs simply means making sure you are keeping your financial house in order while you are enjoying your lifestyle. Individuals can learn to balance these two often-conflicting aims—lifestyle goals and [retirement](https://www.investopedia.com/terms/r/retirement.asp) goals—by using the following four-step process: ## 1. Assess Your Situation Begin with analyzing the way you live now. One way of doing so is to make a list of questions to ask yourself. This simple test might be called the "happiness barometer." Examples include the following: * Am I happy with my current lifestyle? * Do I feel I have enough financial resources to sustain my lifestyle? * Am I enjoying life? * Are there things I want to be doing, but have not yet begun to pursue? * Am I living where I want to live? * Am I driving the kind of car I would like to drive and, if not, how important is that? Then take a look at your finances, and add questions to your list such as: * Am I saving enough for retirement? * Am I able to pay my bills on time? * Do I have enough [disposable income](https://www.investopedia.com/terms/d/disposableincome.asp)? If you answer "no" to a number of these questions, then you may need to revise some of your goals, change your lifestyle, or both. These revisions should focus on needs versus wants in your life. ### Key Takeaways * In order to assess your financial situation, ask yourself questions about how happy your current lifestyle makes you and how you're handling your money. * Develop a new lifestyle and retirement goals if your current ones are incompatible. * Design a strategy for ensuring our goals can coexist, and be sure to check and update your plan every three months. ## 2. Develop New Goals If you find a disconnect between your lifestyle goals and your retirement goals, it very likely means you need to either develop new goals or revise your existing ones. Make sure that these goals are realistically based on your financial resources. Again, you will need to distinguish your wants from your needs. ### Lifestyle Goals To help you keep on track with your lifestyle goals, make a written list of the things you want to do—a list of things that could make your life more pleasurable. This "pleasure list" can include, but is not limited to: hobbies you'd like to pursue, places you'd like to go, restaurants you want to try, places where you want to live, the kind of car you want to drive, and [charities](https://www.investopedia.com/terms/q/qualified-charitable-organization.asp) you'd like to support. ### Retirement Goals Review and assess your retirement goals to determine whether you are on track with your projected financial needs and objectives. This includes reviewing your [budget](https://www.investopedia.com/terms/b/budget.asp) and making any necessary revisions. If you have not yet established retirement goals, now is the time to do so. If you need help with this, seek out a qualified [financial planner](https://www.investopedia.com/terms/f/financialplanner.asp). ## 3. Devise a Plan Once your lifestyle and retirement goals are in place, the next step is to determine whether they can coexist. Incorporate the two sets of goals into your budget and add dollar figures for each lifestyle goal. This is one of the key areas where you will begin to make any necessary adjustments by cutting out non-necessities. Do not jeopardize your retirement goals. Instead, cut back on less-important budget items. For instance, a lifestyle goal may be to play golf one Saturday each month. If your finances fall short of allowing you to enjoy this hobby, don't remove it from your list. Look elsewhere in the budget for a source of funding. For instance, you may find that taking leftovers to work instead of buying your lunch two or three days a week could increase your disposable [income](https://www.investopedia.com/terms/i/income.asp). Review each lifestyle goal and determine what it is you need to do in your budget to make this goal achievable. The idea is to make your budget work for you and not vice versa. ## 4. Monitor and Reassess After you have put your plan into action, check at least once every three months to ensure the plan is on track, and then reassess your goals, objectives, and budget at least once each year to determine whether you need to make any changes. Monitoring and reassessing may need to occur more often if you are falling short of your goals and objectives. Make sure to determine what went well, what didn't, and what you need to change. As you go through this process, you will find that your lifestyle and retirement goals may also change. Be willing to adjust, but be hesitant to abandon important goals. Be persistent in going after what you want. ## The Bottom Line To balance living well now with retiring well, begin with an assessment of your current situation. Then develop a new set of lifestyle goals to achieve what you want. Put a plan in action by determining how you can achieve your goals within your budget, and finally, monitor your plan on an ongoing basis. Over time, if you're sticking to your goals and objectives, you should find that your [quality of life](https://www.investopedia.com/terms/q/quality-of-life.asp)—and the comfort factor of knowing you'll have enough to retire—will improve.

Wanting to live well in the moment while saving for an enjoyable retirement can be a financial conundrum. The good news is, it is possible to do both. Balancing these two needs simply means making sure you are keeping your financial house in order while you are enjoying your lifestyle. Individuals can learn to balance these two often-conflicting aims—lifestyle goals and retirement goals—by using the following four-step process: 1. Assess Your Situation Begin with analyzing the way you live now. One way of doing so is to make a list of questions to ask yourself. This simple test might be called the "happiness barometer." Examples include the following: Am I happy with my current lifestyle?Do I feel I have enough financial resources to sustain my lifestyle?Am I enjoying life?Are there things I want to be doing, but have not yet begun to pursue?Am I living where I want to live?Am I driving the kind of car I would like to drive and, if not, how important is that? Then take a look at your finances, and add questions to your list such as: Am I saving enough for retirement? Am I able to pay my bills on time? Do I have enough disposable income? If you answer "no" to a number of these questions, then you may need to revise some of your goals, change your lifestyle, or both. These revisions should focus on needs versus wants in your life. Key Takeaways In order to assess your financial situation, ask yourself questions about how happy your current lifestyle makes you and how you're handling your money.Develop a new lifestyle and retirement goals if your current ones are incompatible.Design a strategy for ensuring our goals can coexist, and be sure to check and update your plan every three months. 2. Develop New Goals If you find a disconnect between your lifestyle goals and your retirement goals, it very likely means you need to either develop new goals or revise your existing ones. Make sure that these goals are realistically based on your financial resources. Again, you will need to distinguish your wants from your needs. Lifestyle Goals To help you keep on track with your lifestyle goals, make a written list of the things you want to do—a list of things that could make your life more pleasurable. This "pleasure list" can include, but is not limited to: hobbies you'd like to pursue, places you'd like to go, restaurants you want to try, places where you want to live, the kind of car you want to drive, and charities you'd like to support. Retirement Goals Review and assess your retirement goals to determine whether you are on track with your projected financial needs and objectives. This includes reviewing your budget and making any necessary revisions. If you have not yet established retirement goals, now is the time to do so. If you need help with this, seek out a qualified financial planner. 3. Devise a Plan Once your lifestyle and retirement goals are in place, the next step is to determine whether they can coexist. Incorporate the two sets of goals into your budget and add dollar figures for each lifestyle goal. This is one of the key areas where you will begin to make any necessary adjustments by cutting out non-necessities. Do not jeopardize your retirement goals. Instead, cut back on less-important budget items. For instance, a lifestyle goal may be to play golf one Saturday each month. If your finances fall short of allowing you to enjoy this hobby, don't remove it from your list. Look elsewhere in the budget for a source of funding. For instance, you may find that taking leftovers to work instead of buying your lunch two or three days a week could increase your disposable income. Review each lifestyle goal and determine what it is you need to do in your budget to make this goal achievable. The idea is to make your budget work for you and not vice versa. 4. Monitor and Reassess After you have put your plan into action, check at least once every three months to ensure the plan is on track, and then reassess your goals, objectives, and budget at least once each year to determine whether you need to make any changes. Monitoring and reassessing may need to occur more often if you are falling short of your goals and objectives. Make sure to determine what went well, what didn't, and what you need to change. As you go through this process, you will find that your lifestyle and retirement goals may also change. Be willing to adjust, but be hesitant to abandon important goals. Be persistent in going after what you want. The Bottom Line To balance living well now with retiring well, begin with an assessment of your current situation. Then develop a new set of lifestyle goals to achieve what you want. Put a plan in action by determining how you can achieve your goals within your budget, and finally, monitor your plan on an ongoing basis. Over time, if you're sticking to your goals and objectives, you should find that your quality of life—and the comfort factor of knowing you'll have enough to retire—will improve.

https://www.investopedia.com/tax-help-after-natural-disasters-5202938

Tax Help After Natural Disasters

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Tax deadlines are stressful enough in the best of times. When disaster strikes in your region, tax payment and filing deadlines can add additional stress to a situation that is already emotionally and financially draining. </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"> According to the National Centers for Environmental Information, the United States alone has sustained 355 natural disasters since 1980, and overall damages have exceeded $2.54 trillion (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumerpriceindex.asp">Consumer Price Index</a>-adjusted to 2023). At an average of more than eight events per year, it is likely that you or someone in your network has firsthand experience with the aftermath of a natural disaster.<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"> Such disasters encompass many forms, including hurricanes, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/060815/how-tornadoes-impact-economy.asp">tornadoes</a>, floods, earthquakes, wildfires, and winter storms. It is definitely possible—especially late in the tax filing season—for a natural disaster to inhibit <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/document-and-tax-info-after-a-natural-disaster-5080362">your ability to access your supporting tax documents</a> or file your tax return in a timely manner. Fortunately, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a> offers tax relief to taxpayers affected by natural disasters.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Common forms of tax relief include tax filing extensions, tax payment extensions, and the casualty loss deduction.</li><li>The casualty loss deduction may allow you to receive an accelerated tax refund.</li><li>If your loss is in a federally declared disaster area as determined by the president of the United States, you can deduct it on your prior or current year tax return.</li><li>A 1040-X, Amended U.S. Individual Income Tax Return form can be filed to claim the deduction if you have already filed your previous year’s tax return.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-must-happen-for-you-to-qualify-for-tax-relief"></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 Must Happen for You to Qualify for Tax Relief? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Before the IRS can offer any tax relief to taxpayers affected by a natural disaster, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-emergency-management-agency-fema-definition-5524719">Federal Emergency Management Agency (FEMA)</a> must issue a major disaster declaration as instructed by the president of the United States.<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_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> When FEMA identifies an area for its Individual Assistance program, the IRS will authorize tax relief to the same area. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/casualty-loss.asp">casualty loss deduction</a>, which may allow you to receive an accelerated tax refund, is available only if you live in a federally declared disaster area.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="31"></span><span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> To qualify as an affected taxpayer for tax filing and payment extensions, you do not have to be located in a federally declared disaster area. Affected taxpayers include individuals, business entities or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soleproprietorship.asp">sole proprietorships</a>, and shareholders of an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subchapters.asp">S corporation</a> with tax records located in a FEMA-covered disaster area.<span class="ql-inline-citation" data-cite="34"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-what-forms-of-tax-relief-exist"></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 Forms of Tax Relief Exist? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Several different forms of tax relief <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/taxes/08/itemized-deduction.asp">may be available to you after a natural disaster</a>. The most common are extensions on the deadlines to file and pay your taxes. You may also qualify for the casualty loss tax deduction. Additionally, the U.S. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/small-business-administration.asp">Small Business Administration (SBA)</a> may offer financial help in the form of disaster loans or grants. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Tax Filing and Payment Extensions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> If your address on record with the IRS is in an area that qualifies for disaster tax relief, you will automatically receive extra time to file your tax return and pay any final tax payments.<span class="ql-inline-citation" data-cite="3"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Casualty Loss Deduction </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> If you are located in a federally declared disaster area, you may qualify for the casualty loss deduction. This deduction is available to <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">taxpayers who have damaged or lost property</a> as a result of the natural disaster. You can claim it on your current-year or prior-year tax return.<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"> If you claim it on your prior-year return, you will see a refund faster. If you have already filed that return, then you should file a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/form1040x.asp">Form 1040-X, Amended U.S. Individual Income Tax Return</a> to amend it.<span class="ql-inline-citation" data-cite="35"></span><span class="ql-inline-citation" data-cite="11"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Disaster Loans and Grants </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The SBA may offer financial help to business owners, private nonprofits, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/impact-natural-disasters-home-ownership-5221265">homeowners</a>, and renters in a declared disaster area. To qualify, you must have filed all required tax returns. The SBA website offers a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://disasterloanassistance.sba.gov/ela/s/search-declarations">search feature</a> to identify currently declared disasters. Disasters can be declared by the president of the United States or the U.S. secretary of agriculture to qualify for assistance.<span class="ql-inline-citation" data-cite="3"></span><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_29-0"></div> <span class="heading-toc" id="toc-natural-disasters-that-qualify-for-tax-relief"></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"> Natural Disasters That Qualify for Tax Relief </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Natural disasters in 2022 that qualified for tax relief and the states impacted include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <li>Severe winter storm in New York</li><li>Severe storm and flooding in Illinois</li><li>Hurricane Nicole in multiple states</li><li>Hurricane Ian in North Carolina, South Carolina, and Florida</li><li>Storm and flooding in Alaska</li><li>Hurricane Fiona in Puerto Rico</li><li>Severe storms in Missouri</li><li>Severe storms and flooding in Montana</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"> Natural disasters so far in 2023 that qualify for tax relief and the states impacted include: </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>Severe winter storms, straight-line winds, flooding, landslides, and mudslides in California</li><li>Severe storms, flooding, and tornadoes in Florida</li><li>Severe storms, straight-line winds, and tornadoes in Oklahoma and Tennessee</li><li>Severe winter storm in New York</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"> The IRS website has a disaster assistance page where victims of recent natural disasters can find details about the types of tax help available to them. You can easily search all disaster-related tax relief offered in the last five years.<span class="ql-inline-citation" data-cite="7"></span><br> </br></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-other-relevant-tax-items-post-natural-disaster"></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"> Other Relevant Tax Items Post-Natural Disaster </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> You may need to obtain a tax transcript to support your disaster claims. You can get one by using the Get Transcript Online tool on the IRS website, calling the IRS at (800) 908-9946, or filling out IRS Form 4506-T, Request for Transcript of Tax Return.<span class="ql-inline-citation" data-cite="36"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> If you need to relocate as a result of the natural disaster, be sure to update your address with the IRS. One way to do that is to file Form 8822, Change of Address. Alternatively, you can send a written statement or update the IRS verbally over the telephone. Be aware that if you use the phone, you will need to have certain identifying information on hand: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> <li>Full name</li><li>New address</li><li>Old address</li><li>Date of birth</li><li>Social Security number<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_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-do-i-qualify-for-disaster-relief-if-my-tax-preparer-is-in-a-disaster-area-but-i-am-not"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do I Qualify for Disaster Relief If My Tax Preparer Is in a Disaster Area, but I Am Not?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You may qualify for tax relief if you are outside a disaster area but your tax preparer is within it, as long as the area your tax preparer is in is a federally declared disaster area and they are unable to file or pay your taxes on your behalf.</p><p>To approve the postponement of your filing or payment, you must call the Disaster Hotline of the Internal Revenue Service (IRS) at (866) 562-5227 and explain that your necessary tax records are in a covered disaster area. You also will be required to provide the Federal Emergency Management Agency (FEMA) disaster number of the area in which your tax preparer resides.<span class="ql-inline-citation" data-cite="34"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-do-i-qualify-for-disaster-relief-if-i-am-a-shareholder-in-an-s-corporation-located-in-a-disaster-area-but-i-am-not-in-the-disaster-area"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do I Qualify for Disaster Relief if I Am a Shareholder in an S Corporation Located in a Disaster Area, but I Am Not in the Disaster Area?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If the S corporation (or partnership) cannot provide you with the tax records necessary to file your tax return, you qualify as an affected taxpayer. Your postponement period will coincide with the period of the affected S corporation (or partnership).</p><p>Again, you will have to call the IRS Disaster Hotline at (866) 562-5227 to explain that your tax records are in a designated disaster area. You also will need to provide the IRS with the FEMA disaster number of the area in which the affected S corporation (or partnership) is located.<span class="ql-inline-citation" data-cite="34"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-can-i-get-tax-relief-on-interest-on-a-pre-existing-outstanding-balance-during-the-disaster-relief-period"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Get Tax Relief on Interest on a Pre-existing Outstanding Balance During the Disaster Relief Period?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. There is no tax relief for interest due on balances from tax liabilities for prior years; however, the IRS may consider waiving the late payment penalty when the reason for late payment is reasonable and related to the disaster.<span class="ql-inline-citation" data-cite="33"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> If the IRS qualifies the area where you—or your tax professional—are located, you may qualify for tax relief. Extension of the deadlines to file and pay your taxes generally comes automatically. You may also be eligible for the casualty loss tax deduction, if you suffered losses, or for disaster loans or grants from the SBA. </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"> Be sure to acquire the necessary papers, such as a tax transcript or change of address form. Check the IRS website for information on available tax help and whether the natural disaster you have experienced is on its list.<br/> </p></div>

Tax deadlines are stressful enough in the best of times. When disaster strikes in your region, tax payment and filing deadlines can add additional stress to a situation that is already emotionally and financially draining. According to the National Centers for Environmental Information, the United States alone has sustained 355 natural disasters since 1980, and overall damages have exceeded $2.54 trillion ([Consumer Price Index](https://www.investopedia.com/terms/c/consumerpriceindex.asp)-adjusted to 2023). At an average of more than eight events per year, it is likely that you or someone in your network has firsthand experience with the aftermath of a natural disaster. Such disasters encompass many forms, including hurricanes, [tornadoes](https://www.investopedia.com/articles/investing/060815/how-tornadoes-impact-economy.asp), floods, earthquakes, wildfires, and winter storms. It is definitely possible—especially late in the tax filing season—for a natural disaster to inhibit [your ability to access your supporting tax documents](https://www.investopedia.com/document-and-tax-info-after-a-natural-disaster-5080362) or file your tax return in a timely manner. Fortunately, the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) offers tax relief to taxpayers affected by natural disasters. ### Key Takeaways * Common forms of tax relief include tax filing extensions, tax payment extensions, and the casualty loss deduction. * The casualty loss deduction may allow you to receive an accelerated tax refund. * If your loss is in a federally declared disaster area as determined by the president of the United States, you can deduct it on your prior or current year tax return. * A 1040-X, Amended U.S. Individual Income Tax Return form can be filed to claim the deduction if you have already filed your previous year’s tax return. ## What Must Happen for You to Qualify for Tax Relief? Before the IRS can offer any tax relief to taxpayers affected by a natural disaster, the [Federal Emergency Management Agency (FEMA)](https://www.investopedia.com/federal-emergency-management-agency-fema-definition-5524719) must issue a major disaster declaration as instructed by the president of the United States. When FEMA identifies an area for its Individual Assistance program, the IRS will authorize tax relief to the same area. The [casualty loss deduction](https://www.investopedia.com/terms/c/casualty-loss.asp), which may allow you to receive an accelerated tax refund, is available only if you live in a federally declared disaster area. To qualify as an affected taxpayer for tax filing and payment extensions, you do not have to be located in a federally declared disaster area. Affected taxpayers include individuals, business entities or [sole proprietorships](https://www.investopedia.com/terms/s/soleproprietorship.asp), and shareholders of an [S corporation](https://www.investopedia.com/terms/s/subchapters.asp) with tax records located in a FEMA-covered disaster area. ## What Forms of Tax Relief Exist? Several different forms of tax relief [may be available to you after a natural disaster](https://www.investopedia.com/articles/taxes/08/itemized-deduction.asp). The most common are extensions on the deadlines to file and pay your taxes. You may also qualify for the casualty loss tax deduction. Additionally, the U.S. [Small Business Administration (SBA)](https://www.investopedia.com/terms/s/small-business-administration.asp) may offer financial help in the form of disaster loans or grants. ### Tax Filing and Payment Extensions If your address on record with the IRS is in an area that qualifies for disaster tax relief, you will automatically receive extra time to file your tax return and pay any final tax payments. ### Casualty Loss Deduction If you are located in a federally declared disaster area, you may qualify for the casualty loss deduction. This deduction is available to [taxpayers who have damaged or lost property](https://www.investopedia.com/articles/tax/09/deducting-property-damage.asp) as a result of the natural disaster. You can claim it on your current-year or prior-year tax return. If you claim it on your prior-year return, you will see a refund faster. If you have already filed that return, then you should file a [Form 1040-X, Amended U.S. Individual Income Tax Return](https://www.investopedia.com/terms/f/form1040x.asp) to amend it. ### Disaster Loans and Grants The SBA may offer financial help to business owners, private nonprofits, [homeowners](https://www.investopedia.com/impact-natural-disasters-home-ownership-5221265), and renters in a declared disaster area. To qualify, you must have filed all required tax returns. The SBA website offers a [search feature](https://disasterloanassistance.sba.gov/ela/s/search-declarations) to identify currently declared disasters. Disasters can be declared by the president of the United States or the U.S. secretary of agriculture to qualify for assistance. ## Natural Disasters That Qualify for Tax Relief Natural disasters in 2022 that qualified for tax relief and the states impacted include: * Severe winter storm in New York * Severe storm and flooding in Illinois * Hurricane Nicole in multiple states * Hurricane Ian in North Carolina, South Carolina, and Florida * Storm and flooding in Alaska * Hurricane Fiona in Puerto Rico * Severe storms in Missouri * Severe storms and flooding in Montana Natural disasters so far in 2023 that qualify for tax relief and the states impacted include: * Severe winter storms, straight-line winds, flooding, landslides, and mudslides in California * Severe storms, flooding, and tornadoes in Florida * Severe storms, straight-line winds, and tornadoes in Oklahoma and Tennessee * Severe winter storm in New York The IRS website has a disaster assistance page where victims of recent natural disasters can find details about the types of tax help available to them. You can easily search all disaster-related tax relief offered in the last five years. ## Other Relevant Tax Items Post-Natural Disaster You may need to obtain a tax transcript to support your disaster claims. You can get one by using the Get Transcript Online tool on the IRS website, calling the IRS at (800) 908-9946, or filling out IRS Form 4506-T, Request for Transcript of Tax Return. If you need to relocate as a result of the natural disaster, be sure to update your address with the IRS. One way to do that is to file Form 8822, Change of Address. Alternatively, you can send a written statement or update the IRS verbally over the telephone. Be aware that if you use the phone, you will need to have certain identifying information on hand: * Full name * New address * Old address * Date of birth * Social Security number ## Do I Qualify for Disaster Relief If My Tax Preparer Is in a Disaster Area, but I Am Not? You may qualify for tax relief if you are outside a disaster area but your tax preparer is within it, as long as the area your tax preparer is in is a federally declared disaster area and they are unable to file or pay your taxes on your behalf. To approve the postponement of your filing or payment, you must call the Disaster Hotline of the Internal Revenue Service (IRS) at (866) 562-5227 and explain that your necessary tax records are in a covered disaster area. You also will be required to provide the Federal Emergency Management Agency (FEMA) disaster number of the area in which your tax preparer resides. ## Do I Qualify for Disaster Relief if I Am a Shareholder in an S Corporation Located in a Disaster Area, but I Am Not in the Disaster Area? If the S corporation (or partnership) cannot provide you with the tax records necessary to file your tax return, you qualify as an affected taxpayer. Your postponement period will coincide with the period of the affected S corporation (or partnership). Again, you will have to call the IRS Disaster Hotline at (866) 562-5227 to explain that your tax records are in a designated disaster area. You also will need to provide the IRS with the FEMA disaster number of the area in which the affected S corporation (or partnership) is located. ## Can I Get Tax Relief on Interest on a Pre-existing Outstanding Balance During the Disaster Relief Period? No. There is no tax relief for interest due on balances from tax liabilities for prior years; however, the IRS may consider waiving the late payment penalty when the reason for late payment is reasonable and related to the disaster. ## The Bottom Line If the IRS qualifies the area where you—or your tax professional—are located, you may qualify for tax relief. Extension of the deadlines to file and pay your taxes generally comes automatically. You may also be eligible for the casualty loss tax deduction, if you suffered losses, or for disaster loans or grants from the SBA. Be sure to acquire the necessary papers, such as a tax transcript or change of address form. Check the IRS website for information on available tax help and whether the natural disaster you have experienced is on its list.

Tax deadlines are stressful enough in the best of times. When disaster strikes in your region, tax payment and filing deadlines can add additional stress to a situation that is already emotionally and financially draining. According to the National Centers for Environmental Information, the United States alone has sustained 355 natural disasters since 1980, and overall damages have exceeded $2.54 trillion (Consumer Price Index-adjusted to 2023). At an average of more than eight events per year, it is likely that you or someone in your network has firsthand experience with the aftermath of a natural disaster. Such disasters encompass many forms, including hurricanes, tornadoes, floods, earthquakes, wildfires, and winter storms. It is definitely possible—especially late in the tax filing season—for a natural disaster to inhibit your ability to access your supporting tax documents or file your tax return in a timely manner. Fortunately, the Internal Revenue Service (IRS) offers tax relief to taxpayers affected by natural disasters. Key Takeaways Common forms of tax relief include tax filing extensions, tax payment extensions, and the casualty loss deduction.The casualty loss deduction may allow you to receive an accelerated tax refund.If your loss is in a federally declared disaster area as determined by the president of the United States, you can deduct it on your prior or current year tax return.A 1040-X, Amended U.S. Individual Income Tax Return form can be filed to claim the deduction if you have already filed your previous year’s tax return. What Must Happen for You to Qualify for Tax Relief? Before the IRS can offer any tax relief to taxpayers affected by a natural disaster, the Federal Emergency Management Agency (FEMA) must issue a major disaster declaration as instructed by the president of the United States. When FEMA identifies an area for its Individual Assistance program, the IRS will authorize tax relief to the same area. The casualty loss deduction, which may allow you to receive an accelerated tax refund, is available only if you live in a federally declared disaster area. To qualify as an affected taxpayer for tax filing and payment extensions, you do not have to be located in a federally declared disaster area. Affected taxpayers include individuals, business entities or sole proprietorships, and shareholders of an S corporation with tax records located in a FEMA-covered disaster area. What Forms of Tax Relief Exist? Several different forms of tax relief may be available to you after a natural disaster. The most common are extensions on the deadlines to file and pay your taxes. You may also qualify for the casualty loss tax deduction. Additionally, the U.S. Small Business Administration (SBA) may offer financial help in the form of disaster loans or grants. Tax Filing and Payment Extensions If your address on record with the IRS is in an area that qualifies for disaster tax relief, you will automatically receive extra time to file your tax return and pay any final tax payments. Casualty Loss Deduction If you are located in a federally declared disaster area, you may qualify for the casualty loss deduction. This deduction is available to taxpayers who have damaged or lost property as a result of the natural disaster. You can claim it on your current-year or prior-year tax return. If you claim it on your prior-year return, you will see a refund faster. If you have already filed that return, then you should file a Form 1040-X, Amended U.S. Individual Income Tax Return to amend it. Disaster Loans and Grants The SBA may offer financial help to business owners, private nonprofits, homeowners, and renters in a declared disaster area. To qualify, you must have filed all required tax returns. The SBA website offers a search feature to identify currently declared disasters. Disasters can be declared by the president of the United States or the U.S. secretary of agriculture to qualify for assistance. Natural Disasters That Qualify for Tax Relief Natural disasters in 2022 that qualified for tax relief and the states impacted include: Severe winter storm in New YorkSevere storm and flooding in IllinoisHurricane Nicole in multiple statesHurricane Ian in North Carolina, South Carolina, and FloridaStorm and flooding in AlaskaHurricane Fiona in Puerto RicoSevere storms in MissouriSevere storms and flooding in Montana Natural disasters so far in 2023 that qualify for tax relief and the states impacted include: Severe winter storms, straight-line winds, flooding, landslides, and mudslides in CaliforniaSevere storms, flooding, and tornadoes in FloridaSevere storms, straight-line winds, and tornadoes in Oklahoma and TennesseeSevere winter storm in New York The IRS website has a disaster assistance page where victims of recent natural disasters can find details about the types of tax help available to them. You can easily search all disaster-related tax relief offered in the last five years. Other Relevant Tax Items Post-Natural Disaster You may need to obtain a tax transcript to support your disaster claims. You can get one by using the Get Transcript Online tool on the IRS website, calling the IRS at (800) 908-9946, or filling out IRS Form 4506-T, Request for Transcript of Tax Return. If you need to relocate as a result of the natural disaster, be sure to update your address with the IRS. One way to do that is to file Form 8822, Change of Address. Alternatively, you can send a written statement or update the IRS verbally over the telephone. Be aware that if you use the phone, you will need to have certain identifying information on hand: Full nameNew addressOld addressDate of birthSocial Security number Do I Qualify for Disaster Relief If My Tax Preparer Is in a Disaster Area, but I Am Not? You may qualify for tax relief if you are outside a disaster area but your tax preparer is within it, as long as the area your tax preparer is in is a federally declared disaster area and they are unable to file or pay your taxes on your behalf.To approve the postponement of your filing or payment, you must call the Disaster Hotline of the Internal Revenue Service (IRS) at (866) 562-5227 and explain that your necessary tax records are in a covered disaster area. You also will be required to provide the Federal Emergency Management Agency (FEMA) disaster number of the area in which your tax preparer resides. Do I Qualify for Disaster Relief if I Am a Shareholder in an S Corporation Located in a Disaster Area, but I Am Not in the Disaster Area? If the S corporation (or partnership) cannot provide you with the tax records necessary to file your tax return, you qualify as an affected taxpayer. Your postponement period will coincide with the period of the affected S corporation (or partnership).Again, you will have to call the IRS Disaster Hotline at (866) 562-5227 to explain that your tax records are in a designated disaster area. You also will need to provide the IRS with the FEMA disaster number of the area in which the affected S corporation (or partnership) is located. Can I Get Tax Relief on Interest on a Pre-existing Outstanding Balance During the Disaster Relief Period? No. There is no tax relief for interest due on balances from tax liabilities for prior years; however, the IRS may consider waiving the late payment penalty when the reason for late payment is reasonable and related to the disaster. The Bottom Line If the IRS qualifies the area where you—or your tax professional—are located, you may qualify for tax relief. Extension of the deadlines to file and pay your taxes generally comes automatically. You may also be eligible for the casualty loss tax deduction, if you suffered losses, or for disaster loans or grants from the SBA. Be sure to acquire the necessary papers, such as a tax transcript or change of address form. Check the IRS website for information on available tax help and whether the natural disaster you have experienced is on its list.

https://www.investopedia.com/investing/top-sp-500-etfs/

Top S&P 500 ETFs

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500 Index</a> entered a bull market on June 8 after rebounding 20% from its October 2022 lows. For investors confident the market will continue its winning streak, these four ETFs offer exposure to one of the U.S. stock market's most closely followed benchmarks.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> iShares Core S&amp;P 500 ETF, Vanguard S&amp;P 500 ETF, and SPDR Portfolio S&amp;P 500 are tailored for investors seeking the lowest expense ratios. The SPDR S&amp;P 500 ETF is best for investors and active traders who want the most liquidity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>The S&amp;P 500 Index broke into bull market territory in early June after falling 25% from record highs reached in December 2021.</li> <li>iShares Core S&amp;P 500 ETF, Vanguard S&amp;P 500 ETF, SPDR Portfolio S&amp;P 500, and SPDR S&amp;P 500 ETF give investors exposure to the index.</li> <li>When selecting an S&amp;P 500 ETF, investors should consider the fees they'll pay and the liquidity of each fund. </li> <li>Apple Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL">AAPL</a>) is the largest company in the S&amp;P 500, and thus the top holding of each of these funds.</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Investors <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-new-bull-market-lures-individual-investors-back-to-stocks-7511608">have been encouraged</a> by falling inflation and the Federal Reserve's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-hits-pause-on-campaign-of-anti-inflation-rate-hikes-7546692">decision to pause rate hikes</a> at its June meeting. The 12-month trailing price-earnings ratio of the S&amp;P 500 has fallen by 11% in the past year, making many of these stocks cheaper.<span class="ql-inline-citation" data-cite="34"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Below we take a closer look at four S&amp;P 500 ETFs. We have excluded <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leveraged-etf.asp">leveraged ETFs</a>, which provide outsized returns but come with extra risk. All data below are as of June 14.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-sp-500-etf-with-the-lowest-fees-ishares-core-sp-500-etf-ivv-tie"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVV" rel="nocaes">S&amp;P 500 ETF With the Lowest Fees: iShares Core S&amp;P 500 ETF (IVV) (Tie)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <li>Expense Ratio: 0.03%</li><li>Performance Over One-Year: 15.4%<br/></li><li>Annual Dividend Yield: 1.56%</li><li>30-Day Average Daily Volume: 3,668,396</li><li>Assets Under Management: $326.1 billion</li><li>Inception Date: May 15, 2000</li><li>Issuer: BlackRock Financial Management<span class="ql-inline-citation" data-cite="35"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-sp-500-etf-with-the-lowest-fees-vanguard-sp-500-etf-voo-tie"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO" rel="nocaes">S&amp;P 500 ETF With the Lowest Fees: Vanguard S&amp;P 500 ETF (VOO) (Tie)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>Expense Ratio: 0.03%</li><li>Performance Over One-Year: 15.3%<br/></li><li>Annual Dividend Yield: 1.57%</li><li>30-Day Average Daily Volume: 3,590,357</li><li>Assets Under Management: $312.6 billion</li><li>Inception Date: Sept. 7, 2010</li><li>Issuer: Vanguard<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_16-0"></div> <span class="heading-toc" id="toc-sp-500-etf-with-the-lowest-fees-spdr-portfolio-sp-500-etf-splg-tie"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPLG" rel="nocaes">S&amp;P 500 ETF With the Lowest Fees: SPDR Portfolio S&amp;P 500 ETF (SPLG) (Tie)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <li>Expense Ratio: 0.03%</li><li>Performance Over One-Year: 15.3%<br/></li><li>Annual Dividend Yield: 1.59%</li><li>30-Day Average Daily Volume: 3,191,321</li><li>Assets Under Management: $18.3 billion</li><li>Inception Date: Nov. 8, 2005</li><li>Issuer: State Street Global Advisors<span class="ql-inline-citation" data-cite="28"></span><br/></li> </ul> <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-most-liquid-sp-500-etf-spdr-sp-500-etf-spy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY" rel="nocaes">Most Liquid S&amp;P 500 ETF: SPDR S&amp;P 500 ETF (SPY)</a> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">Liquidity</a> indicates how easy it is to buy or sell an ETF, with higher liquidity generally translating to lower trading costs. While trading costs aren't a concern for investors holding ETFs long term, active traders favor highly liquid funds to minimize costs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <li>Expense Ratio: 0.0945%</li><li>Performance Over One-Year: 15.3%</li><li>Annual Dividend Yield: 1.60%</li><li>30-Day Average Daily Volume: 80,884,133</li><li>Assets Under Management: $413 billion</li><li>Inception Date: Jan. 22, 1993</li><li>Issuer: State Street Global Advisors<span class="ql-inline-citation" data-cite="21"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-why-expense-ratios-matter"></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"> Why Expense Ratios Matter </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Because these ETFs follow the performance of the S&amp;P 500 index, one of the most important determinants of long-term returns is how much a fund charges in fees. An ETF's fees are measured by its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">expense ratio</a>, which is the percentage of an investor's assets that are kept by the fund manager to maintain the fund. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> A fund's expense ratio can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/092613/pay-attention-your-funds-expense-ratio.asp">significantly impact a long-term investor's total returns</a>. An investor who puts $10,000 in a fund that returns 10% every year will pay $336 in fees to a fund with a 0.5% expense ratio. The same investor would pay $1,682 in fees if they put the same money in a fund with a 2.5% expense ratio.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer">warranty and liability disclaimer</a> for more info.</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <em>As of the date this article was written, the author does not own any of the above ETFs.</em> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

The [S&P 500 Index](https://www.investopedia.com/terms/s/sp500.asp) entered a bull market on June 8 after rebounding 20% from its October 2022 lows. For investors confident the market will continue its winning streak, these four ETFs offer exposure to one of the U.S. stock market's most closely followed benchmarks. iShares Core S&P 500 ETF, Vanguard S&P 500 ETF, and SPDR Portfolio S&P 500 are tailored for investors seeking the lowest expense ratios. The SPDR S&P 500 ETF is best for investors and active traders who want the most liquidity. ### Key Takeaways * The S&P 500 Index broke into bull market territory in early June after falling 25% from record highs reached in December 2021. * iShares Core S&P 500 ETF, Vanguard S&P 500 ETF, SPDR Portfolio S&P 500, and SPDR S&P 500 ETF give investors exposure to the index. * When selecting an S&P 500 ETF, investors should consider the fees they'll pay and the liquidity of each fund. * Apple Inc. ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) is the largest company in the S&P 500, and thus the top holding of each of these funds. Investors [have been encouraged](https://www.investopedia.com/the-new-bull-market-lures-individual-investors-back-to-stocks-7511608) by falling inflation and the Federal Reserve's [decision to pause rate hikes](https://www.investopedia.com/federal-reserve-hits-pause-on-campaign-of-anti-inflation-rate-hikes-7546692) at its June meeting. The 12-month trailing price-earnings ratio of the S&P 500 has fallen by 11% in the past year, making many of these stocks cheaper. Below we take a closer look at four S&P 500 ETFs. We have excluded [leveraged ETFs](https://www.investopedia.com/terms/l/leveraged-etf.asp), which provide outsized returns but come with extra risk. All data below are as of June 14. ## [S&P 500 ETF With the Lowest Fees: iShares Core S&P 500 ETF (IVV) (Tie)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVV) * Expense Ratio: 0.03% * Performance Over One-Year: 15.4% * Annual Dividend Yield: 1.56% * 30-Day Average Daily Volume: 3,668,396 * Assets Under Management: $326.1 billion * Inception Date: May 15, 2000 * Issuer: BlackRock Financial Management ## [S&P 500 ETF With the Lowest Fees: Vanguard S&P 500 ETF (VOO) (Tie)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO) * Expense Ratio: 0.03% * Performance Over One-Year: 15.3% * Annual Dividend Yield: 1.57% * 30-Day Average Daily Volume: 3,590,357 * Assets Under Management: $312.6 billion * Inception Date: Sept. 7, 2010 * Issuer: Vanguard ## [S&P 500 ETF With the Lowest Fees: SPDR Portfolio S&P 500 ETF (SPLG) (Tie)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPLG) * Expense Ratio: 0.03% * Performance Over One-Year: 15.3% * Annual Dividend Yield: 1.59% * 30-Day Average Daily Volume: 3,191,321 * Assets Under Management: $18.3 billion * Inception Date: Nov. 8, 2005 * Issuer: State Street Global Advisors ## [Most Liquid S&P 500 ETF: SPDR S&P 500 ETF (SPY)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY) [Liquidity](https://www.investopedia.com/terms/l/liquidity.asp) indicates how easy it is to buy or sell an ETF, with higher liquidity generally translating to lower trading costs. While trading costs aren't a concern for investors holding ETFs long term, active traders favor highly liquid funds to minimize costs. * Expense Ratio: 0.0945% * Performance Over One-Year: 15.3% * Annual Dividend Yield: 1.60% * 30-Day Average Daily Volume: 80,884,133 * Assets Under Management: $413 billion * Inception Date: Jan. 22, 1993 * Issuer: State Street Global Advisors ## Why Expense Ratios Matter Because these ETFs follow the performance of the S&P 500 index, one of the most important determinants of long-term returns is how much a fund charges in fees. An ETF's fees are measured by its [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp), which is the percentage of an investor's assets that are kept by the fund manager to maintain the fund. A fund's expense ratio can [significantly impact a long-term investor's total returns](https://www.investopedia.com/articles/personal-finance/092613/pay-attention-your-funds-expense-ratio.asp). An investor who puts $10,000 in a fund that returns 10% every year will pay $336 in fees to a fund with a 0.5% expense ratio. The same investor would pay $1,682 in fees if they put the same money in a fund with a 2.5% expense ratio. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.* *As of the date this article was written, the author does not own any of the above ETFs.* Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

The S&P 500 Index entered a bull market on June 8 after rebounding 20% from its October 2022 lows. For investors confident the market will continue its winning streak, these four ETFs offer exposure to one of the U.S. stock market's most closely followed benchmarks. iShares Core S&P 500 ETF, Vanguard S&P 500 ETF, and SPDR Portfolio S&P 500 are tailored for investors seeking the lowest expense ratios. The SPDR S&P 500 ETF is best for investors and active traders who want the most liquidity. Key Takeaways The S&P 500 Index broke into bull market territory in early June after falling 25% from record highs reached in December 2021. iShares Core S&P 500 ETF, Vanguard S&P 500 ETF, SPDR Portfolio S&P 500, and SPDR S&P 500 ETF give investors exposure to the index. When selecting an S&P 500 ETF, investors should consider the fees they'll pay and the liquidity of each fund. Apple Inc. (AAPL) is the largest company in the S&P 500, and thus the top holding of each of these funds. Investors have been encouraged by falling inflation and the Federal Reserve's decision to pause rate hikes at its June meeting. The 12-month trailing price-earnings ratio of the S&P 500 has fallen by 11% in the past year, making many of these stocks cheaper. Below we take a closer look at four S&P 500 ETFs. We have excluded leveraged ETFs, which provide outsized returns but come with extra risk. All data below are as of June 14. S&P 500 ETF With the Lowest Fees: iShares Core S&P 500 ETF (IVV) (Tie) Expense Ratio: 0.03%Performance Over One-Year: 15.4%Annual Dividend Yield: 1.56%30-Day Average Daily Volume: 3,668,396Assets Under Management: $326.1 billionInception Date: May 15, 2000Issuer: BlackRock Financial Management S&P 500 ETF With the Lowest Fees: Vanguard S&P 500 ETF (VOO) (Tie) Expense Ratio: 0.03%Performance Over One-Year: 15.3%Annual Dividend Yield: 1.57%30-Day Average Daily Volume: 3,590,357Assets Under Management: $312.6 billionInception Date: Sept. 7, 2010Issuer: Vanguard S&P 500 ETF With the Lowest Fees: SPDR Portfolio S&P 500 ETF (SPLG) (Tie) Expense Ratio: 0.03%Performance Over One-Year: 15.3%Annual Dividend Yield: 1.59%30-Day Average Daily Volume: 3,191,321Assets Under Management: $18.3 billionInception Date: Nov. 8, 2005Issuer: State Street Global Advisors Most Liquid S&P 500 ETF: SPDR S&P 500 ETF (SPY) Liquidity indicates how easy it is to buy or sell an ETF, with higher liquidity generally translating to lower trading costs. While trading costs aren't a concern for investors holding ETFs long term, active traders favor highly liquid funds to minimize costs. Expense Ratio: 0.0945%Performance Over One-Year: 15.3%Annual Dividend Yield: 1.60%30-Day Average Daily Volume: 80,884,133Assets Under Management: $413 billionInception Date: Jan. 22, 1993Issuer: State Street Global Advisors Why Expense Ratios Matter Because these ETFs follow the performance of the S&P 500 index, one of the most important determinants of long-term returns is how much a fund charges in fees. An ETF's fees are measured by its expense ratio, which is the percentage of an investor's assets that are kept by the fund manager to maintain the fund. A fund's expense ratio can significantly impact a long-term investor's total returns. An investor who puts $10,000 in a fund that returns 10% every year will pay $336 in fees to a fund with a 0.5% expense ratio. The same investor would pay $1,682 in fees if they put the same money in a fund with a 2.5% expense ratio. The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own any of the above ETFs. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Insurance: Definition, How It Works, and Main Types of Policies

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-insurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Insurance? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The company <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cross-liability-coverage.asp">pools clients’ risks</a> to make payments more affordable for the insured. Most people have some insurance: for their car, their house, their healthcare, or their life. </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"> Insurance policies <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedge</a> against financial losses resulting from accidents, injury, or property damage. Insurance also helps cover costs associated with liability (legal responsibility) for damage or injury caused to a third party.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies or perils.</li><li>There are many types of insurance policies. Life, health, homeowners, and auto are among the most common forms of insurance.</li><li>The core components that make up most insurance policies are the premium, deductible, and policy limits.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_8-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Insurance" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/r0G8dCJxoUV5rsaTEuR8mUUymdI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/terms_i_insurance_FINAL_-3556393b3bbf483e9bc8ad9b707641e4.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/r0G8dCJxoUV5rsaTEuR8mUUymdI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/terms_i_insurance_FINAL_-3556393b3bbf483e9bc8ad9b707641e4.jpg" data-srcset="https://www.investopedia.com/thmb/5tNm2xuNOvKwzSvgWOuPYc9K2JU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/terms_i_insurance_FINAL_-3556393b3bbf483e9bc8ad9b707641e4.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Insurance" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/r0G8dCJxoUV5rsaTEuR8mUUymdI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/terms_i_insurance_FINAL_-3556393b3bbf483e9bc8ad9b707641e4.jpg" srcset="https://www.investopedia.com/thmb/5tNm2xuNOvKwzSvgWOuPYc9K2JU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/terms_i_insurance_FINAL_-3556393b3bbf483e9bc8ad9b707641e4.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 / Daniel Fishel</p></span> </figcaption></figure> <span class="heading-toc" id="toc-how-insurance-works"></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 Insurance Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Many insurance policy types are available, and virtually any individual or business can find an insurance company willing to insure them—for a price. Common <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/100115/life-vs-health-insurance-choosing-what-buy.asp">personal insurance policy types</a> are auto, health, homeowners, and life insurance. Most individuals in the United States have at least one of these types of insurance, and car insurance is required by state law. </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"> Businesses obtain insurance policies for field-specific risks, For example, a fast-food restaurant's policy may cover an employee's injuries from cooking with a deep fryer. Medical malpractice insurance covers injury- or death-related liability claims resulting from the health care provider's negligence or malpractice. A company may use an insurance <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker-of-record.asp">broker of record</a> to help them manage the policies of its employees. Businesses may be required by state law to buy specific insurance coverages.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <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>Most insurance is regulated at the state level.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> There are also insurance policies available for very specific needs. Such coverage includes business closures <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/civil-authority-clause.asp">due to civil authority</a>, kidnap, ransom, and extortion (K&amp;R) insurance, identity theft insurance, and wedding liability and cancellation insurance. </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-insurance-policy-components"></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"> Insurance Policy Components </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Understanding how insurance works can help you choose a policy. For instance, comprehensive coverage may or may not be the right type of auto insurance for you. Three components of any insurance type are the premium, policy limit, and deductible. </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"> Premium </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> A policy’s premium is its price, typically a monthly cost. Often, an insurer takes multiple factors into account to set a premium. Here are a few examples:<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> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <li><strong>Auto insurance premiums</strong>: Your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/clue-report.asp">history of property and auto claims</a>, age and location, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-worthiness.asp">creditworthiness</a>, and many other factors that may vary by state.</li> <li><strong>Home insurance premiums</strong>: The value of your home, personal belongings, location, claims history, and coverage amounts.</li> <li><strong>Health insurance premiums</strong>: Age, sex, location, health status, and coverage levels.</li> <li><strong>Life insurance premiums</strong>: Age, sex, tobacco use, health, and amount of coverage.</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"> Much depends on the insurer's perception of your risk for a claim. For example, suppose you own several expensive automobiles and have a history of reckless driving. In that case, you will likely pay more for an auto policy than someone with a single midrange sedan and a perfect driving record. However, different insurers may charge different premiums for similar policies. So finding the price that is right for you requires some legwork. </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"> Policy Limit </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> The policy limit is the maximum amount an insurer will pay for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/groundup-loss.asp">a covered loss</a> under a policy. Maximums may be set per period (e.g., annual or policy term), per loss or injury, or over the life of the policy, also known as the lifetime maximum. </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"> Typically, higher limits carry higher premiums. For a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lifeinsurance.asp">general life insurance policy</a>, the maximum amount that the insurer will pay is referred to as the face value. This is the amount paid to your beneficiary upon your death. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The federal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/affordable-care-act.asp#toc-understanding-the-affordable-care-act-aca">Affordable Care Act </a>(ACA) prevents ACA-compliant plans from instituting a lifetime limit for essential healthcare benefits such as family planning, maternity services, and pediatric care.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-subheading__text"> Deductible </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/012716/how-highdeductible-health-plans-work.asp">deductible</a> is a specific amount you pay out of pocket before the insurer pays a claim. Deductibles serve as deterrents to large volumes of small and insignificant claims. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> For example, a $1,000 deductible means you pay the first $1,000 toward any claims. Suppose your car's damage totals $2,000. You pay the first $1,000, and your insurer pays the remaining $1,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Deductibles can apply per policy or claim, depending on the insurer and the type of policy. Health plans may have an individual deductible and a family deductible. Policies with high deductibles are typically less expensive because the high <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outofpocket.asp">out-of-pocket</a> expense generally results in fewer small claims. </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-types-of-insurance"></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"> Types of Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> There are many different types of insurance. Let’s look at the most important.<br/> </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"> Health Insurance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Health insurance helps covers routine and emergency medical care costs, often with the option to add vision and dental services separately. In addition to an annual deductible, you may also pay <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">copays and coinsurance</a>, which are your fixed payments or percentage of a covered medical benefit after meeting the deductible. However, many preventive services may be covered for free before these are met.<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_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Health insurance may be purchased from an insurance company, an insurance agent, the federal Health Insurance Marketplace, provided by an employer, or federal Medicare and Medicaid coverage. </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 federal government <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/is-health-insurance-mandatory-4773106">no longer requires Americans</a> to have health insurance, but in some states, such as California, you may pay a tax penalty if you don't have insurance.<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_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_52-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_53-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>If you have chronic health issues or need regular medical attention, look for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/healthinsurance.asp">health insurance </a>policy with a lower deductible. Though the annual premium is higher than a comparable policy with a higher deductible, less-expensive medical care year-round may be worth the tradeoff.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-subheading__text"> Home Insurance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeowners-insurance.asp">Homeowners insurance</a> (also known as home insurance) protects your home, other property structures, and personal possessions against natural disasters, unexpected damage, theft, and vandalism. Homeowner insurance won't cover floods or earthquakes, which you'll have to protect against separately. Policy providers usually offer riders to increase coverage for specific properties or events and provisions that can <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buyback-deductible.asp">help reduce deductible amounts</a>. These adders will come at an additional premium amount. </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"> Renter's insurance is another type of homeowners insurance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Your lender or landlord will likely require you to have homeowners insurance coverage. Where homes are concerned, you don't have coverage or stop paying your insurance bill your mortgage lender is allowed to buy homeowners insurance for you and charge you for it.<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_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"> Auto Insurance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Auto insurance can help pay claims if you injure or damage someone else's property in a car accident, help pay for accident-related repairs on your vehicle, or repair or replace your vehicle if stolen, vandalized, or damaged by a natural disaster. </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"> Instead of paying out of pocket for auto accidents and damage, people pay annual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/premium.asp">premiums</a> to an auto insurance company. The company then pays all or most of the covered costs associated with an auto accident or other vehicle damage. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> If you have a leased vehicle or borrowed money to buy a car, your lender or leasing dealership will likely require you to carry auto insurance. As with homeowners insurance, the lender may purchase insurance for you if necessary.<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_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"> Life Insurance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> A life insurance policy guarantees that the insurer pays a sum of money to your beneficiaries (such as a spouse or children) if you die. In exchange, you pay premiums during your lifetime. </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"> There are two main types of life insurance. Term life insurance covers you for a specific period, such as 10 to 20 years. If you die during that period, your beneficiaries receive a payment. Permanent life insurance covers your whole life as long as you continue paying the premiums.<span class="ql-inline-citation" data-cite="12"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_73-0"> <span class="mntl-sc-block-subheading__text"> Travel Insurance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/travel-insurance.asp">Travel insurance</a> covers the costs and losses associated with traveling, including trip cancellations or delays, coverage for emergency health care, injuries and evacuations, damaged baggage, rental cars, and rental homes.<span class="ql-inline-citation" data-cite="15"></span> However, even some of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-travel-insurance-4842641#toc-how-to-get-travel-insurance">best travel insurance companies</a> do not cover cancellations or delays due to weather, terrorism, or a pandemic. They also don't often cover injuries from extreme sports or high-adventure activities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_76-0"><span class="heading-toc" id="toc-what-is-insurance"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Insurance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Insurance is a way to manage your financial risks. When you buy insurance, you purchase protection against unexpected financial losses. The insurance company pays you or someone you choose if something bad occurs. If you have no insurance and an accident happens, you may be responsible for all related costs.<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_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-why-is-insurance-important"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is Insurance Important?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Insurance helps protect you, your family, and your assets. An insurer will help you cover the costs of unexpected and routine medical bills or hospitalization, accident damage to your car or injury of others, and home damage or theft of your belongings. An insurance policy can even provide your survivors with a lump-sum cash payment if you die. In short, insurance can offer peace of mind regarding unforeseen financial risks.</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-is-insurance-an-asset"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Insurance an Asset?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Depending on the type of life insurance policy and how it is used, permanent or variable life insurance could be considered a financial asset because it can build cash value or be converted into cash. Simply put, most permanent life insurance policies have the ability to build cash value over time.<span class="ql-inline-citation" data-cite="13"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Insurance helps to protect you and your family against unexpected financial costs and resulting debts or the risk of losing your assets. Insurance helps protect you from expensive lawsuits, injuries and damages, death, and even total losses of your car or home. </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"> Sometimes, your state or lender may require you to carry insurance. Although there are many insurance policy types, some of the most common are life, health, homeowners, and auto. The right type of insurance for you will depend on your goals and financial situation. </p></div>

## What Is Insurance? Insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The company [pools clients’ risks](https://www.investopedia.com/terms/c/cross-liability-coverage.asp) to make payments more affordable for the insured. Most people have some insurance: for their car, their house, their healthcare, or their life. Insurance policies [hedge](https://www.investopedia.com/terms/h/hedge.asp) against financial losses resulting from accidents, injury, or property damage. Insurance also helps cover costs associated with liability (legal responsibility) for damage or injury caused to a third party. ### Key Takeaways * Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies or perils. * There are many types of insurance policies. Life, health, homeowners, and auto are among the most common forms of insurance. * The core components that make up most insurance policies are the premium, deductible, and policy limits. ![Insurance]() :max_bytes(150000):strip_icc()/terms_i_insurance_FINAL_-3556393b3bbf483e9bc8ad9b707641e4.jpg) Investopedia / Daniel Fishel ## How Insurance Works Many insurance policy types are available, and virtually any individual or business can find an insurance company willing to insure them—for a price. Common [personal insurance policy types](https://www.investopedia.com/articles/personal-finance/100115/life-vs-health-insurance-choosing-what-buy.asp) are auto, health, homeowners, and life insurance. Most individuals in the United States have at least one of these types of insurance, and car insurance is required by state law. Businesses obtain insurance policies for field-specific risks, For example, a fast-food restaurant's policy may cover an employee's injuries from cooking with a deep fryer. Medical malpractice insurance covers injury- or death-related liability claims resulting from the health care provider's negligence or malpractice. A company may use an insurance [broker of record](https://www.investopedia.com/terms/b/broker-of-record.asp) to help them manage the policies of its employees. Businesses may be required by state law to buy specific insurance coverages. ### Most insurance is regulated at the state level. There are also insurance policies available for very specific needs. Such coverage includes business closures [due to civil authority](https://www.investopedia.com/terms/c/civil-authority-clause.asp), kidnap, ransom, and extortion (K&R) insurance, identity theft insurance, and wedding liability and cancellation insurance. ## Insurance Policy Components Understanding how insurance works can help you choose a policy. For instance, comprehensive coverage may or may not be the right type of auto insurance for you. Three components of any insurance type are the premium, policy limit, and deductible. ### Premium A policy’s premium is its price, typically a monthly cost. Often, an insurer takes multiple factors into account to set a premium. Here are a few examples: * **Auto insurance premiums**: Your [history of property and auto claims](https://www.investopedia.com/terms/c/clue-report.asp), age and location, [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp), and many other factors that may vary by state. * **Home insurance premiums**: The value of your home, personal belongings, location, claims history, and coverage amounts. * **Health insurance premiums**: Age, sex, location, health status, and coverage levels. * **Life insurance premiums**: Age, sex, tobacco use, health, and amount of coverage. Much depends on the insurer's perception of your risk for a claim. For example, suppose you own several expensive automobiles and have a history of reckless driving. In that case, you will likely pay more for an auto policy than someone with a single midrange sedan and a perfect driving record. However, different insurers may charge different premiums for similar policies. So finding the price that is right for you requires some legwork. ### Policy Limit The policy limit is the maximum amount an insurer will pay for [a covered loss](https://www.investopedia.com/terms/g/groundup-loss.asp) under a policy. Maximums may be set per period (e.g., annual or policy term), per loss or injury, or over the life of the policy, also known as the lifetime maximum. Typically, higher limits carry higher premiums. For a [general life insurance policy](https://www.investopedia.com/terms/l/lifeinsurance.asp), the maximum amount that the insurer will pay is referred to as the face value. This is the amount paid to your beneficiary upon your death. The federal [Affordable Care Act](https://www.investopedia.com/terms/a/affordable-care-act.asp#toc-understanding-the-affordable-care-act-aca) (ACA) prevents ACA-compliant plans from instituting a lifetime limit for essential healthcare benefits such as family planning, maternity services, and pediatric care. ### Deductible The [deductible](https://www.investopedia.com/articles/personal-finance/012716/how-highdeductible-health-plans-work.asp) is a specific amount you pay out of pocket before the insurer pays a claim. Deductibles serve as deterrents to large volumes of small and insignificant claims. For example, a $1,000 deductible means you pay the first $1,000 toward any claims. Suppose your car's damage totals $2,000. You pay the first $1,000, and your insurer pays the remaining $1,000. Deductibles can apply per policy or claim, depending on the insurer and the type of policy. Health plans may have an individual deductible and a family deductible. Policies with high deductibles are typically less expensive because the high [out-of-pocket](https://www.investopedia.com/terms/o/outofpocket.asp) expense generally results in fewer small claims. ## Types of Insurance There are many different types of insurance. Let’s look at the most important. ### Health Insurance Health insurance helps covers routine and emergency medical care costs, often with the option to add vision and dental services separately. In addition to an annual deductible, you may also pay [copays and coinsurance](https://www.investopedia.com/articles/insurance/120816/coinsurance-vs-copay-why-you-need-know-difference.asp), which are your fixed payments or percentage of a covered medical benefit after meeting the deductible. However, many preventive services may be covered for free before these are met. Health insurance may be purchased from an insurance company, an insurance agent, the federal Health Insurance Marketplace, provided by an employer, or federal Medicare and Medicaid coverage. The federal government [no longer requires Americans](https://www.investopedia.com/is-health-insurance-mandatory-4773106) to have health insurance, but in some states, such as California, you may pay a tax penalty if you don't have insurance. ### If you have chronic health issues or need regular medical attention, look for a [health insurance](https://www.investopedia.com/terms/h/healthinsurance.asp) policy with a lower deductible. Though the annual premium is higher than a comparable policy with a higher deductible, less-expensive medical care year-round may be worth the tradeoff. ### Home Insurance [Homeowners insurance](https://www.investopedia.com/terms/h/homeowners-insurance.asp) (also known as home insurance) protects your home, other property structures, and personal possessions against natural disasters, unexpected damage, theft, and vandalism. Homeowner insurance won't cover floods or earthquakes, which you'll have to protect against separately. Policy providers usually offer riders to increase coverage for specific properties or events and provisions that can [help reduce deductible amounts](https://www.investopedia.com/terms/b/buyback-deductible.asp). These adders will come at an additional premium amount. Renter's insurance is another type of homeowners insurance. Your lender or landlord will likely require you to have homeowners insurance coverage. Where homes are concerned, you don't have coverage or stop paying your insurance bill your mortgage lender is allowed to buy homeowners insurance for you and charge you for it. ### Auto Insurance Auto insurance can help pay claims if you injure or damage someone else's property in a car accident, help pay for accident-related repairs on your vehicle, or repair or replace your vehicle if stolen, vandalized, or damaged by a natural disaster. Instead of paying out of pocket for auto accidents and damage, people pay annual [premiums](https://www.investopedia.com/terms/p/premium.asp) to an auto insurance company. The company then pays all or most of the covered costs associated with an auto accident or other vehicle damage. If you have a leased vehicle or borrowed money to buy a car, your lender or leasing dealership will likely require you to carry auto insurance. As with homeowners insurance, the lender may purchase insurance for you if necessary. ### Life Insurance A life insurance policy guarantees that the insurer pays a sum of money to your beneficiaries (such as a spouse or children) if you die. In exchange, you pay premiums during your lifetime. There are two main types of life insurance. Term life insurance covers you for a specific period, such as 10 to 20 years. If you die during that period, your beneficiaries receive a payment. Permanent life insurance covers your whole life as long as you continue paying the premiums. ### Travel Insurance [Travel insurance](https://www.investopedia.com/terms/t/travel-insurance.asp) covers the costs and losses associated with traveling, including trip cancellations or delays, coverage for emergency health care, injuries and evacuations, damaged baggage, rental cars, and rental homes. However, even some of the [best travel insurance companies](https://www.investopedia.com/best-travel-insurance-4842641#toc-how-to-get-travel-insurance) do not cover cancellations or delays due to weather, terrorism, or a pandemic. They also don't often cover injuries from extreme sports or high-adventure activities. ## What Is Insurance? Insurance is a way to manage your financial risks. When you buy insurance, you purchase protection against unexpected financial losses. The insurance company pays you or someone you choose if something bad occurs. If you have no insurance and an accident happens, you may be responsible for all related costs. ## Why Is Insurance Important? Insurance helps protect you, your family, and your assets. An insurer will help you cover the costs of unexpected and routine medical bills or hospitalization, accident damage to your car or injury of others, and home damage or theft of your belongings. An insurance policy can even provide your survivors with a lump-sum cash payment if you die. In short, insurance can offer peace of mind regarding unforeseen financial risks. ## Is Insurance an Asset? Depending on the type of life insurance policy and how it is used, permanent or variable life insurance could be considered a financial asset because it can build cash value or be converted into cash. Simply put, most permanent life insurance policies have the ability to build cash value over time. ## The Bottom Line Insurance helps to protect you and your family against unexpected financial costs and resulting debts or the risk of losing your assets. Insurance helps protect you from expensive lawsuits, injuries and damages, death, and even total losses of your car or home. Sometimes, your state or lender may require you to carry insurance. Although there are many insurance policy types, some of the most common are life, health, homeowners, and auto. The right type of insurance for you will depend on your goals and financial situation.

What Is Insurance? Insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured. Most people have some insurance: for their car, their house, their healthcare, or their life. Insurance policies hedge against financial losses resulting from accidents, injury, or property damage. Insurance also helps cover costs associated with liability (legal responsibility) for damage or injury caused to a third party. Key Takeaways Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies or perils.There are many types of insurance policies. Life, health, homeowners, and auto are among the most common forms of insurance.The core components that make up most insurance policies are the premium, deductible, and policy limits. Investopedia / Daniel Fishel How Insurance Works Many insurance policy types are available, and virtually any individual or business can find an insurance company willing to insure them—for a price. Common personal insurance policy types are auto, health, homeowners, and life insurance. Most individuals in the United States have at least one of these types of insurance, and car insurance is required by state law. Businesses obtain insurance policies for field-specific risks, For example, a fast-food restaurant's policy may cover an employee's injuries from cooking with a deep fryer. Medical malpractice insurance covers injury- or death-related liability claims resulting from the health care provider's negligence or malpractice. A company may use an insurance broker of record to help them manage the policies of its employees. Businesses may be required by state law to buy specific insurance coverages. Most insurance is regulated at the state level. There are also insurance policies available for very specific needs. Such coverage includes business closures due to civil authority, kidnap, ransom, and extortion (K&R) insurance, identity theft insurance, and wedding liability and cancellation insurance. Insurance Policy Components Understanding how insurance works can help you choose a policy. For instance, comprehensive coverage may or may not be the right type of auto insurance for you. Three components of any insurance type are the premium, policy limit, and deductible. Premium A policy’s premium is its price, typically a monthly cost. Often, an insurer takes multiple factors into account to set a premium. Here are a few examples: Auto insurance premiums: Your history of property and auto claims, age and location, creditworthiness, and many other factors that may vary by state. Home insurance premiums: The value of your home, personal belongings, location, claims history, and coverage amounts. Health insurance premiums: Age, sex, location, health status, and coverage levels. Life insurance premiums: Age, sex, tobacco use, health, and amount of coverage. Much depends on the insurer's perception of your risk for a claim. For example, suppose you own several expensive automobiles and have a history of reckless driving. In that case, you will likely pay more for an auto policy than someone with a single midrange sedan and a perfect driving record. However, different insurers may charge different premiums for similar policies. So finding the price that is right for you requires some legwork. Policy Limit The policy limit is the maximum amount an insurer will pay for a covered loss under a policy. Maximums may be set per period (e.g., annual or policy term), per loss or injury, or over the life of the policy, also known as the lifetime maximum. Typically, higher limits carry higher premiums. For a general life insurance policy, the maximum amount that the insurer will pay is referred to as the face value. This is the amount paid to your beneficiary upon your death. The federal Affordable Care Act (ACA) prevents ACA-compliant plans from instituting a lifetime limit for essential healthcare benefits such as family planning, maternity services, and pediatric care. Deductible The deductible is a specific amount you pay out of pocket before the insurer pays a claim. Deductibles serve as deterrents to large volumes of small and insignificant claims. For example, a $1,000 deductible means you pay the first $1,000 toward any claims. Suppose your car's damage totals $2,000. You pay the first $1,000, and your insurer pays the remaining $1,000. Deductibles can apply per policy or claim, depending on the insurer and the type of policy. Health plans may have an individual deductible and a family deductible. Policies with high deductibles are typically less expensive because the high out-of-pocket expense generally results in fewer small claims. Types of Insurance There are many different types of insurance. Let’s look at the most important. Health Insurance Health insurance helps covers routine and emergency medical care costs, often with the option to add vision and dental services separately. In addition to an annual deductible, you may also pay copays and coinsurance, which are your fixed payments or percentage of a covered medical benefit after meeting the deductible. However, many preventive services may be covered for free before these are met. Health insurance may be purchased from an insurance company, an insurance agent, the federal Health Insurance Marketplace, provided by an employer, or federal Medicare and Medicaid coverage. The federal government no longer requires Americans to have health insurance, but in some states, such as California, you may pay a tax penalty if you don't have insurance. If you have chronic health issues or need regular medical attention, look for a health insurance policy with a lower deductible. Though the annual premium is higher than a comparable policy with a higher deductible, less-expensive medical care year-round may be worth the tradeoff. Home Insurance Homeowners insurance (also known as home insurance) protects your home, other property structures, and personal possessions against natural disasters, unexpected damage, theft, and vandalism. Homeowner insurance won't cover floods or earthquakes, which you'll have to protect against separately. Policy providers usually offer riders to increase coverage for specific properties or events and provisions that can help reduce deductible amounts. These adders will come at an additional premium amount. Renter's insurance is another type of homeowners insurance. Your lender or landlord will likely require you to have homeowners insurance coverage. Where homes are concerned, you don't have coverage or stop paying your insurance bill your mortgage lender is allowed to buy homeowners insurance for you and charge you for it. Auto Insurance Auto insurance can help pay claims if you injure or damage someone else's property in a car accident, help pay for accident-related repairs on your vehicle, or repair or replace your vehicle if stolen, vandalized, or damaged by a natural disaster. Instead of paying out of pocket for auto accidents and damage, people pay annual premiums to an auto insurance company. The company then pays all or most of the covered costs associated with an auto accident or other vehicle damage. If you have a leased vehicle or borrowed money to buy a car, your lender or leasing dealership will likely require you to carry auto insurance. As with homeowners insurance, the lender may purchase insurance for you if necessary. Life Insurance A life insurance policy guarantees that the insurer pays a sum of money to your beneficiaries (such as a spouse or children) if you die. In exchange, you pay premiums during your lifetime. There are two main types of life insurance. Term life insurance covers you for a specific period, such as 10 to 20 years. If you die during that period, your beneficiaries receive a payment. Permanent life insurance covers your whole life as long as you continue paying the premiums. Travel Insurance Travel insurance covers the costs and losses associated with traveling, including trip cancellations or delays, coverage for emergency health care, injuries and evacuations, damaged baggage, rental cars, and rental homes. However, even some of the best travel insurance companies do not cover cancellations or delays due to weather, terrorism, or a pandemic. They also don't often cover injuries from extreme sports or high-adventure activities. What Is Insurance? Insurance is a way to manage your financial risks. When you buy insurance, you purchase protection against unexpected financial losses. The insurance company pays you or someone you choose if something bad occurs. If you have no insurance and an accident happens, you may be responsible for all related costs. Why Is Insurance Important? Insurance helps protect you, your family, and your assets. An insurer will help you cover the costs of unexpected and routine medical bills or hospitalization, accident damage to your car or injury of others, and home damage or theft of your belongings. An insurance policy can even provide your survivors with a lump-sum cash payment if you die. In short, insurance can offer peace of mind regarding unforeseen financial risks. Is Insurance an Asset? Depending on the type of life insurance policy and how it is used, permanent or variable life insurance could be considered a financial asset because it can build cash value or be converted into cash. Simply put, most permanent life insurance policies have the ability to build cash value over time. The Bottom Line Insurance helps to protect you and your family against unexpected financial costs and resulting debts or the risk of losing your assets. Insurance helps protect you from expensive lawsuits, injuries and damages, death, and even total losses of your car or home. Sometimes, your state or lender may require you to carry insurance. Although there are many insurance policy types, some of the most common are life, health, homeowners, and auto. The right type of insurance for you will depend on your goals and financial situation.

https://www.investopedia.com/personal-finance/if-your-kid-18-you-need-these-documents/

If Your Kid Is 18, You Need These Documents

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> When your child turns 18, the experience can be an emotional one. Adulthood suddenly becomes real and it happens a lot sooner than you probably were expecting, especially if your child is still a dependent. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> In addition to the emotional aspects, you'll both come face to face with certain legal realities. Specifically, your rights as a parent diminish when your child turns 18, including the right to know anything about their finances, medical condition, or even school records. That means, for example, that if your child were injured, you wouldn't have the right to make medical decisions on their behalf. There is a remedy to this and it involves having certain legal paperwork in place. These are the documents you need when a child turns 18. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>When your child turns 18, they are considered by law to be an adult and unless you have filed for the appropriate legal paperwork, you will not be entitled to information about their finances, health, or education.</li><li>Anyone over 18 must give written permission for another adult to receive medical information about them, even if the other adult is their parent.</li><li>A medical power of attorney (POA) lets you make decisions about another adult's health if they become incapacitated, while a durable POA allows you to make business decisions for that person.</li><li>A living will gives you the authorization to make decisions for another adult about life-extending medical treatment and organ donations.</li></ul></div></div></div> <span class="heading-toc" id="toc-ferpa-release"></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"> FERPA Release </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Under the Family Educational Rights and Privacy Act, or FERPA, students age 18 or older must provide written consent before education records such as grades, transcripts, and disciplinary records can be shared with parents. This law applies to students who attend a school that receives any funding from the U.S. Department of Education.<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"> Most public high schools, as well as public and private colleges and universities, notify parents about this requirement. Ultimately, though, it is up to you to make sure your child signs a release to give you access to their records.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_12-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_13-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>In most cases, legal documents must be signed, witnessed, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-notary-services-5085059">and notarized</a>.</p></div></div></div> <span class="heading-toc" id="toc-hipaa-authorization"></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"> HIPAA Authorization </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Commonly called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hipaa.asp">HIPAA</a>, the Health Insurance Portability and Accountability Act prevents anyone not named in a signed release from receiving medical information about another adult. It won’t matter that the adult is your child. Your son or daughter can sign a full release or set limits on what information may be shared.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Most experts recommend a full blanket authorization since you may not know in advance the nature of the medical condition of your child. You should have the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hipaa-waiver-authorization.asp">signed authorization</a> in your possession so you can show it to any doctor, hospital, or other medical providers as needed.<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-medical-power-of-attorney"></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"> Medical Power of Attorney </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A medical <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/powerofattorney.asp">power of attorney</a>—sometimes called a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hcpa.asp">healthcare power of attorney</a> or a healthcare proxy—is another document you need when your child turns 18. It is also sometimes called a durable power of attorney for healthcare (as opposed to just a durable power of attorney, which pertains only to business issues). All those designations refer to a document that gives you the ability to make decisions about your child’s healthcare<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Typically, the medical power of attorney doesn’t become active unless your son or daughter is physically or mentally incapable of making his or her own medical decisions—although each state has its own criteria, including whether the document must be witnessed or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/notarize.asp">notarized</a>. A medical power of attorney is not the same as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/livingwill.asp">living will</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-living-will"></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"> Living Will </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/livingwill.asp">living will</a>, also known as an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/advancedirective.asp">advance directive</a>, addresses such things as your child’s wishes regarding life-extending medical treatment and organ donations. Having this document in place can help avoid the potential pain and anguish of different family members being at odds about how to handle a tragedy, such as an automobile accident. </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-durable-power-of-attorney"></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"> Durable Power of Attorney </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Children can also grant their parents a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/powerofattorney.asp">durable power of attorney</a> to handle business for them in the event they become incapacitated, if they are simply out of the country (say, studying abroad) or if, for some other reason, they need you to assist with their affairs. A durable power of attorney allows you to access bank accounts, sign tax returns, renew car registration, and perform other transactions.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Your child can restrict the types of transactions you can perform or grant full access and also grant the power of attorney with a timeline including a starting and stop date. </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-financial-records-access"></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"> Financial Records Access </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> If your child is away at school and all you really want is access to tuition and housing accounts, many colleges allow students to grant such access to parents without the hassle <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/101514/power-attorney-do-you-need-one.asp">of a power of attorney</a>. Of course, any <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/jointaccount.asp">joint accounts</a> that you and your child share are open to you without special permission. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Most of the documents you need when a child turns 18 can be created without hiring a lawyer, although some people choose to involve an attorney to make sure the paperwork is completely accurate. Either way, it’s important to sit down with your child before you ask them to sign anything. Discuss the reason for the document or form, consider your child’s concerns and, in general, do your best to treat them like the adult they have now become. After all, their reaching adulthood is the reason why these documents are necessary. </p></div>

When your child turns 18, the experience can be an emotional one. Adulthood suddenly becomes real and it happens a lot sooner than you probably were expecting, especially if your child is still a dependent. In addition to the emotional aspects, you'll both come face to face with certain legal realities. Specifically, your rights as a parent diminish when your child turns 18, including the right to know anything about their finances, medical condition, or even school records. That means, for example, that if your child were injured, you wouldn't have the right to make medical decisions on their behalf. There is a remedy to this and it involves having certain legal paperwork in place. These are the documents you need when a child turns 18. ### Key Takeaways * When your child turns 18, they are considered by law to be an adult and unless you have filed for the appropriate legal paperwork, you will not be entitled to information about their finances, health, or education. * Anyone over 18 must give written permission for another adult to receive medical information about them, even if the other adult is their parent. * A medical power of attorney (POA) lets you make decisions about another adult's health if they become incapacitated, while a durable POA allows you to make business decisions for that person. * A living will gives you the authorization to make decisions for another adult about life-extending medical treatment and organ donations. ## FERPA Release Under the Family Educational Rights and Privacy Act, or FERPA, students age 18 or older must provide written consent before education records such as grades, transcripts, and disciplinary records can be shared with parents. This law applies to students who attend a school that receives any funding from the U.S. Department of Education. Most public high schools, as well as public and private colleges and universities, notify parents about this requirement. Ultimately, though, it is up to you to make sure your child signs a release to give you access to their records. ### In most cases, legal documents must be signed, witnessed, [and notarized](https://www.investopedia.com/best-online-notary-services-5085059). ## HIPAA Authorization Commonly called [HIPAA](https://www.investopedia.com/terms/h/hipaa.asp), the Health Insurance Portability and Accountability Act prevents anyone not named in a signed release from receiving medical information about another adult. It won’t matter that the adult is your child. Your son or daughter can sign a full release or set limits on what information may be shared. Most experts recommend a full blanket authorization since you may not know in advance the nature of the medical condition of your child. You should have the [signed authorization](https://www.investopedia.com/terms/h/hipaa-waiver-authorization.asp) in your possession so you can show it to any doctor, hospital, or other medical providers as needed. ## Medical Power of Attorney A medical [power of attorney](https://www.investopedia.com/terms/p/powerofattorney.asp)—sometimes called a [healthcare power of attorney](https://www.investopedia.com/terms/h/hcpa.asp) or a healthcare proxy—is another document you need when your child turns 18. It is also sometimes called a durable power of attorney for healthcare (as opposed to just a durable power of attorney, which pertains only to business issues). All those designations refer to a document that gives you the ability to make decisions about your child’s healthcare Typically, the medical power of attorney doesn’t become active unless your son or daughter is physically or mentally incapable of making his or her own medical decisions—although each state has its own criteria, including whether the document must be witnessed or [notarized](https://www.investopedia.com/terms/n/notarize.asp). A medical power of attorney is not the same as a [living will](https://www.investopedia.com/terms/l/livingwill.asp). ## Living Will A [living will](https://www.investopedia.com/terms/l/livingwill.asp), also known as an [advance directive](https://www.investopedia.com/terms/a/advancedirective.asp), addresses such things as your child’s wishes regarding life-extending medical treatment and organ donations. Having this document in place can help avoid the potential pain and anguish of different family members being at odds about how to handle a tragedy, such as an automobile accident. ## Durable Power of Attorney Children can also grant their parents a [durable power of attorney](https://www.investopedia.com/terms/p/powerofattorney.asp) to handle business for them in the event they become incapacitated, if they are simply out of the country (say, studying abroad) or if, for some other reason, they need you to assist with their affairs. A durable power of attorney allows you to access bank accounts, sign tax returns, renew car registration, and perform other transactions. Your child can restrict the types of transactions you can perform or grant full access and also grant the power of attorney with a timeline including a starting and stop date. ## Financial Records Access If your child is away at school and all you really want is access to tuition and housing accounts, many colleges allow students to grant such access to parents without the hassle [of a power of attorney](https://www.investopedia.com/articles/personal-finance/101514/power-attorney-do-you-need-one.asp). Of course, any [joint accounts](https://www.investopedia.com/terms/j/jointaccount.asp) that you and your child share are open to you without special permission. ## The Bottom Line Most of the documents you need when a child turns 18 can be created without hiring a lawyer, although some people choose to involve an attorney to make sure the paperwork is completely accurate. Either way, it’s important to sit down with your child before you ask them to sign anything. Discuss the reason for the document or form, consider your child’s concerns and, in general, do your best to treat them like the adult they have now become. After all, their reaching adulthood is the reason why these documents are necessary.

When your child turns 18, the experience can be an emotional one. Adulthood suddenly becomes real and it happens a lot sooner than you probably were expecting, especially if your child is still a dependent. In addition to the emotional aspects, you'll both come face to face with certain legal realities. Specifically, your rights as a parent diminish when your child turns 18, including the right to know anything about their finances, medical condition, or even school records. That means, for example, that if your child were injured, you wouldn't have the right to make medical decisions on their behalf. There is a remedy to this and it involves having certain legal paperwork in place. These are the documents you need when a child turns 18. Key Takeaways When your child turns 18, they are considered by law to be an adult and unless you have filed for the appropriate legal paperwork, you will not be entitled to information about their finances, health, or education.Anyone over 18 must give written permission for another adult to receive medical information about them, even if the other adult is their parent.A medical power of attorney (POA) lets you make decisions about another adult's health if they become incapacitated, while a durable POA allows you to make business decisions for that person.A living will gives you the authorization to make decisions for another adult about life-extending medical treatment and organ donations. FERPA Release Under the Family Educational Rights and Privacy Act, or FERPA, students age 18 or older must provide written consent before education records such as grades, transcripts, and disciplinary records can be shared with parents. This law applies to students who attend a school that receives any funding from the U.S. Department of Education. Most public high schools, as well as public and private colleges and universities, notify parents about this requirement. Ultimately, though, it is up to you to make sure your child signs a release to give you access to their records. In most cases, legal documents must be signed, witnessed, and notarized. HIPAA Authorization Commonly called HIPAA, the Health Insurance Portability and Accountability Act prevents anyone not named in a signed release from receiving medical information about another adult. It won’t matter that the adult is your child. Your son or daughter can sign a full release or set limits on what information may be shared. Most experts recommend a full blanket authorization since you may not know in advance the nature of the medical condition of your child. You should have the signed authorization in your possession so you can show it to any doctor, hospital, or other medical providers as needed. Medical Power of Attorney A medical power of attorney—sometimes called a healthcare power of attorney or a healthcare proxy—is another document you need when your child turns 18. It is also sometimes called a durable power of attorney for healthcare (as opposed to just a durable power of attorney, which pertains only to business issues). All those designations refer to a document that gives you the ability to make decisions about your child’s healthcare Typically, the medical power of attorney doesn’t become active unless your son or daughter is physically or mentally incapable of making his or her own medical decisions—although each state has its own criteria, including whether the document must be witnessed or notarized. A medical power of attorney is not the same as a living will. Living Will A living will, also known as an advance directive, addresses such things as your child’s wishes regarding life-extending medical treatment and organ donations. Having this document in place can help avoid the potential pain and anguish of different family members being at odds about how to handle a tragedy, such as an automobile accident. Durable Power of Attorney Children can also grant their parents a durable power of attorney to handle business for them in the event they become incapacitated, if they are simply out of the country (say, studying abroad) or if, for some other reason, they need you to assist with their affairs. A durable power of attorney allows you to access bank accounts, sign tax returns, renew car registration, and perform other transactions. Your child can restrict the types of transactions you can perform or grant full access and also grant the power of attorney with a timeline including a starting and stop date. Financial Records Access If your child is away at school and all you really want is access to tuition and housing accounts, many colleges allow students to grant such access to parents without the hassle of a power of attorney. Of course, any joint accounts that you and your child share are open to you without special permission. The Bottom Line Most of the documents you need when a child turns 18 can be created without hiring a lawyer, although some people choose to involve an attorney to make sure the paperwork is completely accurate. Either way, it’s important to sit down with your child before you ask them to sign anything. Discuss the reason for the document or form, consider your child’s concerns and, in general, do your best to treat them like the adult they have now become. After all, their reaching adulthood is the reason why these documents are necessary.

https://www.investopedia.com/national-debt-relief-review-5092836

National Debt Relief Review 2024

<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <svg class="mntl-svg-resource is-hidden"> <defs> <symbol id="star-icon"><svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg></symbol> </defs> </svg> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp product-review-content product-review-content--finance product-review--base" id="product-review-content--finance_1-0"> <div class="comp js-toc-appear article-container article-intro mntl-block" id="article-intro_1-0"> <div class="comp product-card" data-tracking-container="true" data-tracking-id="product-card" id="product-card_1-0" style="--imgWidth: 0px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp 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primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/Nf3O9dXNJXaFev-kf8tBFqQDmJ0=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/National-Debt-Relief-logo-b620f9f8d31a47f1ab5b24e62eb66ee1.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_1-0"> <span class="figure-article-caption-owner"><p>National Debt Relief</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp product-card__rating card-rating--finance product-rating" id="product-card__rating_1-0"> <span class="product-rating__rating-label noskim"> Investopedia’s Rating </span> <div alt="4.8 out of 5 stars" class="comp star-rating" id="star-rating_1-0"> <span class="star-rating__label">4.8</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_1-0" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="70%" stop-color="#333e8b"></stop> <stop offset="70%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-empty star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: url(#linear-star-rating_1-0);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp product-card__rating card-rating--finance product-rating --> <div class="comp js-sticky-riser-show product-card__cta commerce-block mntl-block" id="product-card__cta_1-0"> <a class="commerce-button mntl-text-link" data-affiliate-link-rewriter="aff_sub=${DOC_ID}&amp;aff_sub2=${REQUEST_ID}" data-tracking-container="false" href="https://www.ndrtracking.com/aff_c?offer_id=75&amp;aff_id=2150&amp;url_id=505&amp;aff_sub=investopedia" id="commerce-button_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Get a Quote</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp js-sticky-riser-show product-card__cta commerce-block mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> <strong>Our Take</strong> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-1"> Debt settlement is a risky and costly way to deal with debt, but National Debt Relief we ranked it as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-debt-relief-companies-4846588">best debt relief company</a> if you want to pursue it. Its fees are quite low, it services common forms of problem debt (like credit card debt), and it’s available in most of the country. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block" data-click-action="Product Tab Click" data-tracking-container="true" data-tracking-id="Full Product Review"> <ul class="tabbed-sc-block__tabs"> <li class="tabbed-sc-block__tab js-tabbed-tab is-active is-initial-load" data-tab-index="1"><span class="tabbed-sc-block__title">Pros &amp; Cons</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="2"><span class="tabbed-sc-block__title">Key Takeaways</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="3"><span class="tabbed-sc-block__title">Company Overview</span></li> </ul> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content is-active is-initial-load" data-tab-index="1"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_1-0-3"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Has multiple accreditations</p></li> <li><p>Customer support usually available</p></li> <li><p>Good customer reviews and ratings</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>Not available in all states</p></li> <li><p>Provides inconsistent information</p></li> <li><p>Some concerning reports of bad outcomes</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Key Takeaways</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="2"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-5"> <li>National Debt Relief is based in New York City and has been operating there since 2009.</li><li>According to National Debt Relief, the average client settles their debt for 46% less than they first owed, but that drops down to 25% after accounting for National Debt Relief’s fees. </li><li>Debt settlement is only available for unsecured debts like credit cards and personal loans. </li><li>National Debt Relief requires at least $7,500 of unsecured debt to begin a settlement program, but there’s no maximum debt limit.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Company Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-7"> National Debt Relief was established in 2009 when one of the company’s co-founders ran into problems managing their debt. They turned it into a for-profit business, based in New York City, which has worked with over 550,000 clients to settle their debt for less than they owe. It currently offers services in every U.S. state except Oregon, Vermont, and West Virginia. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-8"> The company has scores of positive reviews online. However, tucked in amongst these glowing reviews, you’ll find many cases of unhappy customers.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_1-0-9"> <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"> 2009 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">State Availability</span> <span class="definition-list__item-content definition-list__item-content-1"> All states and DC, except Ore., Vt., and W.Va </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Services Offered</span> <span class="definition-list__item-content definition-list__item-content-2"> Debt settlement, debt consolidation loans </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Debt Settlement Fee</span> <span class="definition-list__item-content definition-list__item-content-3"> 15–25% of settled debt </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Minimum Debt Required</span> <span class="definition-list__item-content definition-list__item-content-4"> $7,500 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Maximum Debt Allowed</span> <span class="definition-list__item-content definition-list__item-content-5"> No maximum limit </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Phone Number</span> <span class="definition-list__item-content definition-list__item-content-6"> (800) 300-9550 </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 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url('data:image/gif;charset=utf-8;base64,R0lGODlhEQAEAPQAABMaNiknPxYjSR8gTx4kTRwhUykfUyEiQiAlRCUmVSEpUHBwjJkTI64AFa8AGLoAGLsAH7MAIdLY3OLj9+bi9/b1+vr78vr+//r////9//7////+/////xMaNhMaNhMaNiwAAAAAEQAEAEQINgAjMHDAoSCHCRMkcEBAwSAHCAAOOJw40cKDBhQ5GOCgoEKCBQU3FCh4AQMHAhoKCggwIEOGgAA7')" width="1500"/> <noscript> <img alt="National Debt Relief logo" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/Nf3O9dXNJXaFev-kf8tBFqQDmJ0=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/National-Debt-Relief-logo-b620f9f8d31a47f1ab5b24e62eb66ee1.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_2-0"> <span class="figure-article-caption-owner"><p>National Debt Relief</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__rating product-rating" id="sticky-toc-widget__rating_1-0"> <span class="product-rating__rating-label noskim"> overall rating </span> <div alt="4.8 out of 5 stars" class="comp star-rating" id="star-rating_1-0-1"> <span class="star-rating__label">4.8</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" 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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-National Debt Relief Review 2024" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_6-0"> National Debt Relief Review 2024</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_3-0"> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pros and Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-and-cons-explained" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Pros and 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_3-0-1"> <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-How National Debt Relief Works" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-national-debt-relief-works" id="mntl-toc__list-item-link_3-0-1" rel="nocaes"><span class="link__wrapper">How National Debt Relief Works</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-Accreditations" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-accreditations" id="mntl-toc__list-item-link_3-0-2" rel="nocaes"><span class="link__wrapper">Accreditations</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-How to Enroll" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-enroll-with-national-debt-relief" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">How to Enroll</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-Types of Debt Addressed" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-types-of-debt-addressed" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Types of Debt Addressed</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-Expected Cost" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-expected-cost" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">Expected 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_3-0-6"> <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-Expected Relief Amount" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-expected-relief-amount" id="mntl-toc__list-item-link_3-0-6" rel="nocaes"><span class="link__wrapper">Expected Relief Amount</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-Expected Time to Complete the Program" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-expected-time-to-complete-the-program" id="mntl-toc__list-item-link_3-0-7" rel="nocaes"><span class="link__wrapper">Expected Time to Complete the Program</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-Additional Services" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-additional-services" id="mntl-toc__list-item-link_3-0-8" rel="nocaes"><span class="link__wrapper">Additional Services</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-9"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-9"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Client Dashboard" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-client-dashboard" id="mntl-toc__list-item-link_3-0-9" rel="nocaes"><span class="link__wrapper">Client Dashboard</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-10"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-10"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Service" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-customer-service" id="mntl-toc__list-item-link_3-0-10" 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_3-0-11"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-11"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Satisfaction" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-customer-satisfaction-and-reviews" id="mntl-toc__list-item-link_3-0-11" rel="nocaes"><span class="link__wrapper">Customer Satisfaction</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-12"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-12"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Alternatives" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-national-debt-relief-vs-pacific-debt-relief-vs-accredited-debt-relief" id="mntl-toc__list-item-link_3-0-12" rel="nocaes"><span class="link__wrapper">Alternatives</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-13"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-13"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Is Debt Settlement Worth It?" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-is-debt-settlement-worth-it" id="mntl-toc__list-item-link_3-0-13" rel="nocaes"><span class="link__wrapper">Is Debt Settlement Worth It?</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_3-0-14"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-14"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-The Bottom Line" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-the-bottom-line" id="mntl-toc__list-item-link_3-0-14" rel="nocaes"><span class="link__wrapper">The Bottom Line</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-15"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-15"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-FAQs" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-frequently-asked-questions-faqs" id="mntl-toc__list-item-link_3-0-15" rel="nocaes"><span class="link__wrapper">FAQs</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-16"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-16"> <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-determine-the-best-debt-relief-companies" id="mntl-toc__list-item-link_3-0-16" 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-and-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"> <span class="mntl-sc-block-heading__text"> Pros and Cons Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-1"> <span class="mntl-sc-block-subheading__text"> Pros </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-2"> <li><strong>Has multiple accreditations:</strong> National Debt Relief is accredited by multiple organizations within the debt relief industry.</li><li><strong>Customer support usually available:</strong> Customer support is actually available for more hours each day than it’s closed (for general inquiries), so it should be easy to contact someone if you have questions or concerns. Support hours for current clients are more limited, however.</li><li><strong>Good customer reviews and ratings:</strong> Most people on third-party rating sites report good success and were happy overall with National Debt Relief’s services.<span class="ql-inline-citation" data-cite="15"></span><span class="ql-inline-citation" data-cite="1"></span></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_2-0-3"> <span class="mntl-sc-block-subheading__text"> Cons </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-4"> <li><strong>Not available in all states:</strong> National Debt Relief is widely available, but residents of Oregon, Vermont, and West Virginia will need to look elsewhere for debt settlement options. </li><li><strong>Provides inconsistent information:</strong> The company’s website is filled with contradictory information and inaccuracies, raising a red flag about the information you’ll get when you contact the company. The website states, for example, that “As soon as you sign the agreement, you’ll no longer be required to pay your creditors.” But this is not true—you’re obligated to pay your debts under the agreements you make with creditors, unless those debts are forgiven or settled, and creditors can take you to court for overdue debts.<span class="ql-inline-citation" data-cite="16"></span></li><li><strong>Some concerning reports of bad outcomes:</strong> Although National Debt Relief has overall positive ratings, some unhappy customers tell similar stories of National Debt Relief bumping the required monthly deposit up by several hundred dollars months into the program, extra “legal” and “accounting” fees tacked onto their bill, and even unexpected invoices for several thousand dollars due in a month’s time.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-5"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>Debt settlement is risky because it’s not guaranteed, it causes significant credit damage, it may result in high tax bills, and your creditors could sue you.<span class="ql-inline-citation" data-cite="17"></span></p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-how-national-debt-relief-works"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-6"> <span class="mntl-sc-block-heading__text"> How National Debt Relief Works </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_2-0-7"> National Debt Relief operates similarly to other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-does-credit-card-debt-relief-work-8426359">debt settlement companies</a>. Everyone who contacts the company gets a free consultation. According to NDR, a representative will offer “financial counseling and guidance,” and help you develop a budget. It’s not a true <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-counseling.asp">credit counseling agency</a> offering comprehensive support, however; it’s a for-profit company that offers debt settlement.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-8"> The representative will check if you meet National Debt Relief’s requirements to get started, which include being at least several months past due on at least $7,500 in unsecured debt, having the ability to make monthly deposits into a savings account, and having some sort of long-term financial hardship, such as medical bills or job loss. In some cases, you may be referred to its partner lender, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reach-financial-personal-loans-review-8383953">Reach Financial</a>, for a debt consolidation loan. Otherwise, the rep will explain how its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/debt-settlement-cheapest-way-get-out-debt/">debt settlement process works</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_2-0-9"> All debt settlement follows a similar script, National Debt Relief included. You’ll be advised to not make any payments to your creditors and instead funnel money into a third-party, FDIC-insured account each month. After a few months, National Debt Relief will try to negotiate a lump-sum payment with your creditors using the funds you’ve been saving up. You’ll get the final say in approving any negotiated offers, and if you give it the green light, National Debt Relief will pull the money out of the account, pay the settlement(s), and charge you a fee.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-10"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>The company claims to offer a satisfaction guarantee, but once you approve a settlement, you can’t get your money back. Since you don’t technically pay anything to National Debt Relief itself until after this happens, it’s sort of a meaningless statement—especially if you run into more problems down the line, as is possible with debt settlement programs. </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-accreditations"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-11"> <span class="mntl-sc-block-heading__text"> Accreditations </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_2-0-12"> National Debt Relief is accredited or certified by three different organizations: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-13"> <li>American Association for Debt Resolution (AADR)</li><li>International Association of Professional Debt Arbitrators (IAPDA)</li><li>Better Business Bureau (BBB)</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_2-0-14"> Take note that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-the-better-business-bureau-5024818">BBB accreditation</a> is not based directly on a company’s performance, but rather on other metrics like how the company handles BBB complaints. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-enroll-with-national-debt-relief"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-15"> <span class="mntl-sc-block-heading__text"> How to Enroll With National Debt Relief </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_2-0-16"> National Debt Relief makes it easy to start the process. Here’s how it’ll work: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ol class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-17"> <li><strong>Contact the company:</strong> You can call NDR at (800) 300-9550, or fill out an online form to submit more information and have a company representative reach out to you.</li> <li><strong>Explore your options:</strong> The company may decide to offer you a debt settlement plan, or you may be referred to its partner lender for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtconsolidation.asp">debt consolidation loan</a>. The company also states that you may be referred for other services, such as credit counseling, and—in some states—to a bankruptcy lawyer or tax professional.  </li> <li><strong>Open a savings account:</strong> If you proceed with debt settlement, you won’t make payments to National Debt Relief directly; instead, you’ll be required to open an FDIC-insured account where you’ll save up your payments. National Debt Relief recommends a specific company (Global Holdings) for this purpose, but you can choose any account you want.</li> <li><strong>Contribute to your account:</strong> National Debt Relief will recommend that you set aside a certain amount of money every month in this account, which you retain control over. After a few months, it’ll start contacting creditors to negotiate a settlement using these funds.</li> </ol><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-types-of-debt-addressed"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-18"> <span class="mntl-sc-block-heading__text"> Types of Debt Addressed </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_2-0-19"> In general, only one type of debt is usually eligible to be enrolled in a debt settlement program with National Debt Relief or any other company: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/110614/what-difference-between-secured-and-unsecured-debts.asp">unsecured debt</a>. Two popular forms of unsecured debt are certain loans and credit card balances. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-20"> <span class="mntl-sc-block-subheading__text"> Unsecured Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-21"> Any debts that aren’t <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredloan.asp">backed by collateral</a> are eligible for debt settlement. This includes personal signature loans, unsecured business debts, medical bills, and private student loans. Some of these debts may be easier to settle than others. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/settle-student-loan-debt-guide-8547140">Private student loans</a>, for example, may be more difficult to negotiate because creditors know it’s more difficult to get rid of them if you eventually file for bankruptcy.<span class="ql-inline-citation" data-cite="18"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-22"> <span class="mntl-sc-block-subheading__text"> Credit Card Debt </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"> Credit cards are a common source of debt for many people, and you can include them in a debt settlement plan. You generally won’t be able to use credit cards you enroll in a settlement plan once you start the program, however. Most creditors will close your card once you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default on your debt</a>.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-expected-cost"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-24"> <span class="mntl-sc-block-heading__text"> Expected Cost </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-25"> The overall cost of using National Debt Relief is fairly straightforward, but when it comes to specifics and other fees you’ll have to pay, it gets blurrier. National Debt Relief charges 15% to 25% of any debt that it’s able to settle. The specific amount depends on how much debt you have and which state you live in. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-26"> It’s unclear how you pay that fee. The company states on its website that “All of our fees are included in your monthly program payment that is deposited into your FDIC insured account,” while simultaneously saying elsewhere that they “never use your escrow account money to pay your fee." Some customer complaints on review websites have mentioned receiving a surprise multi-thousand-dollar bill in the mail after agreeing to a debt settlement.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-27"> That’s how much National Debt Relief<em> </em>itself charges, but you may be required to pay fees to other companies as part of the service, and NDR doesn’t provide any information on its website about how much this costs. For example, if you open a savings account through NDR’s partner, Global Holdings, you may have to pay a fee. Some customers also report to the BBB about being charged extra “legal” and “accounting” fees they didn’t expect.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-expected-relief-amount"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-28"> <span class="mntl-sc-block-heading__text"> Expected Relief Amount </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-29"> National Debt Relief is generally able to negotiate a settlement for 46% of an average client’s starting debt, according to the company, dropping down to 25% after the company takes its fees. However, NDR doesn’t provide any information about how many people drop out before they reach the end.  </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"> Depending on the settlement that National Debt Relief is able to reach, you may end up paying a lump sum from your dedicated savings account, or you may enroll in a structured payment plan. Payment plans typically make up about 58% of settlement offers from these types of companies, as reported in a 2020 report by the American Fair Credit Council.<span class="ql-inline-citation" data-cite="19"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-expected-time-to-complete-the-program"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-31"> <span class="mntl-sc-block-heading__text"> Expected Time to Complete the Program </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_2-0-32"> The company does not provide information on how long the average customer takes to complete the program. Some customers may finish in one year, while others may take four years or longer. It all depends on how much debt you have, whether your creditors are willing to negotiate, how much you can save each month, and other factors.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-33"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-2"> <p>According to the Federal Trade Commission (FTC), about half of people who enroll in a debt settlement program drop out for various reasons, such as not being happy with the results or not being able to afford the payments. This is better than the drop-out rates for debt management plans (21%) and bankruptcy (33%), however.<span class="ql-inline-citation" data-cite="20"></span></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-additional-services"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-34"> <span class="mntl-sc-block-heading__text"> Additional Services </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_2-0-35"> National Debt Relief offers a couple of other helpful things: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-36"> <li>Financial calculators and educational resources</li> <li>Referrals for debt consolidation loans through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reach-financial-personal-loans-review-8383953">Reach Financial</a>, as well as legal and tax assistance</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-client-dashboard"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-37"> <span class="mntl-sc-block-heading__text"> Client Dashboard </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_2-0-38"> You’ll get access to an online account if you sign up with National Debt Relief. It doesn’t provide any details on what you can do or monitor with the account, however, and you’ll need an additional login for the savings account you’ll use to build your lump-sum payment.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-customer-service"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-39"> <span class="mntl-sc-block-heading__text"> Customer Service </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-40"> No matter when you work, it should be easy to get ahold of someone at the company given its wide-open business hours. Depending on where you live, you may see a different phone number on the website, but either should work. </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> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Method</b></th> <th><b>Contact</b></th> <th><b>Availability</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Telephone (General Inquiries)</b></td> <td>(800) 300-9550</td> <td>Weekdays: 8 a.m.–12 a.m. ET Weekends: 8 a.m.–10 p.m. ET</td> </tr> <tr> <td><b>Telephone (Current Clients)</b></td> <td>(888) 660-7427</td> <td>Weekdays: 10 a.m.–8 p.m. ET</td> </tr> <tr> <td><b>Email</b></td> <td>[email protected]</td> <td>24/7</td> </tr> <tr> <td><b>X</b></td> <td>@NationalRelief_</td> <td>24/7</td> </tr> <tr> <td><b>Facebook</b></td> <td>National Debt Relief</td> <td>24/7</td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <span class="heading-toc" id="toc-customer-satisfaction-and-reviews"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-42"> <span class="mntl-sc-block-heading__text"> Customer Satisfaction and Reviews </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-43"> National Debt Relief has amassed a surprisingly high number of positive reviews online, gaining thousands of loyal followers: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-44"> <li><strong>Google:</strong> 4.6 stars, based on 7,350 reviews<span class="ql-inline-citation" data-cite="21"></span></li><li><strong>Trustpilot:</strong> 4.7 stars, based on 39,067 reviews<span class="ql-inline-citation" data-cite="15"></span></li><li><strong>Better Business Bureau:</strong> 4.72 stars based on 3,292 reviews<span class="ql-inline-citation" data-cite="1"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-45"> However, lurking under these scores of good reviews are disturbing reports that shine a light on some of the major drawbacks of debt settlement. We found reports of people being charged extra fees they didn’t expect, receiving bills for thousands of dollars they weren’t prepared for, and being sued by creditors.  </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"> Reviewers on some websites, such as Yelp, only give the company 1.6 stars overall (based on only 125 reviews). </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-national-debt-relief-vs-pacific-debt-relief-vs-accredited-debt-relief"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-47"> <span class="mntl-sc-block-heading__text"> National Debt Relief vs. Pacific Debt Relief vs. Accredited Debt Relief </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-48"> <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> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th></th> <th><b><a class="null" data-affiliate-link-rewriter="aff_sub=${DOC_ID}&amp;aff_sub2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ndrtracking.com/aff_c?offer_id=75&amp;aff_id=2150&amp;url_id=505&amp;aff_sub=investopedia" rel="noopener noreferrer sponsored nofollow">National Debt Relief</a></b></th> <th><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://track.supermoney.com/aff_c?offer_id=1856&amp;aff_id=1715&amp;featured-product=pacific-debt" rel="noopener noreferrer sponsored nofollow">Pacific Debt Relief</a></b></th> <th><b><a class="null" data-affiliate-link-rewriter="s1=${DOC_ID}&amp;s2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://trkac1.com/?a=443&amp;c=15&amp;campaign_id=2264&amp;utm_medium=affiliate&amp;utm_source=443&amp;utm_campaign=09-2264&amp;s1=4846588&amp;s2=n4e0d6823ea294cf7abee368625bb313114" rel="noopener noreferrer sponsored nofollow">Accredited Debt Relief</a></b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Services Offered</b></td> <td>Debt settlement, debt consolidation loans</td> <td>Debt settlement, debt consolidation loans</td> <td>Debt settlement, debt consolidation loans</td> </tr> <tr> <td><b>Debt Settlement Fee</b></td> <td>15%–25% of settled debt</td> <td>15%–25% of settled debt</td> <td>15%–25% of settled debt</td> </tr> <tr> <td><b>Minimum Debt Required</b></td> <td>$7,500</td> <td>$10,000</td> <td>$10,000</td> </tr> <tr> <td><b>Maximum Debt Allowed</b></td> <td>No maximum limit</td> <td>No maximum limit</td> <td>No maximum limit</td> </tr> <tr> <td><b>Accreditations</b></td> <td>AADR, IAPDA, BBB</td> <td>IAPDA, CDRI, BBB</td> <td>AADR, IAPDA, CDRI, BBB</td> </tr> <tr> <td><b>Year Established</b></td> <td>2009</td> <td>2002</td> <td>2001</td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-49"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-3"> <p>National Debt Relief is a top-rated debt settlement company, but it still has some issues. Explore other debt relief companies, including options for debt management plans through credit counseling:</p> <ul> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-debt-relief-companies-4846588">Best Debt Relief Companies</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-counseling-services-5179499">Best Credit Counseling Companies</a></li> </ul></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-is-debt-settlement-worth-it"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-50"> <span class="mntl-sc-block-heading__text"> Is Debt Settlement Worth It? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-51"> Debt settlement companies don’t offer anything <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/debt-settlement.asp">you can’t do yourself</a>. If settling your debt for less is what’s best for you, there are many resources available showing you how to do it for free, if you’re willing and able to invest a little time. However, most experts agree that debt settlement may be more harmful than helpful unless you’re prepared to deal with the significant drawbacks—and there are many.<span class="ql-inline-citation" data-cite="23"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-52"> It’s also not guaranteed to work. Creditors aren’t required to settle your debts. In fact, the FTC reports that creditors end up filing lawsuits against nearly 1 out of every 10 people trying to settle their debt, which can eventually cause wage garnishments, liens on your home, etc. It’s one of the reasons why half of people end up dropping out of debt settlement programs entirely.<span class="ql-inline-citation" data-cite="20"></span>  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-53"> What <em>is</em> guaranteed is long-term credit damage. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-choose-a-debt-settlement-company-8549390">Debt settlement companies</a> tend to skirt around the fact that you’ll need to intentionally default on your debts so they can negotiate a settlement. Defaulted debts will remain listed on your credit reports for the next seven years. This will <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/110614/how-will-debt-settlement-affect-my-credit-score.asp">tank your credit score</a> and make lenders wary of approving you for any further credit.<span class="ql-inline-citation" data-cite="24"></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_2-0-54"> However, if you’re dealing with unmanageable debt, your credit may be suffering already, or you may start missing full payments. And other methods of debt forgiveness, like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/07/bankruptcy.asp">bankruptcy</a>, also have serious credit implications. Take the time to explore <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-debt-relief-7514809">all your possible debt relief options</a> and try to find one with the least downside and the most upside. Consider seeking a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-counseling-services-5179499">nonprofit credit counselor</a> for help. </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_2-0-55"> <span class="mntl-sc-block-subheading__text"> Is Debt Relief Through Debt Settlement Taxable? </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_2-0-56"> Generally, settled debt is taxable. Any debts that your creditors forgive through debt settlement must be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-avoid-paying-taxes-on-debt-settlement-8419039">reported as taxable income</a> on your tax return. Depending on your situation, that could result in hundreds or thousands more on an unexpected tax bill.<span class="ql-inline-citation" data-cite="23"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-the-bottom-line"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-57"> <span class="mntl-sc-block-heading__text"> The Bottom Line </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_2-0-58"> National Debt Relief is one of the best companies when it comes to debt settlement—but debt settlement is risky, and it’s costly even when it’s successful. Debt settlement companies like NDR can and do provide help to people who need it. But if you choose debt settlement, you should understand exactly what you’re getting into and the possible consequences. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-frequently-asked-questions-faqs"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-59"> <span class="mntl-sc-block-heading__text"> Frequently Asked Questions (FAQs) </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-60"> <span class="mntl-sc-block-subheading__text"> Is National Debt Relief Legit? </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_2-0-61"> National Debt Relief is a legitimate company providing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt-relief.asp">debt relief services</a>. The company was founded in 2009 and is a member of the American Association for Debt Resolution (AADR). It’s certified by the International Association of Professional Debt Arbitrators (IAPDA), and is accredited by the BBB.  </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_2-0-62"> <span class="mntl-sc-block-subheading__text"> How Much Does National Debt Relief Cost? </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_2-0-63"> National Debt Relief charges 15% to 25% of the debt that it’s able to settle. It doesn’t mention how much its partner companies charge for required services, such as monthly charges for a savings account. It also doesn’t delve into the secondary <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-does-a-debt-relief-program-cost-7371803">costs of debt settlement</a>, such as potential legal fees to defend you from creditor lawsuits, extra taxes on forgiven debt, long-term credit damage, or the extra fees and interest that build up on debt it’s not able to successfully settle.  </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_2-0-64"> <span class="mntl-sc-block-subheading__text"> Does National Debt Relief Hurt Your Credit? </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_2-0-65"> Enrolling in any debt settlement program can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/110614/how-will-debt-settlement-affect-my-credit-score.asp">hurt your credit score</a> depending on how your credit information changes while you're in the program. Because you stop making payments to settle your debts, late payments and rising balances can cause your credit score to drop. If you already have multiple delinquencies, your credit score may not decline as much as someone with an excellent credit score.<span class="ql-inline-citation" data-cite="24"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-66"> <span class="mntl-sc-block-subheading__text"> Does National Debt Relief Work With IRS Debt? </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_2-0-67"> On its website, National Debt Relief lists back taxes as one of the debts it cannot help with. As such, the company doesn't work with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/021214/why-do-so-many-people-fall-behind-their-taxes.asp">IRS debt</a>. </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_2-0-68"> <span class="mntl-sc-block-subheading__text"> Who Is Eligible for National Debt Relief? </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_2-0-69"> You will need to meet a few qualifications to work with National Debt Relief: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-70"> <li>You must live in a state where services are offered (all states except Oregon, Vermont, and West Virginia).</li> <li>You must have at least $7,500 in unsecured debt.</li> <li>You must be behind on payments.</li> <li>You must be experiencing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial_distress.asp">financial hardship</a> and can't afford regular payments.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-we-determine-the-best-debt-relief-companies"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-71"> <span class="mntl-sc-block-heading__text"> How We Determine the Best Debt Relief Companies </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_2-0-72"> To determine the best debt relief companies, we reviewed various databases, competitive analyses, consumer behavior, and more, ultimately narrowing down the list to 40 companies that offered debt settlement and/or credit counseling services. We developed a quantitative model in which we identified 53 important criteria across five categories. We weighted each category as follows for this article: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-73"> <li><strong>Costs and fees</strong>: 41.00%</li><li><strong>Availability</strong>: 22.50%</li><li><strong>Reputation and stability</strong>: 19.00%</li><li><strong>Customer experience</strong>: 9.50%</li><li><strong>Services</strong>: 8.00%</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_2-0-74"> We then gathered data for the 53 criteria directly from companies via websites, media contacts, and existing partnerships. Data was collected between Oct. 19, 2023, and Dec. 18, 2023. This resulted in over 2,000 data points in our rubric, which we used to score and determine the best debt relief companies (including debt settlement and credit counseling services) for people looking to manage and get out of debt. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-75"> To learn more about our process for finding the best debt relief companies, read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/debt-relief-review-methodology-5116156">full methodology</a>. </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_2-0-76"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="aff_sub=${DOC_ID}&amp;aff_sub2=${REQUEST_ID}" data-retailer-type="other" data-tracking-container="true" href="https://www.ndrtracking.com/aff_c?offer_id=75&amp;aff_id=2150&amp;url_id=505&amp;aff_sub=investopedia" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Get a Quote</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </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-15"><p>Trustpilot. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.trustpilot.com/review/www.nationaldebtrelief.com">National Debt Relief</a>."</p></li> <li class="mntl-sources__source" id="citation-1"><p>Better Business Bureau. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bbb.org/us/ny/new-york/profile/credit-and-debt-counseling/national-debt-relief-llc-0121-110899">National Debt Relief</a>."</p></li> <li class="mntl-sources__source" id="citation-16"><p>Consumer Financial Protection Bureau. "<a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/ask-cfpb/what-should-i-do-if-im-sued-by-a-debt-collector-or-creditor-en-334/">What Should I Do If I’m Sued by a Debt Collector or Creditor?</a>"</p></li> <li class="mntl-sources__source" id="citation-17"><p>Consumer Financial Protection Bureau. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/ask-cfpb/whats-the-difference-between-a-credit-counselor-and-a-debt-settlement-or-debt-relief-company-en-1449/">What's the Difference Between a Credit Counselor and a Debt Settlement or Debt Relief Company?</a>"</p></li> <li class="mntl-sources__source" id="citation-18"><p>Consumer Financial Protection Bureau. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/ask-cfpb/what-are-the-signs-of-a-student-loan-scam-en-2100/">What Are the Signs of a Student Loan Scam?</a>"</p></li> <li class="mntl-sources__source" id="citation-19"><p>American Fair Credit Council. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ghllc.com/wp-content/uploads/2021/02/Options-for-Consumers-Mar-2020.pdf">Options for Consumers in Crisis: An Updated Economic Analysis of the Debt Settlement Industry</a>."</p></li> <li class="mntl-sources__source" id="citation-20"><p>Federal Trade Commission. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ftc.gov/sites/default/files/documents/public_comments/debt-settlement-industry-public-workshop-536796-00014/536796-00014.pdf">The Association of Settlement Companies (TASC) Study on the Debt Settlement Industry</a>."</p></li> <li class="mntl-sources__source" id="citation-21"><p>Google. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.google.com/search?q=national+debt+relief&amp;sca_esv=6459c9e3b5d5a0f2&amp;sca_upv=1&amp;sxsrf=ACQVn08i9AlGccnQVRh7yHWah1wbBLqMRQ%3A1709246455557&amp;ei=9wfhZeLGIdK_0PEPu7eMwAI&amp;ved=0ahUKEwiinsSez9GEAxXSHzQIHbsbAygQ4dUDCBE&amp;uact=5&amp;oq=national+debt+relief&amp;gs_lp=Egxnd3Mtd2l6LXNlcnAiFG5hdGlvbmFsIGRlYnQgcmVsaWVmMgoQIxiABBiKBRgnMhYQLhiABBiKBRhDGLEDGIMBGMcBGK8BMgUQABiABDIFEAAYgAQyBRAAGIAEMgsQABiABBiKBRiRAjIFEAAYgAQyBRAAGIAEMgYQABgHGB4yBRAAGIAEMiUQLhiABBiKBRhDGLEDGIMBGMcBGK8BGJcFGNwEGN4EGOAE2AEBSL0XUNUMWOcUcAF4AJABAJgBW6ABogGqAQEyuAEDyAEA-AEBmAICoAKyAZgDAIgGAboGBggBEAEYFJIHAzEuMQ&amp;sclient=gws-wiz-serp#lrd=0x89c25a11672d28bb:0x2055c400f8459a0b,1,,,">National Debt Relief</a>."</p></li> <li class="mntl-sources__source" id="citation-23"><p>Consumer Financial Protection Bureau. "<a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-relief-program-and-how-do-i-know-if-i-should-use-one-en-1457/">What Is a Debt Relief Program and How Do I Know If I Should Use One?</a>"</p></li> <li class="mntl-sources__source" id="citation-24"><p>Experian. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.experian.com/blogs/ask-experian/debt-settlement-vs-debt-management-programs/" rel="nofollow sponsored">Debt Settlement vs. Debt Management: Which Is Better?</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="8634745" data-ordinal="1" data-tax-levels="" 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:fill(white):max_bytes(150000):strip_icc()/National-Debt-Relief-logo-b620f9f8d31a47f1ab5b24e62eb66ee1.jpg) :fill(white):max_bytes(150000):strip_icc()/National-Debt-Relief-logo-b620f9f8d31a47f1ab5b24e62eb66ee1.jpg) National Debt Relief Investopedia’s Rating 4.8 [Get a Quote](https://www.ndrtracking.com/aff_c?offer_id=75&aff_id=2150&url_id=505&aff_sub=investopedia) **Our Take** Debt settlement is a risky and costly way to deal with debt, but National Debt Relief we ranked it as the [best debt relief company](https://www.investopedia.com/best-debt-relief-companies-4846588) if you want to pursue it. Its fees are quite low, it services common forms of problem debt (like credit card debt), and it’s available in most of the country. * Pros & Cons * Key Takeaways * Company Overview Pros & Cons Pros * Has multiple accreditations * Customer support usually available * Good customer reviews and ratings Cons * Not available in all states * Provides inconsistent information * Some concerning reports of bad outcomes Key Takeaways * National Debt Relief is based in New York City and has been operating there since 2009. * According to National Debt Relief, the average client settles their debt for 46% less than they first owed, but that drops down to 25% after accounting for National Debt Relief’s fees. * Debt settlement is only available for unsecured debts like credit cards and personal loans. * National Debt Relief requires at least $7,500 of unsecured debt to begin a settlement program, but there’s no maximum debt limit. Company Overview National Debt Relief was established in 2009 when one of the company’s co-founders ran into problems managing their debt. They turned it into a for-profit business, based in New York City, which has worked with over 550,000 clients to settle their debt for less than they owe. It currently offers services in every U.S. state except Oregon, Vermont, and West Virginia. The company has scores of positive reviews online. However, tucked in amongst these glowing reviews, you’ll find many cases of unhappy customers.  * Year Founded 2009 * State Availability All states and DC, except Ore., Vt., and W.Va * Services Offered Debt settlement, debt consolidation loans * Debt Settlement Fee 15–25% of settled debt * Minimum Debt Required $7,500 * Maximum Debt Allowed No maximum limit * Phone Number (800) 300-9550 :fill(white):max_bytes(150000):strip_icc()/National-Debt-Relief-logo-b620f9f8d31a47f1ab5b24e62eb66ee1.jpg) :fill(white):max_bytes(150000):strip_icc()/National-Debt-Relief-logo-b620f9f8d31a47f1ab5b24e62eb66ee1.jpg) National Debt Relief overall rating 4.8 [Get a Quote](https://www.ndrtracking.com/aff_c?offer_id=75&aff_id=2150&url_id=505&aff_sub=investopedia) Table of Contents View All National Debt Relief Review 2024 * [Pros and Cons Explained](#toc-pros-and-cons-explained) * [How National Debt Relief Works](#toc-how-national-debt-relief-works) * [Accreditations](#toc-accreditations) * [How to Enroll](#toc-how-to-enroll-with-national-debt-relief) * [Types of Debt Addressed](#toc-types-of-debt-addressed) * [Expected Cost](#toc-expected-cost) * [Expected Relief Amount](#toc-expected-relief-amount) * [Expected Time to Complete the Program](#toc-expected-time-to-complete-the-program) * [Additional Services](#toc-additional-services) * [Client Dashboard](#toc-client-dashboard) * [Customer Service](#toc-customer-service) * [Customer Satisfaction](#toc-customer-satisfaction-and-reviews) * [Alternatives](#toc-national-debt-relief-vs-pacific-debt-relief-vs-accredited-debt-relief) * [Is Debt Settlement Worth It?](#toc-is-debt-settlement-worth-it) * [The Bottom Line](#toc-the-bottom-line) * [FAQs](#toc-frequently-asked-questions-faqs) * [Methodology](#toc-how-we-determine-the-best-debt-relief-companies) ## Pros and Cons Explained ### Pros * **Has multiple accreditations:** National Debt Relief is accredited by multiple organizations within the debt relief industry. * **Customer support usually available:** Customer support is actually available for more hours each day than it’s closed (for general inquiries), so it should be easy to contact someone if you have questions or concerns. Support hours for current clients are more limited, however. * **Good customer reviews and ratings:** Most people on third-party rating sites report good success and were happy overall with National Debt Relief’s services. ### Cons * **Not available in all states:** National Debt Relief is widely available, but residents of Oregon, Vermont, and West Virginia will need to look elsewhere for debt settlement options. * **Provides inconsistent information:** The company’s website is filled with contradictory information and inaccuracies, raising a red flag about the information you’ll get when you contact the company. The website states, for example, that “As soon as you sign the agreement, you’ll no longer be required to pay your creditors.” But this is not true—you’re obligated to pay your debts under the agreements you make with creditors, unless those debts are forgiven or settled, and creditors can take you to court for overdue debts. * **Some concerning reports of bad outcomes:** Although National Debt Relief has overall positive ratings, some unhappy customers tell similar stories of National Debt Relief bumping the required monthly deposit up by several hundred dollars months into the program, extra “legal” and “accounting” fees tacked onto their bill, and even unexpected invoices for several thousand dollars due in a month’s time. Debt settlement is risky because it’s not guaranteed, it causes significant credit damage, it may result in high tax bills, and your creditors could sue you. ## How National Debt Relief Works National Debt Relief operates similarly to other [debt settlement companies](https://www.investopedia.com/how-does-credit-card-debt-relief-work-8426359). Everyone who contacts the company gets a free consultation. According to NDR, a representative will offer “financial counseling and guidance,” and help you develop a budget. It’s not a true [credit counseling agency](https://www.investopedia.com/terms/c/credit-counseling.asp) offering comprehensive support, however; it’s a for-profit company that offers debt settlement.  The representative will check if you meet National Debt Relief’s requirements to get started, which include being at least several months past due on at least $7,500 in unsecured debt, having the ability to make monthly deposits into a savings account, and having some sort of long-term financial hardship, such as medical bills or job loss. In some cases, you may be referred to its partner lender, [Reach Financial](https://www.investopedia.com/reach-financial-personal-loans-review-8383953), for a debt consolidation loan. Otherwise, the rep will explain how its [debt settlement process works](https://www.investopedia.com/personal-finance/debt-settlement-cheapest-way-get-out-debt/).  All debt settlement follows a similar script, National Debt Relief included. You’ll be advised to not make any payments to your creditors and instead funnel money into a third-party, FDIC-insured account each month. After a few months, National Debt Relief will try to negotiate a lump-sum payment with your creditors using the funds you’ve been saving up. You’ll get the final say in approving any negotiated offers, and if you give it the green light, National Debt Relief will pull the money out of the account, pay the settlement(s), and charge you a fee.  The company claims to offer a satisfaction guarantee, but once you approve a settlement, you can’t get your money back. Since you don’t technically pay anything to National Debt Relief itself until after this happens, it’s sort of a meaningless statement—especially if you run into more problems down the line, as is possible with debt settlement programs.  ## Accreditations National Debt Relief is accredited or certified by three different organizations: * American Association for Debt Resolution (AADR) * International Association of Professional Debt Arbitrators (IAPDA) * Better Business Bureau (BBB) Take note that [BBB accreditation](https://www.investopedia.com/what-is-the-better-business-bureau-5024818) is not based directly on a company’s performance, but rather on other metrics like how the company handles BBB complaints. ## How to Enroll With National Debt Relief National Debt Relief makes it easy to start the process. Here’s how it’ll work: 1. **Contact the company:** You can call NDR at (800) 300-9550, or fill out an online form to submit more information and have a company representative reach out to you. 2. **Explore your options:** The company may decide to offer you a debt settlement plan, or you may be referred to its partner lender for a [debt consolidation loan](https://www.investopedia.com/terms/d/debtconsolidation.asp). The company also states that you may be referred for other services, such as credit counseling, and—in some states—to a bankruptcy lawyer or tax professional. 3. **Open a savings account:** If you proceed with debt settlement, you won’t make payments to National Debt Relief directly; instead, you’ll be required to open an FDIC-insured account where you’ll save up your payments. National Debt Relief recommends a specific company (Global Holdings) for this purpose, but you can choose any account you want. 4. **Contribute to your account:** National Debt Relief will recommend that you set aside a certain amount of money every month in this account, which you retain control over. After a few months, it’ll start contacting creditors to negotiate a settlement using these funds. ## Types of Debt Addressed In general, only one type of debt is usually eligible to be enrolled in a debt settlement program with National Debt Relief or any other company: [unsecured debt](https://www.investopedia.com/ask/answers/110614/what-difference-between-secured-and-unsecured-debts.asp). Two popular forms of unsecured debt are certain loans and credit card balances. ### Unsecured Loans Any debts that aren’t [backed by collateral](https://www.investopedia.com/terms/u/unsecuredloan.asp) are eligible for debt settlement. This includes personal signature loans, unsecured business debts, medical bills, and private student loans. Some of these debts may be easier to settle than others. [Private student loans](https://www.investopedia.com/settle-student-loan-debt-guide-8547140), for example, may be more difficult to negotiate because creditors know it’s more difficult to get rid of them if you eventually file for bankruptcy. ### Credit Card Debt Credit cards are a common source of debt for many people, and you can include them in a debt settlement plan. You generally won’t be able to use credit cards you enroll in a settlement plan once you start the program, however. Most creditors will close your card once you [default on your debt](https://www.investopedia.com/terms/d/default2.asp).  ## Expected Cost The overall cost of using National Debt Relief is fairly straightforward, but when it comes to specifics and other fees you’ll have to pay, it gets blurrier. National Debt Relief charges 15% to 25% of any debt that it’s able to settle. The specific amount depends on how much debt you have and which state you live in. It’s unclear how you pay that fee. The company states on its website that “All of our fees are included in your monthly program payment that is deposited into your FDIC insured account,” while simultaneously saying elsewhere that they “never use your escrow account money to pay your fee." Some customer complaints on review websites have mentioned receiving a surprise multi-thousand-dollar bill in the mail after agreeing to a debt settlement.  That’s how much National Debt Reliefitself charges, but you may be required to pay fees to other companies as part of the service, and NDR doesn’t provide any information on its website about how much this costs. For example, if you open a savings account through NDR’s partner, Global Holdings, you may have to pay a fee. Some customers also report to the BBB about being charged extra “legal” and “accounting” fees they didn’t expect.  ## Expected Relief Amount National Debt Relief is generally able to negotiate a settlement for 46% of an average client’s starting debt, according to the company, dropping down to 25% after the company takes its fees. However, NDR doesn’t provide any information about how many people drop out before they reach the end.  Depending on the settlement that National Debt Relief is able to reach, you may end up paying a lump sum from your dedicated savings account, or you may enroll in a structured payment plan. Payment plans typically make up about 58% of settlement offers from these types of companies, as reported in a 2020 report by the American Fair Credit Council. ## Expected Time to Complete the Program The company does not provide information on how long the average customer takes to complete the program. Some customers may finish in one year, while others may take four years or longer. It all depends on how much debt you have, whether your creditors are willing to negotiate, how much you can save each month, and other factors.  According to the Federal Trade Commission (FTC), about half of people who enroll in a debt settlement program drop out for various reasons, such as not being happy with the results or not being able to afford the payments. This is better than the drop-out rates for debt management plans (21%) and bankruptcy (33%), however. ## Additional Services National Debt Relief offers a couple of other helpful things: * Financial calculators and educational resources * Referrals for debt consolidation loans through [Reach Financial](https://www.investopedia.com/reach-financial-personal-loans-review-8383953), as well as legal and tax assistance ## Client Dashboard You’ll get access to an online account if you sign up with National Debt Relief. It doesn’t provide any details on what you can do or monitor with the account, however, and you’ll need an additional login for the savings account you’ll use to build your lump-sum payment.  ## Customer Service No matter when you work, it should be easy to get ahold of someone at the company given its wide-open business hours. Depending on where you live, you may see a different phone number on the website, but either should work. | **Method** | **Contact** | **Availability** | | --- | --- | --- | | **Telephone (General Inquiries)** | (800) 300-9550 | Weekdays: 8 a.m.–12 a.m. ET Weekends: 8 a.m.–10 p.m. ET | | **Telephone (Current Clients)** | (888) 660-7427 | Weekdays: 10 a.m.–8 p.m. ET | | **Email** | [email protected] | 24/7 | | **X** | @NationalRelief\_ | 24/7 | | **Facebook** | National Debt Relief | 24/7 | ## Customer Satisfaction and Reviews National Debt Relief has amassed a surprisingly high number of positive reviews online, gaining thousands of loyal followers: * **Google:** 4.6 stars, based on 7,350 reviews * **Trustpilot:** 4.7 stars, based on 39,067 reviews * **Better Business Bureau:** 4.72 stars based on 3,292 reviews However, lurking under these scores of good reviews are disturbing reports that shine a light on some of the major drawbacks of debt settlement. We found reports of people being charged extra fees they didn’t expect, receiving bills for thousands of dollars they weren’t prepared for, and being sued by creditors.  Reviewers on some websites, such as Yelp, only give the company 1.6 stars overall (based on only 125 reviews). ## National Debt Relief vs. Pacific Debt Relief vs. Accredited Debt Relief | | **[National Debt Relief](https://www.ndrtracking.com/aff_c?offer_id=75&aff_id=2150&url_id=505&aff_sub=investopedia)** | **[Pacific Debt Relief](https://track.supermoney.com/aff_c?offer_id=1856&aff_id=1715&featured-product=pacific-debt)** | **[Accredited Debt Relief](https://trkac1.com/?a=443&c=15&campaign_id=2264&utm_medium=affiliate&utm_source=443&utm_campaign=09-2264&s1=4846588&s2=n4e0d6823ea294cf7abee368625bb313114)** | | --- | --- | --- | --- | | **Services Offered** | Debt settlement, debt consolidation loans | Debt settlement, debt consolidation loans | Debt settlement, debt consolidation loans | | **Debt Settlement Fee** | 15%–25% of settled debt | 15%–25% of settled debt | 15%–25% of settled debt | | **Minimum Debt Required** | $7,500 | $10,000 | $10,000 | | **Maximum Debt Allowed** | No maximum limit | No maximum limit | No maximum limit | | **Accreditations** | AADR, IAPDA, BBB | IAPDA, CDRI, BBB | AADR, IAPDA, CDRI, BBB | | **Year Established** | 2009 | 2002 | 2001 | National Debt Relief is a top-rated debt settlement company, but it still has some issues. Explore other debt relief companies, including options for debt management plans through credit counseling: * [Best Debt Relief Companies](https://www.investopedia.com/best-debt-relief-companies-4846588) * [Best Credit Counseling Companies](https://www.investopedia.com/best-credit-counseling-services-5179499) ## Is Debt Settlement Worth It? Debt settlement companies don’t offer anything [you can’t do yourself](https://www.investopedia.com/articles/pf/09/debt-settlement.asp). If settling your debt for less is what’s best for you, there are many resources available showing you how to do it for free, if you’re willing and able to invest a little time. However, most experts agree that debt settlement may be more harmful than helpful unless you’re prepared to deal with the significant drawbacks—and there are many. It’s also not guaranteed to work. Creditors aren’t required to settle your debts. In fact, the FTC reports that creditors end up filing lawsuits against nearly 1 out of every 10 people trying to settle their debt, which can eventually cause wage garnishments, liens on your home, etc. It’s one of the reasons why half of people end up dropping out of debt settlement programs entirely.  What *is* guaranteed is long-term credit damage. [Debt settlement companies](https://www.investopedia.com/how-to-choose-a-debt-settlement-company-8549390) tend to skirt around the fact that you’ll need to intentionally default on your debts so they can negotiate a settlement. Defaulted debts will remain listed on your credit reports for the next seven years. This will [tank your credit score](https://www.investopedia.com/ask/answers/110614/how-will-debt-settlement-affect-my-credit-score.asp) and make lenders wary of approving you for any further credit. However, if you’re dealing with unmanageable debt, your credit may be suffering already, or you may start missing full payments. And other methods of debt forgiveness, like [bankruptcy](https://www.investopedia.com/articles/pf/07/bankruptcy.asp), also have serious credit implications. Take the time to explore [all your possible debt relief options](https://www.investopedia.com/how-to-get-debt-relief-7514809) and try to find one with the least downside and the most upside. Consider seeking a [nonprofit credit counselor](https://www.investopedia.com/best-credit-counseling-services-5179499) for help. ### Is Debt Relief Through Debt Settlement Taxable? Generally, settled debt is taxable. Any debts that your creditors forgive through debt settlement must be [reported as taxable income](https://www.investopedia.com/how-to-avoid-paying-taxes-on-debt-settlement-8419039) on your tax return. Depending on your situation, that could result in hundreds or thousands more on an unexpected tax bill. ## The Bottom Line National Debt Relief is one of the best companies when it comes to debt settlement—but debt settlement is risky, and it’s costly even when it’s successful. Debt settlement companies like NDR can and do provide help to people who need it. But if you choose debt settlement, you should understand exactly what you’re getting into and the possible consequences. ## Frequently Asked Questions (FAQs) ### Is National Debt Relief Legit? National Debt Relief is a legitimate company providing [debt relief services](https://www.investopedia.com/terms/d/debt-relief.asp). The company was founded in 2009 and is a member of the American Association for Debt Resolution (AADR). It’s certified by the International Association of Professional Debt Arbitrators (IAPDA), and is accredited by the BBB.  ### How Much Does National Debt Relief Cost? National Debt Relief charges 15% to 25% of the debt that it’s able to settle. It doesn’t mention how much its partner companies charge for required services, such as monthly charges for a savings account. It also doesn’t delve into the secondary [costs of debt settlement](https://www.investopedia.com/how-much-does-a-debt-relief-program-cost-7371803), such as potential legal fees to defend you from creditor lawsuits, extra taxes on forgiven debt, long-term credit damage, or the extra fees and interest that build up on debt it’s not able to successfully settle.  ### Does National Debt Relief Hurt Your Credit? Enrolling in any debt settlement program can [hurt your credit score](https://www.investopedia.com/ask/answers/110614/how-will-debt-settlement-affect-my-credit-score.asp) depending on how your credit information changes while you're in the program. Because you stop making payments to settle your debts, late payments and rising balances can cause your credit score to drop. If you already have multiple delinquencies, your credit score may not decline as much as someone with an excellent credit score. ### Does National Debt Relief Work With IRS Debt? On its website, National Debt Relief lists back taxes as one of the debts it cannot help with. As such, the company doesn't work with [IRS debt](https://www.investopedia.com/articles/personal-finance/021214/why-do-so-many-people-fall-behind-their-taxes.asp). ### Who Is Eligible for National Debt Relief? You will need to meet a few qualifications to work with National Debt Relief: * You must live in a state where services are offered (all states except Oregon, Vermont, and West Virginia). * You must have at least $7,500 in unsecured debt. * You must be behind on payments. * You must be experiencing [financial hardship](https://www.investopedia.com/terms/f/financial_distress.asp) and can't afford regular payments. ## How We Determine the Best Debt Relief Companies To determine the best debt relief companies, we reviewed various databases, competitive analyses, consumer behavior, and more, ultimately narrowing down the list to 40 companies that offered debt settlement and/or credit counseling services. We developed a quantitative model in which we identified 53 important criteria across five categories. We weighted each category as follows for this article: * **Costs and fees**: 41.00% * **Availability**: 22.50% * **Reputation and stability**: 19.00% * **Customer experience**: 9.50% * **Services**: 8.00% We then gathered data for the 53 criteria directly from companies via websites, media contacts, and existing partnerships. Data was collected between Oct. 19, 2023, and Dec. 18, 2023. This resulted in over 2,000 data points in our rubric, which we used to score and determine the best debt relief companies (including debt settlement and credit counseling services) for people looking to manage and get out of debt. To learn more about our process for finding the best debt relief companies, read our [full methodology](https://www.investopedia.com/debt-relief-review-methodology-5116156). [Get a Quote](https://www.ndrtracking.com/aff_c?offer_id=75&aff_id=2150&url_id=505&aff_sub=investopedia) 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. Trustpilot. "[National Debt Relief](https://www.trustpilot.com/review/www.nationaldebtrelief.com)." 2. Better Business Bureau. "[National Debt Relief](https://www.bbb.org/us/ny/new-york/profile/credit-and-debt-counseling/national-debt-relief-llc-0121-110899)." 3. Consumer Financial Protection Bureau. "[What Should I Do If I’m Sued by a Debt Collector or Creditor?](https://www.consumerfinance.gov/ask-cfpb/what-should-i-do-if-im-sued-by-a-debt-collector-or-creditor-en-334/)" 4. Consumer Financial Protection Bureau. "[What's the Difference Between a Credit Counselor and a Debt Settlement or Debt Relief Company?](https://www.consumerfinance.gov/ask-cfpb/whats-the-difference-between-a-credit-counselor-and-a-debt-settlement-or-debt-relief-company-en-1449/)" 5. Consumer Financial Protection Bureau. "[What Are the Signs of a Student Loan Scam?](https://www.consumerfinance.gov/ask-cfpb/what-are-the-signs-of-a-student-loan-scam-en-2100/)" 6. American Fair Credit Council. "[Options for Consumers in Crisis: An Updated Economic Analysis of the Debt Settlement Industry](https://ghllc.com/wp-content/uploads/2021/02/Options-for-Consumers-Mar-2020.pdf)." 7. Federal Trade Commission. "[The Association of Settlement Companies (TASC) Study on the Debt Settlement Industry](https://www.ftc.gov/sites/default/files/documents/public_comments/debt-settlement-industry-public-workshop-536796-00014/536796-00014.pdf)." 8. Google. "[National Debt Relief](https://www.google.com/search?q=national+debt+relief&sca_esv=6459c9e3b5d5a0f2&sca_upv=1&sxsrf=ACQVn08i9AlGccnQVRh7yHWah1wbBLqMRQ%3A1709246455557&ei=9wfhZeLGIdK_0PEPu7eMwAI&ved=0ahUKEwiinsSez9GEAxXSHzQIHbsbAygQ4dUDCBE&uact=5&oq=national+debt+relief&gs_lp=Egxnd3Mtd2l6LXNlcnAiFG5hdGlvbmFsIGRlYnQgcmVsaWVmMgoQIxiABBiKBRgnMhYQLhiABBiKBRhDGLEDGIMBGMcBGK8BMgUQABiABDIFEAAYgAQyBRAAGIAEMgsQABiABBiKBRiRAjIFEAAYgAQyBRAAGIAEMgYQABgHGB4yBRAAGIAEMiUQLhiABBiKBRhDGLEDGIMBGMcBGK8BGJcFGNwEGN4EGOAE2AEBSL0XUNUMWOcUcAF4AJABAJgBW6ABogGqAQEyuAEDyAEA-AEBmAICoAKyAZgDAIgGAboGBggBEAEYFJIHAzEuMQ&sclient=gws-wiz-serp#lrd=0x89c25a11672d28bb:0x2055c400f8459a0b,1,,,)." 9. Consumer Financial Protection Bureau. "[What Is a Debt Relief Program and How Do I Know If I Should Use One?](https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-relief-program-and-how-do-i-know-if-i-should-use-one-en-1457/)" 10. Experian. "[Debt Settlement vs. Debt Management: Which Is Better?](https://www.experian.com/blogs/ask-experian/debt-settlement-vs-debt-management-programs/)" Related Articles [![A woman sits on a sofa holding a bill in each hand, looking at them seriously.]() :max_bytes(150000):strip_icc()/Woman-sitting-on-sofa-reading-bills-440937ea9b284e56a380c3eada4c386f.jpeg) National Debt Relief vs. Freedom Debt Relief: Compare Services, Fees, and More](https://www.investopedia.com/national-debt-relief-vs-freedom-debt-relief-8634745) [![Couple worrying about their bills]() :max_bytes(150000):strip_icc()/GettyImages-868860560-0879f418cb6b42959b4490c6bc059c37.jpg) Freedom Debt Relief vs. Accredited Debt Relief: Compare Services, Fees, and More](https://www.investopedia.com/freedom-debt-relief-vs-accredited-debt-relief-8634732) [![Freedom Debt Relief logo]() :max_bytes(150000):strip_icc()/Freedom-Debt-Relief-Debt-Relief-recirc-40bcf6684aba433788520ac40d3d1b75.jpeg) Freedom Debt Relief Review 2024](https://www.investopedia.com/freedom-debt-relief-review-5094071) [![A stressed woman looks at bills on a table, holding a cell phone to her ear.]() :max_bytes(150000):strip_icc()/Astressedwomanlooksatbills-b6ea78c9b51b406490661678a8139611.jpeg) National Debt Relief vs. Accredited Debt Relief: Compare Services, Fees, and More](https://www.investopedia.com/national-debt-relief-vs-accredited-debt-relief-8635766) [![An illustration of a balance sheet, with the words "Best Debt Relief Companies."]() :max_bytes(150000):strip_icc()/DebtRelief-BestDebtReliefCompaniesImage-65c32a5716014aeca3a4e55477cb8130.png) Best Debt Relief Companies for May 2024](https://www.investopedia.com/best-debt-relief-companies-4846588) [![Accredited Debt Relief logo]() :max_bytes(150000):strip_icc()/Accredited-Debt-Relief-Debt-Relief-recirc-7698f810c52d4075a659ce5127b1ad86.jpeg) Accredited Debt Relief Review 2024](https://www.investopedia.com/accredited-debt-relief-review-5093737)

National Debt Relief Investopedia’s Rating 4.8 Get a Quote Our Take Debt settlement is a risky and costly way to deal with debt, but National Debt Relief we ranked it as the best debt relief company if you want to pursue it. Its fees are quite low, it services common forms of problem debt (like credit card debt), and it’s available in most of the country. Pros & Cons Key Takeaways Company Overview Pros & Cons Pros Has multiple accreditations Customer support usually available Good customer reviews and ratings Cons Not available in all states Provides inconsistent information Some concerning reports of bad outcomes Key Takeaways National Debt Relief is based in New York City and has been operating there since 2009.According to National Debt Relief, the average client settles their debt for 46% less than they first owed, but that drops down to 25% after accounting for National Debt Relief’s fees. Debt settlement is only available for unsecured debts like credit cards and personal loans. National Debt Relief requires at least $7,500 of unsecured debt to begin a settlement program, but there’s no maximum debt limit. Company Overview National Debt Relief was established in 2009 when one of the company’s co-founders ran into problems managing their debt. They turned it into a for-profit business, based in New York City, which has worked with over 550,000 clients to settle their debt for less than they owe. It currently offers services in every U.S. state except Oregon, Vermont, and West Virginia. The company has scores of positive reviews online. However, tucked in amongst these glowing reviews, you’ll find many cases of unhappy customers.  Year Founded 2009 State Availability All states and DC, except Ore., Vt., and W.Va Services Offered Debt settlement, debt consolidation loans Debt Settlement Fee 15–25% of settled debt Minimum Debt Required $7,500 Maximum Debt Allowed No maximum limit Phone Number (800) 300-9550 National Debt Relief overall rating 4.8 Get a Quote Table of Contents View All National Debt Relief Review 2024 Pros and Cons Explained How National Debt Relief Works Accreditations How to Enroll Types of Debt Addressed Expected Cost Expected Relief Amount Expected Time to Complete the Program Additional Services Client Dashboard Customer Service Customer Satisfaction Alternatives Is Debt Settlement Worth It? The Bottom Line FAQs Methodology Pros and Cons Explained Pros Has multiple accreditations: National Debt Relief is accredited by multiple organizations within the debt relief industry.Customer support usually available: Customer support is actually available for more hours each day than it’s closed (for general inquiries), so it should be easy to contact someone if you have questions or concerns. Support hours for current clients are more limited, however.Good customer reviews and ratings: Most people on third-party rating sites report good success and were happy overall with National Debt Relief’s services. Cons Not available in all states: National Debt Relief is widely available, but residents of Oregon, Vermont, and West Virginia will need to look elsewhere for debt settlement options. Provides inconsistent information: The company’s website is filled with contradictory information and inaccuracies, raising a red flag about the information you’ll get when you contact the company. The website states, for example, that “As soon as you sign the agreement, you’ll no longer be required to pay your creditors.” But this is not true—you’re obligated to pay your debts under the agreements you make with creditors, unless those debts are forgiven or settled, and creditors can take you to court for overdue debts.Some concerning reports of bad outcomes: Although National Debt Relief has overall positive ratings, some unhappy customers tell similar stories of National Debt Relief bumping the required monthly deposit up by several hundred dollars months into the program, extra “legal” and “accounting” fees tacked onto their bill, and even unexpected invoices for several thousand dollars due in a month’s time. Debt settlement is risky because it’s not guaranteed, it causes significant credit damage, it may result in high tax bills, and your creditors could sue you. How National Debt Relief Works National Debt Relief operates similarly to other debt settlement companies. Everyone who contacts the company gets a free consultation. According to NDR, a representative will offer “financial counseling and guidance,” and help you develop a budget. It’s not a true credit counseling agency offering comprehensive support, however; it’s a for-profit company that offers debt settlement.  The representative will check if you meet National Debt Relief’s requirements to get started, which include being at least several months past due on at least $7,500 in unsecured debt, having the ability to make monthly deposits into a savings account, and having some sort of long-term financial hardship, such as medical bills or job loss. In some cases, you may be referred to its partner lender, Reach Financial, for a debt consolidation loan. Otherwise, the rep will explain how its debt settlement process works.  All debt settlement follows a similar script, National Debt Relief included. You’ll be advised to not make any payments to your creditors and instead funnel money into a third-party, FDIC-insured account each month. After a few months, National Debt Relief will try to negotiate a lump-sum payment with your creditors using the funds you’ve been saving up. You’ll get the final say in approving any negotiated offers, and if you give it the green light, National Debt Relief will pull the money out of the account, pay the settlement(s), and charge you a fee.  The company claims to offer a satisfaction guarantee, but once you approve a settlement, you can’t get your money back. Since you don’t technically pay anything to National Debt Relief itself until after this happens, it’s sort of a meaningless statement—especially if you run into more problems down the line, as is possible with debt settlement programs.  Accreditations National Debt Relief is accredited or certified by three different organizations: American Association for Debt Resolution (AADR)International Association of Professional Debt Arbitrators (IAPDA)Better Business Bureau (BBB) Take note that BBB accreditation is not based directly on a company’s performance, but rather on other metrics like how the company handles BBB complaints. How to Enroll With National Debt Relief National Debt Relief makes it easy to start the process. Here’s how it’ll work: Contact the company: You can call NDR at (800) 300-9550, or fill out an online form to submit more information and have a company representative reach out to you. Explore your options: The company may decide to offer you a debt settlement plan, or you may be referred to its partner lender for a debt consolidation loan. The company also states that you may be referred for other services, such as credit counseling, and—in some states—to a bankruptcy lawyer or tax professional.   Open a savings account: If you proceed with debt settlement, you won’t make payments to National Debt Relief directly; instead, you’ll be required to open an FDIC-insured account where you’ll save up your payments. National Debt Relief recommends a specific company (Global Holdings) for this purpose, but you can choose any account you want. Contribute to your account: National Debt Relief will recommend that you set aside a certain amount of money every month in this account, which you retain control over. After a few months, it’ll start contacting creditors to negotiate a settlement using these funds. Types of Debt Addressed In general, only one type of debt is usually eligible to be enrolled in a debt settlement program with National Debt Relief or any other company: unsecured debt. Two popular forms of unsecured debt are certain loans and credit card balances. Unsecured Loans Any debts that aren’t backed by collateral are eligible for debt settlement. This includes personal signature loans, unsecured business debts, medical bills, and private student loans. Some of these debts may be easier to settle than others. Private student loans, for example, may be more difficult to negotiate because creditors know it’s more difficult to get rid of them if you eventually file for bankruptcy. Credit Card Debt Credit cards are a common source of debt for many people, and you can include them in a debt settlement plan. You generally won’t be able to use credit cards you enroll in a settlement plan once you start the program, however. Most creditors will close your card once you default on your debt.  Expected Cost The overall cost of using National Debt Relief is fairly straightforward, but when it comes to specifics and other fees you’ll have to pay, it gets blurrier. National Debt Relief charges 15% to 25% of any debt that it’s able to settle. The specific amount depends on how much debt you have and which state you live in. It’s unclear how you pay that fee. The company states on its website that “All of our fees are included in your monthly program payment that is deposited into your FDIC insured account,” while simultaneously saying elsewhere that they “never use your escrow account money to pay your fee." Some customer complaints on review websites have mentioned receiving a surprise multi-thousand-dollar bill in the mail after agreeing to a debt settlement.  That’s how much National Debt Relief itself charges, but you may be required to pay fees to other companies as part of the service, and NDR doesn’t provide any information on its website about how much this costs. For example, if you open a savings account through NDR’s partner, Global Holdings, you may have to pay a fee. Some customers also report to the BBB about being charged extra “legal” and “accounting” fees they didn’t expect.  Expected Relief Amount National Debt Relief is generally able to negotiate a settlement for 46% of an average client’s starting debt, according to the company, dropping down to 25% after the company takes its fees. However, NDR doesn’t provide any information about how many people drop out before they reach the end.  Depending on the settlement that National Debt Relief is able to reach, you may end up paying a lump sum from your dedicated savings account, or you may enroll in a structured payment plan. Payment plans typically make up about 58% of settlement offers from these types of companies, as reported in a 2020 report by the American Fair Credit Council. Expected Time to Complete the Program The company does not provide information on how long the average customer takes to complete the program. Some customers may finish in one year, while others may take four years or longer. It all depends on how much debt you have, whether your creditors are willing to negotiate, how much you can save each month, and other factors.  According to the Federal Trade Commission (FTC), about half of people who enroll in a debt settlement program drop out for various reasons, such as not being happy with the results or not being able to afford the payments. This is better than the drop-out rates for debt management plans (21%) and bankruptcy (33%), however. Additional Services National Debt Relief offers a couple of other helpful things: Financial calculators and educational resources Referrals for debt consolidation loans through Reach Financial, as well as legal and tax assistance Client Dashboard You’ll get access to an online account if you sign up with National Debt Relief. It doesn’t provide any details on what you can do or monitor with the account, however, and you’ll need an additional login for the savings account you’ll use to build your lump-sum payment.  Customer Service No matter when you work, it should be easy to get ahold of someone at the company given its wide-open business hours. Depending on where you live, you may see a different phone number on the website, but either should work. Method Contact Availability Telephone (General Inquiries) (800) 300-9550 Weekdays: 8 a.m.–12 a.m. ET Weekends: 8 a.m.–10 p.m. ET Telephone (Current Clients) (888) 660-7427 Weekdays: 10 a.m.–8 p.m. ET Email [email protected] 24/7 X @NationalRelief_ 24/7 Facebook National Debt Relief 24/7 Customer Satisfaction and Reviews National Debt Relief has amassed a surprisingly high number of positive reviews online, gaining thousands of loyal followers: Google: 4.6 stars, based on 7,350 reviewsTrustpilot: 4.7 stars, based on 39,067 reviewsBetter Business Bureau: 4.72 stars based on 3,292 reviews However, lurking under these scores of good reviews are disturbing reports that shine a light on some of the major drawbacks of debt settlement. We found reports of people being charged extra fees they didn’t expect, receiving bills for thousands of dollars they weren’t prepared for, and being sued by creditors.  Reviewers on some websites, such as Yelp, only give the company 1.6 stars overall (based on only 125 reviews). National Debt Relief vs. Pacific Debt Relief vs. Accredited Debt Relief National Debt Relief Pacific Debt Relief Accredited Debt Relief Services Offered Debt settlement, debt consolidation loans Debt settlement, debt consolidation loans Debt settlement, debt consolidation loans Debt Settlement Fee 15%–25% of settled debt 15%–25% of settled debt 15%–25% of settled debt Minimum Debt Required $7,500 $10,000 $10,000 Maximum Debt Allowed No maximum limit No maximum limit No maximum limit Accreditations AADR, IAPDA, BBB IAPDA, CDRI, BBB AADR, IAPDA, CDRI, BBB Year Established 2009 2002 2001 National Debt Relief is a top-rated debt settlement company, but it still has some issues. Explore other debt relief companies, including options for debt management plans through credit counseling: Best Debt Relief Companies Best Credit Counseling Companies Is Debt Settlement Worth It? Debt settlement companies don’t offer anything you can’t do yourself. If settling your debt for less is what’s best for you, there are many resources available showing you how to do it for free, if you’re willing and able to invest a little time. However, most experts agree that debt settlement may be more harmful than helpful unless you’re prepared to deal with the significant drawbacks—and there are many. It’s also not guaranteed to work. Creditors aren’t required to settle your debts. In fact, the FTC reports that creditors end up filing lawsuits against nearly 1 out of every 10 people trying to settle their debt, which can eventually cause wage garnishments, liens on your home, etc. It’s one of the reasons why half of people end up dropping out of debt settlement programs entirely.  What is guaranteed is long-term credit damage. Debt settlement companies tend to skirt around the fact that you’ll need to intentionally default on your debts so they can negotiate a settlement. Defaulted debts will remain listed on your credit reports for the next seven years. This will tank your credit score and make lenders wary of approving you for any further credit. However, if you’re dealing with unmanageable debt, your credit may be suffering already, or you may start missing full payments. And other methods of debt forgiveness, like bankruptcy, also have serious credit implications. Take the time to explore all your possible debt relief options and try to find one with the least downside and the most upside. Consider seeking a nonprofit credit counselor for help. Is Debt Relief Through Debt Settlement Taxable? Generally, settled debt is taxable. Any debts that your creditors forgive through debt settlement must be reported as taxable income on your tax return. Depending on your situation, that could result in hundreds or thousands more on an unexpected tax bill. The Bottom Line National Debt Relief is one of the best companies when it comes to debt settlement—but debt settlement is risky, and it’s costly even when it’s successful. Debt settlement companies like NDR can and do provide help to people who need it. But if you choose debt settlement, you should understand exactly what you’re getting into and the possible consequences. Frequently Asked Questions (FAQs) Is National Debt Relief Legit? National Debt Relief is a legitimate company providing debt relief services. The company was founded in 2009 and is a member of the American Association for Debt Resolution (AADR). It’s certified by the International Association of Professional Debt Arbitrators (IAPDA), and is accredited by the BBB.  How Much Does National Debt Relief Cost? National Debt Relief charges 15% to 25% of the debt that it’s able to settle. It doesn’t mention how much its partner companies charge for required services, such as monthly charges for a savings account. It also doesn’t delve into the secondary costs of debt settlement, such as potential legal fees to defend you from creditor lawsuits, extra taxes on forgiven debt, long-term credit damage, or the extra fees and interest that build up on debt it’s not able to successfully settle.  Does National Debt Relief Hurt Your Credit? Enrolling in any debt settlement program can hurt your credit score depending on how your credit information changes while you're in the program. Because you stop making payments to settle your debts, late payments and rising balances can cause your credit score to drop. If you already have multiple delinquencies, your credit score may not decline as much as someone with an excellent credit score. Does National Debt Relief Work With IRS Debt? On its website, National Debt Relief lists back taxes as one of the debts it cannot help with. As such, the company doesn't work with IRS debt. Who Is Eligible for National Debt Relief? You will need to meet a few qualifications to work with National Debt Relief: You must live in a state where services are offered (all states except Oregon, Vermont, and West Virginia). You must have at least $7,500 in unsecured debt. You must be behind on payments. You must be experiencing financial hardship and can't afford regular payments. How We Determine the Best Debt Relief Companies To determine the best debt relief companies, we reviewed various databases, competitive analyses, consumer behavior, and more, ultimately narrowing down the list to 40 companies that offered debt settlement and/or credit counseling services. We developed a quantitative model in which we identified 53 important criteria across five categories. We weighted each category as follows for this article: Costs and fees: 41.00%Availability: 22.50%Reputation and stability: 19.00%Customer experience: 9.50%Services: 8.00% We then gathered data for the 53 criteria directly from companies via websites, media contacts, and existing partnerships. Data was collected between Oct. 19, 2023, and Dec. 18, 2023. This resulted in over 2,000 data points in our rubric, which we used to score and determine the best debt relief companies (including debt settlement and credit counseling services) for people looking to manage and get out of debt. To learn more about our process for finding the best debt relief companies, read our full methodology. Get a Quote 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. Trustpilot. "National Debt Relief." Better Business Bureau. "National Debt Relief." Consumer Financial Protection Bureau. "What Should I Do If I’m Sued by a Debt Collector or Creditor?" Consumer Financial Protection Bureau. "What's the Difference Between a Credit Counselor and a Debt Settlement or Debt Relief Company?" Consumer Financial Protection Bureau. "What Are the Signs of a Student Loan Scam?" American Fair Credit Council. "Options for Consumers in Crisis: An Updated Economic Analysis of the Debt Settlement Industry." Federal Trade Commission. "The Association of Settlement Companies (TASC) Study on the Debt Settlement Industry." Google. "National Debt Relief." Consumer Financial Protection Bureau. "What Is a Debt Relief Program and How Do I Know If I Should Use One?" Experian. "Debt Settlement vs. Debt Management: Which Is Better?" Related Articles National Debt Relief vs. Freedom Debt Relief: Compare Services, Fees, and More Freedom Debt Relief vs. Accredited Debt Relief: Compare Services, Fees, and More Freedom Debt Relief Review 2024 National Debt Relief vs. Accredited Debt Relief: Compare Services, Fees, and More Best Debt Relief Companies for May 2024 Accredited Debt Relief Review 2024

https://www.investopedia.com/articles/02/100902.asp

Resolving Disputes With Your Financial Advisor

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> There's no way around it: Losing money feels awful, and when losses start to stack up, it's human nature to start looking for somebody to blame. For many investors, the obvious culprit is the broker or financial advisor. Here we focus on possible disputes with your financial professional and how to deal with these problems. </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 financial advisory industry is highly regulated and all investors and advisory clients have certain rights which must be upheld.<span class="ql-inline-citation" data-cite="8"></span></li><li>If you feel a violation or mismanagement has occurred, first check to be sure that you have a leg to stand on.</li><li>Losing money is not grounds alone for a claim unless your advisor has engaged in unethical conduct.</li><li>If you feel like you have been legitimately wronged by a broker or advisor, you can file a complaint with FINRA.<span class="ql-inline-citation" data-cite="7"></span></li><li>If your advisor has a professional certification, you can also notify the credentialing body.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-your-rights-with-a-financial-advisor"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Understanding Your Rights With a Financial Advisor </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> When you entrust your money to a financial professional, they have a duty to perform to a certain standard. In other words, as an investor, you have a number of rights. The North American Securities Administrators Association (NASAA) details your entitlements in its "Investor Bill of Rights."<span class="ql-inline-citation" data-cite="1"></span> Odds are, if any of these rights have been declined by your broker or advisor, you might have a case. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> When you invest, you have the following rights:<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> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <li>To ask for and receive information from a firm about the work history and background of the person handling your account, as well as information about the firm itself</li><li>To receive complete information about the risks, obligations, and costs of any investment before investing</li><li>To receive recommendations consistent with your financial needs and investment objectives</li><li>To receive a copy of all completed account forms and agreements</li><li>To receive account statements that are accurate and understandable</li><li>To understand the terms and conditions of transactions you undertake</li><li>To access your funds in a timely manner and receive information about restrictions or limitations on access</li><li>To discuss account problems with the branch manager or compliance department of the firm and to receive prompt attention and fair consideration of your concerns</li><li>To receive complete information about commissions, sales charges, maintenance or service charges, transaction or redemption fees, and penalties</li><li>To contact your state or provincial securities agency for any the following reasons: to verify the employment and disciplinary history of a securities salesperson and the salesperson's firm, to find out if an investment is permitted to be sold and to file complaints.</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"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Before following a financial advisor's advice, ask them if they are a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiduciary.asp">fiduciary</a>. This means that they have a legal obligation to put your needs first.<span class="ql-inline-citation" data-cite="13"></span></p></div></div></div> <span class="heading-toc" id="toc-restrictions-on-financial-advisors"></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"> Restrictions on Financial Advisors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> An important point is that simply losing money on an investment doesn't mean you can sue your advisor for bad advice. Even if your advisor recommends an investment that does not perform well </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"> Remember, nowhere in the Bill of Rights does it say that investors are guaranteed a return. Markets are risky by nature. When you invest, you must take on some risk against which no law or regulation can provide protection. You should file a complaint only if you believe you've been defrauded—simply losing money isn't enough. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finra.asp">Financial Industry Regulatory Authority (FINRA)</a> has several rules governing the behavior of brokers and advisors. In addition to the well-known prohibitions against <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insidertrading.asp">insider trading</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/frontrunning.asp">front-running</a>, there are two important restrictions on the assets that a financial advisor can recommend:<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> <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"> Misrepresentation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Falsehood or omission of facts in relation to an investment. This is a classic case of a client believing they were told one thing and then finding out after the fact that what they understood to be true was not the case. Financial advisors are also prohibited from making specific price predictions or guaranteeing that the clients will not lose money. </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"> Suitability </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> When a financial advisor or broker invests a client's money in a security that is not suitable for the customer's investment objectives. An example of this is an advisor investing large sums of money in high-risk securities for a person who is 75 years of age and has a low-risk tolerance.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <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"> Other Prohibited Conduct </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> In addition to the restrictions listed above, FINRA also prohibits other forms of manipulative practices, such as making trades without the customer's prior authorization or failing to execute their trades at the best possible price.<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_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-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_31-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Before engaging the services of a financial advisor, make sure you understand their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/advisor-fee.asp">fee structure</a>. Otherwise, your portfolio gains could become their commission payments.</p></div></div></div> <span class="heading-toc" id="toc-how-to-file-a-complaint"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> How to File a Complaint </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> If you think you have a legitimate dispute with your broker or advisor, there are a couple of steps you can take. But the first step is to contact your firm's branch manager or compliance department. If the error cost you money, you should make this complaint in writing and keep copies of all correspondence.<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"> If you are not satisfied with the firm's response, the next step is to file a complaint with the appropriate regulator. For broker-dealers, you will need to file a dispute with FINRA.<span class="ql-inline-citation" data-cite="7"></span> For complaints against investment advisors, contact the SEC or your state securities regulator.<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"> Many financial professionals are members of a charter organization (you can usually tell by the abbreviations after their name). These organizations also have standards and <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 ethics</a>, so it's worth lodging a complaint with them as well. For example, if your complaint is against a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfp.asp">Certified Financial Planner</a>, you can file with the Certified Financial Planner Board of Standards.<span class="ql-inline-citation" data-cite="5"></span> If it is against a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfa.asp">Chartered Financial Analyst</a>, you can contact the CFA Institute.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Contacting your state or provincial securities commission is another avenue to take. Each state or province has a division that handles complaints against brokers, advisors, and financial planners.<span class="ql-inline-citation" data-cite="14"></span> If these options don't work, your final course of action is to hire an attorney. </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-choosing-the-right-financial-advisor"></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"> Choosing the Right Financial Advisor </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> The best way to avoid unscrupulous brokers is to do your homework beforehand. Always check the background of the firm, broker, or planner for any past disciplinary problems. Ask about their investment style and what style they feel is best suited for you. </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"> Asking these questions will give you a better understanding of the broker, as well as provide something to fall back on if you feel your money has been placed in investments that do not coincide with your objectives. </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"> Securities regulators in the United States have made most of this information relatively accessible through the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crd.asp">Central Registration Depository</a>, a disciplinary and employment database. On the FINRA website, you can perform online searches via its free tool called "BrokerCheck."<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Finally, perhaps the most important thing an investor can do is be honest. If your broker or advisor suggests an investment that you don't understand, say so. An honest and credible advisor is one who will spend the time to ensure that you fully understand an investment beforehand. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-how-do-you-file-a-complaint-against-a-financial-advisor"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You File a Complaint Against a Financial Advisor?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Complaints against financial advisors can usually be made against their regulatory body. For registered investment advisors, that's the Securities and Exchange Commission or local securities regulators. Complaints against brokers can be filed with FINRA.<span class="ql-inline-citation" data-cite="7"></span> If they have any additional certifications—such as a CPA or CFP—you can also file an ethics complaint to the professional body that issues that certification.<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_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-do-i-find-out-if-a-financial-advisor-has-any-complaints-against-them"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Find Out If a Financial Advisor Has Any Complaints Against Them?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Disciplinary records for financial advisors are available through state or federal-level securities regulators. Public disclosures about SEC-registered investment advisors are available on the SEC's Investment Advisory Public Disclosure site.<span class="ql-inline-citation" data-cite="15"></span> Data on state-regulated professionals can usually be found through state securities regulators. Information on securities brokers can be found through FINRA's BrokerCheck.<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_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-how-much-can-i-gain-from-hiring-a-financial-advisor"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Can I Gain From Hiring a Financial Advisor?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While there are no guaranteed returns, research suggests that a financial advisor can improve investment returns by an average of 1.5% to 4%, depending on the time horizon and how those gains are measured. However, some of those gains will be lost to any fees or commissions charged by the financial advisor.<span class="ql-inline-citation" data-cite="16"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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 trusted with their clients' wealth, sometimes representing a lifetime of savings. In order to ensure ethical conduct, they are strictly regulated, both by the government and their own industry certification bodies. If an investor believes that they have lost money through unethical conduct, there are many ways to seek a resolution.<br/><br/> </p></div>

There's no way around it: Losing money feels awful, and when losses start to stack up, it's human nature to start looking for somebody to blame. For many investors, the obvious culprit is the broker or financial advisor. Here we focus on possible disputes with your financial professional and how to deal with these problems. ### Key Takeaways * The financial advisory industry is highly regulated and all investors and advisory clients have certain rights which must be upheld. * If you feel a violation or mismanagement has occurred, first check to be sure that you have a leg to stand on. * Losing money is not grounds alone for a claim unless your advisor has engaged in unethical conduct. * If you feel like you have been legitimately wronged by a broker or advisor, you can file a complaint with FINRA. * If your advisor has a professional certification, you can also notify the credentialing body. ## Understanding Your Rights With a Financial Advisor When you entrust your money to a financial professional, they have a duty to perform to a certain standard. In other words, as an investor, you have a number of rights. The North American Securities Administrators Association (NASAA) details your entitlements in its "Investor Bill of Rights." Odds are, if any of these rights have been declined by your broker or advisor, you might have a case. When you invest, you have the following rights: * To ask for and receive information from a firm about the work history and background of the person handling your account, as well as information about the firm itself * To receive complete information about the risks, obligations, and costs of any investment before investing * To receive recommendations consistent with your financial needs and investment objectives * To receive a copy of all completed account forms and agreements * To receive account statements that are accurate and understandable * To understand the terms and conditions of transactions you undertake * To access your funds in a timely manner and receive information about restrictions or limitations on access * To discuss account problems with the branch manager or compliance department of the firm and to receive prompt attention and fair consideration of your concerns * To receive complete information about commissions, sales charges, maintenance or service charges, transaction or redemption fees, and penalties * To contact your state or provincial securities agency for any the following reasons: to verify the employment and disciplinary history of a securities salesperson and the salesperson's firm, to find out if an investment is permitted to be sold and to file complaints. ### Before following a financial advisor's advice, ask them if they are a [fiduciary](https://www.investopedia.com/terms/f/fiduciary.asp). This means that they have a legal obligation to put your needs first. ## Restrictions on Financial Advisors An important point is that simply losing money on an investment doesn't mean you can sue your advisor for bad advice. Even if your advisor recommends an investment that does not perform well Remember, nowhere in the Bill of Rights does it say that investors are guaranteed a return. Markets are risky by nature. When you invest, you must take on some risk against which no law or regulation can provide protection. You should file a complaint only if you believe you've been defrauded—simply losing money isn't enough. The [Financial Industry Regulatory Authority (FINRA)](https://www.investopedia.com/terms/f/finra.asp) has several rules governing the behavior of brokers and advisors. In addition to the well-known prohibitions against [insider trading](https://www.investopedia.com/terms/i/insidertrading.asp) and [front-running](https://www.investopedia.com/terms/f/frontrunning.asp), there are two important restrictions on the assets that a financial advisor can recommend: ### Misrepresentation Falsehood or omission of facts in relation to an investment. This is a classic case of a client believing they were told one thing and then finding out after the fact that what they understood to be true was not the case. Financial advisors are also prohibited from making specific price predictions or guaranteeing that the clients will not lose money. ### Suitability When a financial advisor or broker invests a client's money in a security that is not suitable for the customer's investment objectives. An example of this is an advisor investing large sums of money in high-risk securities for a person who is 75 years of age and has a low-risk tolerance. ### Other Prohibited Conduct In addition to the restrictions listed above, FINRA also prohibits other forms of manipulative practices, such as making trades without the customer's prior authorization or failing to execute their trades at the best possible price. ### Before engaging the services of a financial advisor, make sure you understand their [fee structure](https://www.investopedia.com/terms/a/advisor-fee.asp). Otherwise, your portfolio gains could become their commission payments. ## How to File a Complaint If you think you have a legitimate dispute with your broker or advisor, there are a couple of steps you can take. But the first step is to contact your firm's branch manager or compliance department. If the error cost you money, you should make this complaint in writing and keep copies of all correspondence. If you are not satisfied with the firm's response, the next step is to file a complaint with the appropriate regulator. For broker-dealers, you will need to file a dispute with FINRA. For complaints against investment advisors, contact the SEC or your state securities regulator. Many financial professionals are members of a charter organization (you can usually tell by the abbreviations after their name). These organizations also have standards and [codes of ethics](https://www.investopedia.com/terms/c/code-of-ethics.asp), so it's worth lodging a complaint with them as well. For example, if your complaint is against a [Certified Financial Planner](https://www.investopedia.com/terms/c/cfp.asp), you can file with the Certified Financial Planner Board of Standards. If it is against a [Chartered Financial Analyst](https://www.investopedia.com/terms/c/cfa.asp), you can contact the CFA Institute. Contacting your state or provincial securities commission is another avenue to take. Each state or province has a division that handles complaints against brokers, advisors, and financial planners. If these options don't work, your final course of action is to hire an attorney. ## Choosing the Right Financial Advisor The best way to avoid unscrupulous brokers is to do your homework beforehand. Always check the background of the firm, broker, or planner for any past disciplinary problems. Ask about their investment style and what style they feel is best suited for you. Asking these questions will give you a better understanding of the broker, as well as provide something to fall back on if you feel your money has been placed in investments that do not coincide with your objectives. Securities regulators in the United States have made most of this information relatively accessible through the [Central Registration Depository](https://www.investopedia.com/terms/c/crd.asp), a disciplinary and employment database. On the FINRA website, you can perform online searches via its free tool called "BrokerCheck." Finally, perhaps the most important thing an investor can do is be honest. If your broker or advisor suggests an investment that you don't understand, say so. An honest and credible advisor is one who will spend the time to ensure that you fully understand an investment beforehand. ## How Do You File a Complaint Against a Financial Advisor? Complaints against financial advisors can usually be made against their regulatory body. For registered investment advisors, that's the Securities and Exchange Commission or local securities regulators. Complaints against brokers can be filed with FINRA. If they have any additional certifications—such as a CPA or CFP—you can also file an ethics complaint to the professional body that issues that certification. ## How Do I Find Out If a Financial Advisor Has Any Complaints Against Them? Disciplinary records for financial advisors are available through state or federal-level securities regulators. Public disclosures about SEC-registered investment advisors are available on the SEC's Investment Advisory Public Disclosure site. Data on state-regulated professionals can usually be found through state securities regulators. Information on securities brokers can be found through FINRA's BrokerCheck. ## How Much Can I Gain From Hiring a Financial Advisor? While there are no guaranteed returns, research suggests that a financial advisor can improve investment returns by an average of 1.5% to 4%, depending on the time horizon and how those gains are measured. However, some of those gains will be lost to any fees or commissions charged by the financial advisor. ## The Bottom Line Financial advisors are trusted with their clients' wealth, sometimes representing a lifetime of savings. In order to ensure ethical conduct, they are strictly regulated, both by the government and their own industry certification bodies. If an investor believes that they have lost money through unethical conduct, there are many ways to seek a resolution.

There's no way around it: Losing money feels awful, and when losses start to stack up, it's human nature to start looking for somebody to blame. For many investors, the obvious culprit is the broker or financial advisor. Here we focus on possible disputes with your financial professional and how to deal with these problems. Key Takeaways The financial advisory industry is highly regulated and all investors and advisory clients have certain rights which must be upheld.If you feel a violation or mismanagement has occurred, first check to be sure that you have a leg to stand on.Losing money is not grounds alone for a claim unless your advisor has engaged in unethical conduct.If you feel like you have been legitimately wronged by a broker or advisor, you can file a complaint with FINRA.If your advisor has a professional certification, you can also notify the credentialing body. Understanding Your Rights With a Financial Advisor When you entrust your money to a financial professional, they have a duty to perform to a certain standard. In other words, as an investor, you have a number of rights. The North American Securities Administrators Association (NASAA) details your entitlements in its "Investor Bill of Rights." Odds are, if any of these rights have been declined by your broker or advisor, you might have a case. When you invest, you have the following rights: To ask for and receive information from a firm about the work history and background of the person handling your account, as well as information about the firm itselfTo receive complete information about the risks, obligations, and costs of any investment before investingTo receive recommendations consistent with your financial needs and investment objectivesTo receive a copy of all completed account forms and agreementsTo receive account statements that are accurate and understandableTo understand the terms and conditions of transactions you undertakeTo access your funds in a timely manner and receive information about restrictions or limitations on accessTo discuss account problems with the branch manager or compliance department of the firm and to receive prompt attention and fair consideration of your concernsTo receive complete information about commissions, sales charges, maintenance or service charges, transaction or redemption fees, and penaltiesTo contact your state or provincial securities agency for any the following reasons: to verify the employment and disciplinary history of a securities salesperson and the salesperson's firm, to find out if an investment is permitted to be sold and to file complaints. Before following a financial advisor's advice, ask them if they are a fiduciary. This means that they have a legal obligation to put your needs first. Restrictions on Financial Advisors An important point is that simply losing money on an investment doesn't mean you can sue your advisor for bad advice. Even if your advisor recommends an investment that does not perform well Remember, nowhere in the Bill of Rights does it say that investors are guaranteed a return. Markets are risky by nature. When you invest, you must take on some risk against which no law or regulation can provide protection. You should file a complaint only if you believe you've been defrauded—simply losing money isn't enough. The Financial Industry Regulatory Authority (FINRA) has several rules governing the behavior of brokers and advisors. In addition to the well-known prohibitions against insider trading and front-running, there are two important restrictions on the assets that a financial advisor can recommend: Misrepresentation Falsehood or omission of facts in relation to an investment. This is a classic case of a client believing they were told one thing and then finding out after the fact that what they understood to be true was not the case. Financial advisors are also prohibited from making specific price predictions or guaranteeing that the clients will not lose money. Suitability When a financial advisor or broker invests a client's money in a security that is not suitable for the customer's investment objectives. An example of this is an advisor investing large sums of money in high-risk securities for a person who is 75 years of age and has a low-risk tolerance. Other Prohibited Conduct In addition to the restrictions listed above, FINRA also prohibits other forms of manipulative practices, such as making trades without the customer's prior authorization or failing to execute their trades at the best possible price. Before engaging the services of a financial advisor, make sure you understand their fee structure. Otherwise, your portfolio gains could become their commission payments. How to File a Complaint If you think you have a legitimate dispute with your broker or advisor, there are a couple of steps you can take. But the first step is to contact your firm's branch manager or compliance department. If the error cost you money, you should make this complaint in writing and keep copies of all correspondence. If you are not satisfied with the firm's response, the next step is to file a complaint with the appropriate regulator. For broker-dealers, you will need to file a dispute with FINRA. For complaints against investment advisors, contact the SEC or your state securities regulator. Many financial professionals are members of a charter organization (you can usually tell by the abbreviations after their name). These organizations also have standards and codes of ethics, so it's worth lodging a complaint with them as well. For example, if your complaint is against a Certified Financial Planner, you can file with the Certified Financial Planner Board of Standards. If it is against a Chartered Financial Analyst, you can contact the CFA Institute. Contacting your state or provincial securities commission is another avenue to take. Each state or province has a division that handles complaints against brokers, advisors, and financial planners. If these options don't work, your final course of action is to hire an attorney. Choosing the Right Financial Advisor The best way to avoid unscrupulous brokers is to do your homework beforehand. Always check the background of the firm, broker, or planner for any past disciplinary problems. Ask about their investment style and what style they feel is best suited for you. Asking these questions will give you a better understanding of the broker, as well as provide something to fall back on if you feel your money has been placed in investments that do not coincide with your objectives. Securities regulators in the United States have made most of this information relatively accessible through the Central Registration Depository, a disciplinary and employment database. On the FINRA website, you can perform online searches via its free tool called "BrokerCheck." Finally, perhaps the most important thing an investor can do is be honest. If your broker or advisor suggests an investment that you don't understand, say so. An honest and credible advisor is one who will spend the time to ensure that you fully understand an investment beforehand. How Do You File a Complaint Against a Financial Advisor? Complaints against financial advisors can usually be made against their regulatory body. For registered investment advisors, that's the Securities and Exchange Commission or local securities regulators. Complaints against brokers can be filed with FINRA. If they have any additional certifications—such as a CPA or CFP—you can also file an ethics complaint to the professional body that issues that certification. How Do I Find Out If a Financial Advisor Has Any Complaints Against Them? Disciplinary records for financial advisors are available through state or federal-level securities regulators. Public disclosures about SEC-registered investment advisors are available on the SEC's Investment Advisory Public Disclosure site. Data on state-regulated professionals can usually be found through state securities regulators. Information on securities brokers can be found through FINRA's BrokerCheck. How Much Can I Gain From Hiring a Financial Advisor? While there are no guaranteed returns, research suggests that a financial advisor can improve investment returns by an average of 1.5% to 4%, depending on the time horizon and how those gains are measured. However, some of those gains will be lost to any fees or commissions charged by the financial advisor. The Bottom Line Financial advisors are trusted with their clients' wealth, sometimes representing a lifetime of savings. In order to ensure ethical conduct, they are strictly regulated, both by the government and their own industry certification bodies. If an investor believes that they have lost money through unethical conduct, there are many ways to seek a resolution.

https://www.investopedia.com/sony-earnings-q4-fy-2023-playstation-5-stock-split-buybacks-8648006

Sony Posts Earnings Beat, Announces Stock Split, Buyback Plans

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Sony Group reported fourth-quarter revenue and earnings that beat expectations thanks to increased profitability from its gaming segment.</li><li>The company announced plans to split its stock in October, with one share splitting into five on the Tokyo Stock Exchange, as well as its American depositary receipts (ADRs) traded on the New York Stock Exchange.</li><li>The tech and entertainment conglomerate also said it plans to buy back up to 30 million shares of its own stock.<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"> Japanese tech and entertainment giant Sony Group (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SONY">SONY</a>) reported earnings for the final quarter of fiscal 2023 Tuesday, and also announced details of a new <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/042015/why-would-company-buyback-its-own-shares.asp">stock buyback program</a> as well as plans to split the company's stock later this year. </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-q4-results-beat-on-increased-gaming-unit-profitability"></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"> Q4 Results Beat on Increased Gaming Unit Profitability </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Sony reported total revenue of $3.48 trillion <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/j/jpy-japanese-yen.asp">Japanese yen</a> ($22.25 billion), above <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sony-q4-fy-2023-earnings-preview-8645919">analyst estimates</a> compiled by Visible Alpha of 2.9 trillion yen ($18.54 billion). It also was more profitable than expected, reporting Y189.0 billion in net income, or Y153.6 per share, compared with the estimated Y136.95 billion, or Y131.5 per share.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The profitability of Sony's gaming division improved markedly this year, with operating income rising to Y106.0 billion in the fourth quarter from Y38.9 billion the same time last year. </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 the full fiscal year, Sony said its full-year sales and profitability for the gaming division, its largest by revenue, were impacted positively by third-party game sales and foreign exchange rates, and negatively by lower first-party game sales and higher rates of promotions to boost PlayStation 5 sales, a factor Sony has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sony-unveils-plan-for-financial-unit-ipo-amid-sluggish-ps5-sales-8580472">cited in the past</a>. Overall, operating income fell by 7% year-over-year to Y1.21 trillion in fiscal 2023. </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"> Despite projecting gaming revenue to fall slightly in fiscal 2024 to Y4.2 trillion from the 2023 mark of Y4.27 trillion, operating income in the segment is projected to increase by about Y20 billion. Operating income overall is expected to rise by 5% to Y1.28 trillion in the fiscal year. </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-stock-split-and-buyback-plans"></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"> Stock Split and Buyback Plans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Sony made another pair of announcements Tuesday, unveiling plans to perform a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stocksplit.asp">stock split</a> later this year, along with the details of a plan to buy back a maximum of 30 million shares, worth up to Y250 billion, over the next year.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> On October 1, Sony's shares on the Tokyo Stock Exchange will split, with stockholders receiving five shares for each one share of Sony they own at market close September 30. The split will also impact Sony's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American depositary receipts (ADRs</a>) that are traded 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>), with ADRs set to split into five for each previous ADR on October 8.<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"> Sony's ADRs were up 5.8% to $80.56 at 9:48 a.m. ET Tuesday. They are down about 15% this year. </p></div>

### Key Takeaways * Sony Group reported fourth-quarter revenue and earnings that beat expectations thanks to increased profitability from its gaming segment. * The company announced plans to split its stock in October, with one share splitting into five on the Tokyo Stock Exchange, as well as its American depositary receipts (ADRs) traded on the New York Stock Exchange. * The tech and entertainment conglomerate also said it plans to buy back up to 30 million shares of its own stock. Japanese tech and entertainment giant Sony Group ([SONY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SONY)) reported earnings for the final quarter of fiscal 2023 Tuesday, and also announced details of a new [stock buyback program](https://www.investopedia.com/ask/answers/042015/why-would-company-buyback-its-own-shares.asp) as well as plans to split the company's stock later this year. ## Q4 Results Beat on Increased Gaming Unit Profitability Sony reported total revenue of $3.48 trillion [Japanese yen](https://www.investopedia.com/terms/forex/j/jpy-japanese-yen.asp) ($22.25 billion), above [analyst estimates](https://www.investopedia.com/sony-q4-fy-2023-earnings-preview-8645919) compiled by Visible Alpha of 2.9 trillion yen ($18.54 billion). It also was more profitable than expected, reporting Y189.0 billion in net income, or Y153.6 per share, compared with the estimated Y136.95 billion, or Y131.5 per share. The profitability of Sony's gaming division improved markedly this year, with operating income rising to Y106.0 billion in the fourth quarter from Y38.9 billion the same time last year. For the full fiscal year, Sony said its full-year sales and profitability for the gaming division, its largest by revenue, were impacted positively by third-party game sales and foreign exchange rates, and negatively by lower first-party game sales and higher rates of promotions to boost PlayStation 5 sales, a factor Sony has [cited in the past](https://www.investopedia.com/sony-unveils-plan-for-financial-unit-ipo-amid-sluggish-ps5-sales-8580472). Overall, operating income fell by 7% year-over-year to Y1.21 trillion in fiscal 2023. Despite projecting gaming revenue to fall slightly in fiscal 2024 to Y4.2 trillion from the 2023 mark of Y4.27 trillion, operating income in the segment is projected to increase by about Y20 billion. Operating income overall is expected to rise by 5% to Y1.28 trillion in the fiscal year. ## Stock Split and Buyback Plans Sony made another pair of announcements Tuesday, unveiling plans to perform a [stock split](https://www.investopedia.com/terms/s/stocksplit.asp) later this year, along with the details of a plan to buy back a maximum of 30 million shares, worth up to Y250 billion, over the next year. On October 1, Sony's shares on the Tokyo Stock Exchange will split, with stockholders receiving five shares for each one share of Sony they own at market close September 30. The split will also impact Sony's [American depositary receipts (ADRs](https://www.investopedia.com/terms/a/adr.asp)) that are traded on the [New York Stock Exchange (NYSE](https://www.investopedia.com/terms/n/nyse.asp)), with ADRs set to split into five for each previous ADR on October 8. Sony's ADRs were up 5.8% to $80.56 at 9:48 a.m. ET Tuesday. They are down about 15% this year.

Key Takeaways Sony Group reported fourth-quarter revenue and earnings that beat expectations thanks to increased profitability from its gaming segment.The company announced plans to split its stock in October, with one share splitting into five on the Tokyo Stock Exchange, as well as its American depositary receipts (ADRs) traded on the New York Stock Exchange.The tech and entertainment conglomerate also said it plans to buy back up to 30 million shares of its own stock. Japanese tech and entertainment giant Sony Group (SONY) reported earnings for the final quarter of fiscal 2023 Tuesday, and also announced details of a new stock buyback program as well as plans to split the company's stock later this year. Q4 Results Beat on Increased Gaming Unit Profitability Sony reported total revenue of $3.48 trillion Japanese yen ($22.25 billion), above analyst estimates compiled by Visible Alpha of 2.9 trillion yen ($18.54 billion). It also was more profitable than expected, reporting Y189.0 billion in net income, or Y153.6 per share, compared with the estimated Y136.95 billion, or Y131.5 per share. The profitability of Sony's gaming division improved markedly this year, with operating income rising to Y106.0 billion in the fourth quarter from Y38.9 billion the same time last year. For the full fiscal year, Sony said its full-year sales and profitability for the gaming division, its largest by revenue, were impacted positively by third-party game sales and foreign exchange rates, and negatively by lower first-party game sales and higher rates of promotions to boost PlayStation 5 sales, a factor Sony has cited in the past. Overall, operating income fell by 7% year-over-year to Y1.21 trillion in fiscal 2023. Despite projecting gaming revenue to fall slightly in fiscal 2024 to Y4.2 trillion from the 2023 mark of Y4.27 trillion, operating income in the segment is projected to increase by about Y20 billion. Operating income overall is expected to rise by 5% to Y1.28 trillion in the fiscal year. Stock Split and Buyback Plans Sony made another pair of announcements Tuesday, unveiling plans to perform a stock split later this year, along with the details of a plan to buy back a maximum of 30 million shares, worth up to Y250 billion, over the next year. On October 1, Sony's shares on the Tokyo Stock Exchange will split, with stockholders receiving five shares for each one share of Sony they own at market close September 30. The split will also impact Sony's American depositary receipts (ADRs) that are traded on the New York Stock Exchange (NYSE), with ADRs set to split into five for each previous ADR on October 8. Sony's ADRs were up 5.8% to $80.56 at 9:48 a.m. ET Tuesday. They are down about 15% this year.

https://www.investopedia.com/reddit-files-for-ipo-5213473

Reddit Files for 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"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Social media site Reddit revealed on Dec. 15, 2021 that it has made a confidential filing with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">U.S. Securities and Exchange Commission</a> (SEC) in preparation for an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering</a> (IPO). Reddit reportedly is aiming for a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valuation.asp">valuation</a> of $15 billion when its IPO comes to market.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Message boards on Reddit, most notably WallStreetBets, have played a major role in popularizing so-called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/meme-stock-5206762">meme stocks</a>, or equities in which trading activity is largely driven by commentary on social media. Additionally, posts in WallStreetBets have played a major role in several trading controversies in 2021, such as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortsqueeze.asp">short squeezes</a> on GameStop Corp. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME">GME</a>) and AMC Entertainment Holdings, Inc. (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC">AMC</a>).<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Social media site Reddit has made a confidential filing with the SEC for an IPO.</li><li>Reddit has raised $1.3 billion from private investors so far, among them Fidelity, Sequoia Capital, Andreessen Horowitz, and Tencent Holdings.</li><li>Reddit is currently valued at about $10 billion and reportedly expects to be valued at $15 billion when the IPO comes to market.</li></ul></div></div></div> <span class="heading-toc" id="toc-rising-valuation"></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"> Rising Valuation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> When stock trading controversies peaked in February 2021, Reddit's valuation reportedly jumped to about $6 billion, double what it was a year earlier. As of August 2021, its valuation rose yet again to $10 billion.<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"> Reddit has raised a total of $1.3 billion in eight fundraising rounds. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seedcapital.asp">seed round</a> closed on June 1, 2005. The latest round, the Series F round, closed on Aug. 12, 2021, and brought in $410 million. Reddit has 28 investors, the most recent being Fidelity Management and Research Company and Sequoia Capital. Other notable investors are Andreessen Horowitz and Chinese technology conglomerate Tencent Holdings Limited (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=tcehy">TCEHY</a>).<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_11-0"></div> <span class="heading-toc" id="toc-benefits-of-confidential-filing"></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"> Benefits of Confidential Filing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Reddit states that, in its draft registration statement filed on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec-form-s-1.asp">SEC Form S-1</a>, it has indicated neither the number of shares to be offered nor the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/offeringprice.asp">offering price</a>. The offering will take place sometime after the SEC has completed its review, subject to market and other conditions.<span class="ql-inline-citation" data-cite="4"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> By filing its draft registration statement confidentially, Reddit can work with the SEC privately to make sure that the first document seen by investing public is much cleaner. Additionally, until that time comes, Reddit can keep sensitive company information private, such as data about its customers, revenue, and users.<span class="ql-inline-citation" data-cite="5"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-company-history"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Company History </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Reddit, based in San Francisco, was founded in 2005 by Steve Huffman, Alexis Ohanian, and the late Aaron Swartz. While Reddit has attracted millions of experts and enthusiasts participating in its niche discussion groups, its development as a major profit-making business has trailed other major social media sites.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-key-metrics"></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"> Key Metrics </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> As of January 2021, Reddit had more than 52 million daily active users and more than 100,000 communities. By comparison, Meta Platforms, Inc.'s (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=fb">FB</a>) Facebook had almost 2 billion daily active users in June 2021, while Twitter, Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=twtr">TWTR</a>) had 206 million monetizable daily active users, or users who see ads. Reddit surpassed $100 million in advertising revenue for the first time in the the second quarter of 2021, almost three times more than in the same period of 2020. </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-congressional-scrutiny"></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"> Congressional Scrutiny </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The short squeeze on GameStop and the role of Reddit, particularly WallStreetBets, were prime subjects of a Congressional hearing in February 2021 . During that hearing, Representative David Scott, D-Georgia, opined that it would be a "serious threat to the financial system if tweets and posts do more to move stocks than material information."<span class="ql-inline-citation" data-cite="2"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> In a similar vein, Representative French Hill, R-Ariz., raised concerns that WallStreetBets is regularly used to disseminate deceptive or manipulative information. He indicated that it may be appropriate for the SEC to investigate this possibility.<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_27-0"></div> <span class="heading-toc" id="toc-bad-behavior-issues"></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"> Bad Behavior Issues </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> For years since its founding in 2005, Reddit built a reputation as a free-wheeling, nearly anything-goes collection of internet forums in which users can discuss virtually any topic imaginable. A downside was that, while Reddit billed itself as "the front page of the internet," it also has had problems with bad behavior among some users. In response, Reddit has implemented policies in recent years designed to limit its use by hate groups and promoters of prostitution and other illegal activity.<span class="ql-inline-citation" data-cite="5"></span><br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

Social media site Reddit revealed on Dec. 15, 2021 that it has made a confidential filing with the [U.S. Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) in preparation for an [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO). Reddit reportedly is aiming for a [valuation](https://www.investopedia.com/terms/v/valuation.asp) of $15 billion when its IPO comes to market. Message boards on Reddit, most notably WallStreetBets, have played a major role in popularizing so-called [meme stocks](https://www.investopedia.com/meme-stock-5206762), or equities in which trading activity is largely driven by commentary on social media. Additionally, posts in WallStreetBets have played a major role in several trading controversies in 2021, such as the [short squeezes](https://www.investopedia.com/terms/s/shortsqueeze.asp) on GameStop Corp. ([GME](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME)) and AMC Entertainment Holdings, Inc. ([AMC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC)). ### Key Takeaways * Social media site Reddit has made a confidential filing with the SEC for an IPO. * Reddit has raised $1.3 billion from private investors so far, among them Fidelity, Sequoia Capital, Andreessen Horowitz, and Tencent Holdings. * Reddit is currently valued at about $10 billion and reportedly expects to be valued at $15 billion when the IPO comes to market. ## Rising Valuation When stock trading controversies peaked in February 2021, Reddit's valuation reportedly jumped to about $6 billion, double what it was a year earlier. As of August 2021, its valuation rose yet again to $10 billion. Reddit has raised a total of $1.3 billion in eight fundraising rounds. The [seed round](https://www.investopedia.com/terms/s/seedcapital.asp) closed on June 1, 2005. The latest round, the Series F round, closed on Aug. 12, 2021, and brought in $410 million. Reddit has 28 investors, the most recent being Fidelity Management and Research Company and Sequoia Capital. Other notable investors are Andreessen Horowitz and Chinese technology conglomerate Tencent Holdings Limited ([TCEHY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=tcehy)). ## Benefits of Confidential Filing Reddit states that, in its draft registration statement filed on [SEC Form S-1](https://www.investopedia.com/terms/s/sec-form-s-1.asp), it has indicated neither the number of shares to be offered nor the [offering price](https://www.investopedia.com/terms/o/offeringprice.asp). The offering will take place sometime after the SEC has completed its review, subject to market and other conditions. By filing its draft registration statement confidentially, Reddit can work with the SEC privately to make sure that the first document seen by investing public is much cleaner. Additionally, until that time comes, Reddit can keep sensitive company information private, such as data about its customers, revenue, and users. ## Company History Reddit, based in San Francisco, was founded in 2005 by Steve Huffman, Alexis Ohanian, and the late Aaron Swartz. While Reddit has attracted millions of experts and enthusiasts participating in its niche discussion groups, its development as a major profit-making business has trailed other major social media sites. ## Key Metrics As of January 2021, Reddit had more than 52 million daily active users and more than 100,000 communities. By comparison, Meta Platforms, Inc.'s ([FB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=fb)) Facebook had almost 2 billion daily active users in June 2021, while Twitter, Inc. ([TWTR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=twtr)) had 206 million monetizable daily active users, or users who see ads. Reddit surpassed $100 million in advertising revenue for the first time in the the second quarter of 2021, almost three times more than in the same period of 2020. ## Congressional Scrutiny The short squeeze on GameStop and the role of Reddit, particularly WallStreetBets, were prime subjects of a Congressional hearing in February 2021 . During that hearing, Representative David Scott, D-Georgia, opined that it would be a "serious threat to the financial system if tweets and posts do more to move stocks than material information." In a similar vein, Representative French Hill, R-Ariz., raised concerns that WallStreetBets is regularly used to disseminate deceptive or manipulative information. He indicated that it may be appropriate for the SEC to investigate this possibility. ## Bad Behavior Issues For years since its founding in 2005, Reddit built a reputation as a free-wheeling, nearly anything-goes collection of internet forums in which users can discuss virtually any topic imaginable. A downside was that, while Reddit billed itself as "the front page of the internet," it also has had problems with bad behavior among some users. In response, Reddit has implemented policies in recent years designed to limit its use by hate groups and promoters of prostitution and other illegal activity. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Social media site Reddit revealed on Dec. 15, 2021 that it has made a confidential filing with the U.S. Securities and Exchange Commission (SEC) in preparation for an initial public offering (IPO). Reddit reportedly is aiming for a valuation of $15 billion when its IPO comes to market. Message boards on Reddit, most notably WallStreetBets, have played a major role in popularizing so-called meme stocks, or equities in which trading activity is largely driven by commentary on social media. Additionally, posts in WallStreetBets have played a major role in several trading controversies in 2021, such as the short squeezes on GameStop Corp. (GME) and AMC Entertainment Holdings, Inc. (AMC). Key Takeaways Social media site Reddit has made a confidential filing with the SEC for an IPO.Reddit has raised $1.3 billion from private investors so far, among them Fidelity, Sequoia Capital, Andreessen Horowitz, and Tencent Holdings.Reddit is currently valued at about $10 billion and reportedly expects to be valued at $15 billion when the IPO comes to market. Rising Valuation When stock trading controversies peaked in February 2021, Reddit's valuation reportedly jumped to about $6 billion, double what it was a year earlier. As of August 2021, its valuation rose yet again to $10 billion. Reddit has raised a total of $1.3 billion in eight fundraising rounds. The seed round closed on June 1, 2005. The latest round, the Series F round, closed on Aug. 12, 2021, and brought in $410 million. Reddit has 28 investors, the most recent being Fidelity Management and Research Company and Sequoia Capital. Other notable investors are Andreessen Horowitz and Chinese technology conglomerate Tencent Holdings Limited (TCEHY). Benefits of Confidential Filing Reddit states that, in its draft registration statement filed on SEC Form S-1, it has indicated neither the number of shares to be offered nor the offering price. The offering will take place sometime after the SEC has completed its review, subject to market and other conditions. By filing its draft registration statement confidentially, Reddit can work with the SEC privately to make sure that the first document seen by investing public is much cleaner. Additionally, until that time comes, Reddit can keep sensitive company information private, such as data about its customers, revenue, and users. Company History Reddit, based in San Francisco, was founded in 2005 by Steve Huffman, Alexis Ohanian, and the late Aaron Swartz. While Reddit has attracted millions of experts and enthusiasts participating in its niche discussion groups, its development as a major profit-making business has trailed other major social media sites. Key Metrics As of January 2021, Reddit had more than 52 million daily active users and more than 100,000 communities. By comparison, Meta Platforms, Inc.'s (FB) Facebook had almost 2 billion daily active users in June 2021, while Twitter, Inc. (TWTR) had 206 million monetizable daily active users, or users who see ads. Reddit surpassed $100 million in advertising revenue for the first time in the the second quarter of 2021, almost three times more than in the same period of 2020. Congressional Scrutiny The short squeeze on GameStop and the role of Reddit, particularly WallStreetBets, were prime subjects of a Congressional hearing in February 2021 . During that hearing, Representative David Scott, D-Georgia, opined that it would be a "serious threat to the financial system if tweets and posts do more to move stocks than material information." In a similar vein, Representative French Hill, R-Ariz., raised concerns that WallStreetBets is regularly used to disseminate deceptive or manipulative information. He indicated that it may be appropriate for the SEC to investigate this possibility. Bad Behavior Issues For years since its founding in 2005, Reddit built a reputation as a free-wheeling, nearly anything-goes collection of internet forums in which users can discuss virtually any topic imaginable. A downside was that, while Reddit billed itself as "the front page of the internet," it also has had problems with bad behavior among some users. In response, Reddit has implemented policies in recent years designed to limit its use by hate groups and promoters of prostitution and other illegal activity. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/how-long-pay-off-student-loan-debt-8549844

How Long Does It Take to Pay Off Student Loan Debt?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> For the most part, how long it takes to pay off student loan debt depends on the type of loans you have and the repayment plan you choose. Other factors like the loan amount and interest rate can also play a role in your timeline for getting out of debt. While federal student loans feature repayment plans that last from 10 to 30 years, repayment options for private student loans vary widely. Read on to learn how long it typically takes to get rid of student debt, your repayment plan options, and how to get out of student debt faster.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>How long it takes to pay off student debt depends on the repayment plan you choose as well as the interest rate, size of the loan, and your budget.</li><li>On average, people with student loans have spent just over 21 years paying back their loans.</li><li>Federal student loans offer repayment plans that last from 10 to 30 years. Private student loan repayment terms vary.</li></ul></div></div></div> <span class="heading-toc" id="toc-average-time-to-pay-off-student-loans"></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"> Average Time to Pay Off Student Loans </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/articles/younginvestors/09/private-or-federal-student-loans.asp">Federal student loan</a> terms can range from 10 to 30 years, but they default to a standard 10-year repayment plan if you don’t choose another option.<span class="ql-inline-citation" data-cite="3"></span> The standard 10-year repayment plan can result in higher monthly payments on student loans, so many borrowers choose <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-repayment-options-what-s-the-best-way-to-pay-4772402">repayment options</a> with longer terms. The average borrower with student loans spent 21.1 years paying them back, according to a study from One Wisconsin Institute.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" 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_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>When you choose a longer student loan repayment period, you will owe more in total <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> over the long term.</p></div></div></div> <span class="heading-toc" id="toc-factors-affecting-the-time-to-pay-off-student-debt"></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"> Factors Affecting the Time to Pay Off Student Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Many factors can play a role in how long it takes to get out of student loan debt, including the length of your repayment plan, your loan amount, <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 your income. Let’s look in more detail at how these factors affect how long it takes for you to pay off your student loan. </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"> Repayment Plan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> A major determinant of how long it takes to pay off student loans is the type of payment plan you choose. For federal student loans, repayment options start at 10 years and can be as long as 30 years. For <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-student-loans-4775346">private student loans</a>, repayment terms vary depending on the lender’s policies and offerings. </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"> Loan Amounts </span> </h3> <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/student-loan-debt-too-much-8576649">How much student loan debt</a> you have can also impact how long it takes you to get out of debt, depending on how much you can afford. After all, if you carry higher loan amounts with higher monthly payments, you will have less spending money. If you are on a tight budget, you may not be able to make extra payments to pay off your loan sooner. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Interest Rates </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Interest rates also increase the total cost of your loan and the amount of your monthly payments. So a loan with a higher interest rate can take you longer to pay off, depending on your income and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/budget.asp">budget</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 recent years, interest rates have been on the rise for student loans. For federal student loans disbursed on or after July 1, 2023, and before July 1, 2024, the rates were:<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> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <li><strong>Direct Subsidized Loans and Direct Unsubsidized Loans</strong>: 5.50%</li><li><strong>Direct Unsubsidized Loans</strong>: 7.05%</li><li><strong>Direct PLUS Loans</strong>: 8.05%</li> </ul> <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"> Income </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> If you have a high income, you are more likely to have more spending money in your budget that can allow you to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-pay-off-your-student-loans-4772422">make extra payments</a> toward your loan. Paying more toward your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a> than the minimum amount will reduce both the amount of total interest you owe and the total time it takes to repay a loan. </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-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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Student loans, whether they are federal or private, do not have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prepaymentpenalty.asp">prepayment penalties</a>. You can make extra payments or pay off your loan in full at any time without charge.<span class="ql-inline-citation" data-cite="5"></span></p></div></div></div> <span class="heading-toc" id="toc-federal-student-loan-repayment-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Federal Student Loan Repayment Options </span> </h2> <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"> Standard 10-Year Repayment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The standard 10-year repayment plan for federal student loans has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedinterestrate.asp">fixed interest rate</a> and a fixed monthly payment. This repayment option for federal student loans is the default option unless you choose a different plan.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Graduated Repayment Plan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> A graduated repayment plan typically lasts for 10 years (or up to 30 years for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/011916/student-loan-refinancing-pros-and-cons.asp">consolidation loans</a>), and it starts monthly payments off lower at first. From there, monthly payments increase incrementally, usually every two years. </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"> Extended Repayment Plan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The extended repayment plan lasts for 25 years and can have fixed payments or graduated payments that increase over time. You must have more than $30,000 in outstanding <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 loans</a> or Federal Family Education Loans (FFEL) loans to qualify. </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"> Income-Driven Repayment Plans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> You can also choose among several types of income-driven repayment (IDR) plans if you have federal student loans. These plans have you pay a percentage of your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discretionaryincome.asp">discretionary income</a> for a set period of time, after which any remaining loan balances are forgiven. </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"> IDR plans base monthly payments on factors like income and family size, so payments can be more affordable. The chart below shows how monthly payments work with each type of income-driven repayment option.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_46-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td></td> <td><b>Monthly Payment Formula</b></td> <td><b>Repayment Term</b></td> </tr> <tr> <td><b>Saving on a Valuable Education (SAVE) Plan—formerly the REPAYE Plan</b></td> <td>5% and 10% of discretionary income for undergraduate and graduate loans, respectively</td> <td>20 to 25 years (or 10 years for eligible individuals who borrowed $12,000 or less)</td> </tr> <tr> <td><b>Pay As You Earn (PAYE) Repayment Plan</b></td> <td>10% of discretionary income</td> <td>20 years</td> </tr> <tr> <td><b>Income-Based Repayment (IBR) Plan</b></td> <td>10% of discretionary income (for individuals who first borrowed after July 1, 2014); 15% of discretionary income (for individuals who first borrowed before July 1, 2014)</td> <td>20 years</td> </tr> <tr> <td><b>Income-Contingent Repayment (ICR) Plan</b></td> <td>20% of discretionary income</td> <td>25 years</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-private-student-loan-repayment-options"></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"> Private Student Loan Repayment Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Private student loan lenders set interest rates and repayment plans independently. This means your repayment term with a private student loan company depends on what they offer and which option you select.<br/> </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"> That said, it's common to find private student loans with repayment terms of up to 15 years or more. Because many borrowers <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/refinance.asp">refinance</a> their loans with a private lender to get out of debt as soon as possible, however, you can also find private student loans with terms as short as five years.<br/> </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-strategies-to-accelerate-student-debt-repayment"></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"> Strategies to Accelerate Student Debt Repayment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> If you want to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-pay-student-loans-fast-7254519">pay off student debt faster</a>, you can consider using one or more of several strategies: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> <li><strong>Be choosy with your repayment plan</strong>: The first step to getting out of student debt faster is selecting a repayment plan that fits your budget and goals. You may want to choose a shorter repayment plan if you can afford the larger monthly payments.</li> <li><strong>Pay more than the minimum</strong>: Paying more than the minimum payments will reduce the total amount of interest you owe and shorten the time it takes to repay a loan. However, depending on the savings you can achieve, you may want to avoid paying more than the minimum on IDR plans since these plans forgive remaining loan balances after 20 to 25 years.</li> <li><strong>Refinance your student loans</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-refinancing-8599202">Refinancing your student loans</a> with a new loan with a shorter repayment term and a monthly payment can save you money. Just remember that refinancing federal student loans with a private lender means losing out on federal protections like <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-student-loan-deferment-4771251">deferment</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forbearance.asp">forbearance</a> as well as future access to IDR plans and any <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/student-loan-forgiveness.asp">student loan forgiveness</a> offered on a federal level.<br/></li> </ul> <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-student-debt-repayment-example"></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"> Student Debt Repayment Example </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> You may be inclined to pay down student debt as soon as possible, but there are situations when putting your money to other uses may be a better financial move. </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"> For example, you may want to put your money toward saving for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/down_payment.asp">down payment</a> on a house to begin building a real estate asset. Alternatively, you may invest it to try to achieve greater returns than the interest you’re paying on your student loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_63-0"><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_64-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Introduced in 2023, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/saving-on-a-valuable-education-plan-7559022">Saving on a Valuable Education (SAVE) Plan</a> lowers borrower monthly payments to 5% of discretionary income for undergraduate school loans from the 10% required for other income-driven plans. Additionally, individuals with incomes of up to 225% of the federal poverty limit based on family size can qualify for a $0 monthly payment on their student loans.<span class="ql-inline-citation" data-cite="7"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Consider this example of how repayment through the SAVE program could work, and how payments would compare to a standard 10-year repayment plan: </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"> Imagine you have $25,000 in undergraduate student loans, an interest rate of 5%, and an annual income of $38,000. With the SAVE plan, the monthly payment would be $43 for 20 years, after which the remaining loan balances would be forgiven.  </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"> Provided your income and monthly payment didn't change, you would pay $10,320 in total toward your loan over 20 years (240 months). At that point, the remaining loan balances would be forgiven, although you may owe <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loans-and-your-taxes-5323794">income taxes on forgiven amounts</a>. </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"> In contrast, paying off the same loan with the same interest rate on the standard 10-year repayment plan would result in a $256.16 monthly payment over that timeline. You would pay a total of $31,820 toward your student loans over 120 months, which includes interest. </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-does-the-loan-amount-affect-the-time-it-takes-to-pay-off-student-debt"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does the Loan Amount Affect the Time It Takes to Pay off Student Debt?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The amount of student debt can impact your monthly payment on various repayment plans. Many borrowers with high loan amounts opt for repayment plans with longer terms to secure a lower monthly payment on their student loans.</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-what-are-the-different-federal-student-loan-repayment-options"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Different Federal Student Loan Repayment Options?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Federal student loans come with several repayment options, including the standard 10-year repayment, extended repayment, graduated repayment, and income-driven repayment plans.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-strategies-can-you-use-to-accelerate-student-debt-repayment"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Strategies Can You Use to Accelerate Student Debt Repayment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Borrowers who want to get out of student loan debt faster have several strategies at their disposal. They can choose a shorter repayment plan for their loans to begin with, pay more than the minimum each month, or refinance their student loans to switch up their repayment term. Use a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/loan-calculator-5104934">student loan repayment calculator</a> to estimate your savings with different strategies.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> How long it takes to pay off student loan debt will vary based on how much debt you owe, your interest rate, and the repayment plan. This means you have a lot of control over how long it takes to get out of debt, although you will be limited by your income and budget. Some borrowers will be better off paying down student loans as fast as possible, whereas others will benefit more from an IDR plan with a more affordable monthly payment. Consider all your options for paying down debt so you can pay off student loans on a timeline that works for you. </p></div>

For the most part, how long it takes to pay off student loan debt depends on the type of loans you have and the repayment plan you choose. Other factors like the loan amount and interest rate can also play a role in your timeline for getting out of debt. While federal student loans feature repayment plans that last from 10 to 30 years, repayment options for private student loans vary widely. Read on to learn how long it typically takes to get rid of student debt, your repayment plan options, and how to get out of student debt faster. ### Key Takeaways * How long it takes to pay off student debt depends on the repayment plan you choose as well as the interest rate, size of the loan, and your budget. * On average, people with student loans have spent just over 21 years paying back their loans. * Federal student loans offer repayment plans that last from 10 to 30 years. Private student loan repayment terms vary. ## Average Time to Pay Off Student Loans [Federal student loan](https://www.investopedia.com/articles/younginvestors/09/private-or-federal-student-loans.asp) terms can range from 10 to 30 years, but they default to a standard 10-year repayment plan if you don’t choose another option. The standard 10-year repayment plan can result in higher monthly payments on student loans, so many borrowers choose [repayment options](https://www.investopedia.com/student-loan-repayment-options-what-s-the-best-way-to-pay-4772402) with longer terms. The average borrower with student loans spent 21.1 years paying them back, according to a study from One Wisconsin Institute. ### When you choose a longer student loan repayment period, you will owe more in total [interest](https://www.investopedia.com/terms/i/interest.asp) over the long term. ## Factors Affecting the Time to Pay Off Student Debt Many factors can play a role in how long it takes to get out of student loan debt, including the length of your repayment plan, your loan amount, [interest rates](https://www.investopedia.com/terms/i/interestrate.asp), and your income. Let’s look in more detail at how these factors affect how long it takes for you to pay off your student loan. ### Repayment Plan A major determinant of how long it takes to pay off student loans is the type of payment plan you choose. For federal student loans, repayment options start at 10 years and can be as long as 30 years. For [private student loans](https://www.investopedia.com/best-student-loans-4775346), repayment terms vary depending on the lender’s policies and offerings. ### Loan Amounts [How much student loan debt](https://www.investopedia.com/student-loan-debt-too-much-8576649) you have can also impact how long it takes you to get out of debt, depending on how much you can afford. After all, if you carry higher loan amounts with higher monthly payments, you will have less spending money. If you are on a tight budget, you may not be able to make extra payments to pay off your loan sooner. ### Interest Rates Interest rates also increase the total cost of your loan and the amount of your monthly payments. So a loan with a higher interest rate can take you longer to pay off, depending on your income and [budget](https://www.investopedia.com/terms/b/budget.asp). In recent years, interest rates have been on the rise for student loans. For federal student loans disbursed on or after July 1, 2023, and before July 1, 2024, the rates were: * **Direct Subsidized Loans and Direct Unsubsidized Loans**: 5.50% * **Direct Unsubsidized Loans**: 7.05% * **Direct PLUS Loans**: 8.05% ### Income If you have a high income, you are more likely to have more spending money in your budget that can allow you to [make extra payments](https://www.investopedia.com/how-to-pay-off-your-student-loans-4772422) toward your loan. Paying more toward your [principal](https://www.investopedia.com/terms/p/principal.asp) than the minimum amount will reduce both the amount of total interest you owe and the total time it takes to repay a loan. ### Student loans, whether they are federal or private, do not have [prepayment penalties](https://www.investopedia.com/terms/p/prepaymentpenalty.asp). You can make extra payments or pay off your loan in full at any time without charge. ## Federal Student Loan Repayment Options ### Standard 10-Year Repayment The standard 10-year repayment plan for federal student loans has a [fixed interest rate](https://www.investopedia.com/terms/f/fixedinterestrate.asp) and a fixed monthly payment. This repayment option for federal student loans is the default option unless you choose a different plan. ### Graduated Repayment Plan A graduated repayment plan typically lasts for 10 years (or up to 30 years for [consolidation loans](https://www.investopedia.com/articles/personal-finance/011916/student-loan-refinancing-pros-and-cons.asp)), and it starts monthly payments off lower at first. From there, monthly payments increase incrementally, usually every two years. ### Extended Repayment Plan The extended repayment plan lasts for 25 years and can have fixed payments or graduated payments that increase over time. You must have more than $30,000 in outstanding [direct loans](https://www.investopedia.com/terms/f/federal-direct-student-loan-program.asp) or Federal Family Education Loans (FFEL) loans to qualify. ### Income-Driven Repayment Plans You can also choose among several types of income-driven repayment (IDR) plans if you have federal student loans. These plans have you pay a percentage of your [discretionary income](https://www.investopedia.com/terms/d/discretionaryincome.asp) for a set period of time, after which any remaining loan balances are forgiven. IDR plans base monthly payments on factors like income and family size, so payments can be more affordable. The chart below shows how monthly payments work with each type of income-driven repayment option. | | **Monthly Payment Formula** | **Repayment Term** | | --- | --- | --- | | **Saving on a Valuable Education (SAVE) Plan—formerly the REPAYE Plan** | 5% and 10% of discretionary income for undergraduate and graduate loans, respectively | 20 to 25 years (or 10 years for eligible individuals who borrowed $12,000 or less) | | **Pay As You Earn (PAYE) Repayment Plan** | 10% of discretionary income | 20 years | | **Income-Based Repayment (IBR) Plan** | 10% of discretionary income (for individuals who first borrowed after July 1, 2014); 15% of discretionary income (for individuals who first borrowed before July 1, 2014) | 20 years | | **Income-Contingent Repayment (ICR) Plan** | 20% of discretionary income | 25 years | ## Private Student Loan Repayment Options Private student loan lenders set interest rates and repayment plans independently. This means your repayment term with a private student loan company depends on what they offer and which option you select. That said, it's common to find private student loans with repayment terms of up to 15 years or more. Because many borrowers [refinance](https://www.investopedia.com/terms/r/refinance.asp) their loans with a private lender to get out of debt as soon as possible, however, you can also find private student loans with terms as short as five years. ## Strategies to Accelerate Student Debt Repayment If you want to [pay off student debt faster](https://www.investopedia.com/how-pay-student-loans-fast-7254519), you can consider using one or more of several strategies: * **Be choosy with your repayment plan**: The first step to getting out of student debt faster is selecting a repayment plan that fits your budget and goals. You may want to choose a shorter repayment plan if you can afford the larger monthly payments. * **Pay more than the minimum**: Paying more than the minimum payments will reduce the total amount of interest you owe and shorten the time it takes to repay a loan. However, depending on the savings you can achieve, you may want to avoid paying more than the minimum on IDR plans since these plans forgive remaining loan balances after 20 to 25 years. * **Refinance your student loans**: [Refinancing your student loans](https://www.investopedia.com/student-loan-refinancing-8599202) with a new loan with a shorter repayment term and a monthly payment can save you money. Just remember that refinancing federal student loans with a private lender means losing out on federal protections like [deferment](https://www.investopedia.com/what-is-student-loan-deferment-4771251) and [forbearance](https://www.investopedia.com/terms/f/forbearance.asp) as well as future access to IDR plans and any [student loan forgiveness](https://www.investopedia.com/terms/s/student-loan-forgiveness.asp) offered on a federal level. ## Student Debt Repayment Example You may be inclined to pay down student debt as soon as possible, but there are situations when putting your money to other uses may be a better financial move. For example, you may want to put your money toward saving for a [down payment](https://www.investopedia.com/terms/d/down_payment.asp) on a house to begin building a real estate asset. Alternatively, you may invest it to try to achieve greater returns than the interest you’re paying on your student loan. ### Introduced in 2023, the [Saving on a Valuable Education (SAVE) Plan](https://www.investopedia.com/saving-on-a-valuable-education-plan-7559022) lowers borrower monthly payments to 5% of discretionary income for undergraduate school loans from the 10% required for other income-driven plans. Additionally, individuals with incomes of up to 225% of the federal poverty limit based on family size can qualify for a $0 monthly payment on their student loans. Consider this example of how repayment through the SAVE program could work, and how payments would compare to a standard 10-year repayment plan: Imagine you have $25,000 in undergraduate student loans, an interest rate of 5%, and an annual income of $38,000. With the SAVE plan, the monthly payment would be $43 for 20 years, after which the remaining loan balances would be forgiven.  Provided your income and monthly payment didn't change, you would pay $10,320 in total toward your loan over 20 years (240 months). At that point, the remaining loan balances would be forgiven, although you may owe [income taxes on forgiven amounts](https://www.investopedia.com/student-loans-and-your-taxes-5323794). In contrast, paying off the same loan with the same interest rate on the standard 10-year repayment plan would result in a $256.16 monthly payment over that timeline. You would pay a total of $31,820 toward your student loans over 120 months, which includes interest. ## How Does the Loan Amount Affect the Time It Takes to Pay off Student Debt? The amount of student debt can impact your monthly payment on various repayment plans. Many borrowers with high loan amounts opt for repayment plans with longer terms to secure a lower monthly payment on their student loans. ## What Are the Different Federal Student Loan Repayment Options? Federal student loans come with several repayment options, including the standard 10-year repayment, extended repayment, graduated repayment, and income-driven repayment plans. ## What Strategies Can You Use to Accelerate Student Debt Repayment? Borrowers who want to get out of student loan debt faster have several strategies at their disposal. They can choose a shorter repayment plan for their loans to begin with, pay more than the minimum each month, or refinance their student loans to switch up their repayment term. Use a [student loan repayment calculator](https://www.investopedia.com/loan-calculator-5104934) to estimate your savings with different strategies. ## The Bottom Line How long it takes to pay off student loan debt will vary based on how much debt you owe, your interest rate, and the repayment plan. This means you have a lot of control over how long it takes to get out of debt, although you will be limited by your income and budget. Some borrowers will be better off paying down student loans as fast as possible, whereas others will benefit more from an IDR plan with a more affordable monthly payment. Consider all your options for paying down debt so you can pay off student loans on a timeline that works for you.

For the most part, how long it takes to pay off student loan debt depends on the type of loans you have and the repayment plan you choose. Other factors like the loan amount and interest rate can also play a role in your timeline for getting out of debt. While federal student loans feature repayment plans that last from 10 to 30 years, repayment options for private student loans vary widely. Read on to learn how long it typically takes to get rid of student debt, your repayment plan options, and how to get out of student debt faster. Key Takeaways How long it takes to pay off student debt depends on the repayment plan you choose as well as the interest rate, size of the loan, and your budget.On average, people with student loans have spent just over 21 years paying back their loans.Federal student loans offer repayment plans that last from 10 to 30 years. Private student loan repayment terms vary. Average Time to Pay Off Student Loans Federal student loan terms can range from 10 to 30 years, but they default to a standard 10-year repayment plan if you don’t choose another option. The standard 10-year repayment plan can result in higher monthly payments on student loans, so many borrowers choose repayment options with longer terms. The average borrower with student loans spent 21.1 years paying them back, according to a study from One Wisconsin Institute. When you choose a longer student loan repayment period, you will owe more in total interest over the long term. Factors Affecting the Time to Pay Off Student Debt Many factors can play a role in how long it takes to get out of student loan debt, including the length of your repayment plan, your loan amount, interest rates, and your income. Let’s look in more detail at how these factors affect how long it takes for you to pay off your student loan. Repayment Plan A major determinant of how long it takes to pay off student loans is the type of payment plan you choose. For federal student loans, repayment options start at 10 years and can be as long as 30 years. For private student loans, repayment terms vary depending on the lender’s policies and offerings. Loan Amounts How much student loan debt you have can also impact how long it takes you to get out of debt, depending on how much you can afford. After all, if you carry higher loan amounts with higher monthly payments, you will have less spending money. If you are on a tight budget, you may not be able to make extra payments to pay off your loan sooner. Interest Rates Interest rates also increase the total cost of your loan and the amount of your monthly payments. So a loan with a higher interest rate can take you longer to pay off, depending on your income and budget. In recent years, interest rates have been on the rise for student loans. For federal student loans disbursed on or after July 1, 2023, and before July 1, 2024, the rates were: Direct Subsidized Loans and Direct Unsubsidized Loans: 5.50%Direct Unsubsidized Loans: 7.05%Direct PLUS Loans: 8.05% Income If you have a high income, you are more likely to have more spending money in your budget that can allow you to make extra payments toward your loan. Paying more toward your principal than the minimum amount will reduce both the amount of total interest you owe and the total time it takes to repay a loan. Student loans, whether they are federal or private, do not have prepayment penalties. You can make extra payments or pay off your loan in full at any time without charge. Federal Student Loan Repayment Options Standard 10-Year Repayment The standard 10-year repayment plan for federal student loans has a fixed interest rate and a fixed monthly payment. This repayment option for federal student loans is the default option unless you choose a different plan. Graduated Repayment Plan A graduated repayment plan typically lasts for 10 years (or up to 30 years for consolidation loans), and it starts monthly payments off lower at first. From there, monthly payments increase incrementally, usually every two years. Extended Repayment Plan The extended repayment plan lasts for 25 years and can have fixed payments or graduated payments that increase over time. You must have more than $30,000 in outstanding direct loans or Federal Family Education Loans (FFEL) loans to qualify. Income-Driven Repayment Plans You can also choose among several types of income-driven repayment (IDR) plans if you have federal student loans. These plans have you pay a percentage of your discretionary income for a set period of time, after which any remaining loan balances are forgiven. IDR plans base monthly payments on factors like income and family size, so payments can be more affordable. The chart below shows how monthly payments work with each type of income-driven repayment option. Monthly Payment Formula Repayment Term Saving on a Valuable Education (SAVE) Plan—formerly the REPAYE Plan 5% and 10% of discretionary income for undergraduate and graduate loans, respectively 20 to 25 years (or 10 years for eligible individuals who borrowed $12,000 or less) Pay As You Earn (PAYE) Repayment Plan 10% of discretionary income 20 years Income-Based Repayment (IBR) Plan 10% of discretionary income (for individuals who first borrowed after July 1, 2014); 15% of discretionary income (for individuals who first borrowed before July 1, 2014) 20 years Income-Contingent Repayment (ICR) Plan 20% of discretionary income 25 years Private Student Loan Repayment Options Private student loan lenders set interest rates and repayment plans independently. This means your repayment term with a private student loan company depends on what they offer and which option you select. That said, it's common to find private student loans with repayment terms of up to 15 years or more. Because many borrowers refinance their loans with a private lender to get out of debt as soon as possible, however, you can also find private student loans with terms as short as five years. Strategies to Accelerate Student Debt Repayment If you want to pay off student debt faster, you can consider using one or more of several strategies: Be choosy with your repayment plan: The first step to getting out of student debt faster is selecting a repayment plan that fits your budget and goals. You may want to choose a shorter repayment plan if you can afford the larger monthly payments. Pay more than the minimum: Paying more than the minimum payments will reduce the total amount of interest you owe and shorten the time it takes to repay a loan. However, depending on the savings you can achieve, you may want to avoid paying more than the minimum on IDR plans since these plans forgive remaining loan balances after 20 to 25 years. Refinance your student loans: Refinancing your student loans with a new loan with a shorter repayment term and a monthly payment can save you money. Just remember that refinancing federal student loans with a private lender means losing out on federal protections like deferment and forbearance as well as future access to IDR plans and any student loan forgiveness offered on a federal level. Student Debt Repayment Example You may be inclined to pay down student debt as soon as possible, but there are situations when putting your money to other uses may be a better financial move. For example, you may want to put your money toward saving for a down payment on a house to begin building a real estate asset. Alternatively, you may invest it to try to achieve greater returns than the interest you’re paying on your student loan. Introduced in 2023, the Saving on a Valuable Education (SAVE) Plan lowers borrower monthly payments to 5% of discretionary income for undergraduate school loans from the 10% required for other income-driven plans. Additionally, individuals with incomes of up to 225% of the federal poverty limit based on family size can qualify for a $0 monthly payment on their student loans. Consider this example of how repayment through the SAVE program could work, and how payments would compare to a standard 10-year repayment plan: Imagine you have $25,000 in undergraduate student loans, an interest rate of 5%, and an annual income of $38,000. With the SAVE plan, the monthly payment would be $43 for 20 years, after which the remaining loan balances would be forgiven.  Provided your income and monthly payment didn't change, you would pay $10,320 in total toward your loan over 20 years (240 months). At that point, the remaining loan balances would be forgiven, although you may owe income taxes on forgiven amounts. In contrast, paying off the same loan with the same interest rate on the standard 10-year repayment plan would result in a $256.16 monthly payment over that timeline. You would pay a total of $31,820 toward your student loans over 120 months, which includes interest. How Does the Loan Amount Affect the Time It Takes to Pay off Student Debt? The amount of student debt can impact your monthly payment on various repayment plans. Many borrowers with high loan amounts opt for repayment plans with longer terms to secure a lower monthly payment on their student loans. What Are the Different Federal Student Loan Repayment Options? Federal student loans come with several repayment options, including the standard 10-year repayment, extended repayment, graduated repayment, and income-driven repayment plans. What Strategies Can You Use to Accelerate Student Debt Repayment? Borrowers who want to get out of student loan debt faster have several strategies at their disposal. They can choose a shorter repayment plan for their loans to begin with, pay more than the minimum each month, or refinance their student loans to switch up their repayment term. Use a student loan repayment calculator to estimate your savings with different strategies. The Bottom Line How long it takes to pay off student loan debt will vary based on how much debt you owe, your interest rate, and the repayment plan. This means you have a lot of control over how long it takes to get out of debt, although you will be limited by your income and budget. Some borrowers will be better off paying down student loans as fast as possible, whereas others will benefit more from an IDR plan with a more affordable monthly payment. Consider all your options for paying down debt so you can pay off student loans on a timeline that works for you.